[Federal Register Volume 63, Number 225 (Monday, November 23, 1998)]
[Rules and Regulations]
[Pages 64616-64617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31203]


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FEDERAL TRADE COMMISSION

16 CFR Part 436


Disclosure Requirements and Prohibitions Concerning Franchising 
and Business Opportunity Ventures

AGENCY: Federal Trade Commission.

ACTION: Grant of petition for exemption.

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SUMMARY: On April 16, 1998, the Commission published a notice in the 
Federal Register soliciting comments on a petition filed by Navistar 
International Transportation Corporation. The Commission now grants the 
petition and determines that the provisions of 16 CFR Part 436 shall 
not apply to the advertising, offering, licensing, contracting, sale or 
other promotion of truck dealerships by Navistar International 
Transportation Corporation.

EFFECTIVE DATE: November 23, 1998.

FOR FURTHER INFORMATION CONTACT:
Myra Howard, Attorney, PC-H-238, Federal Trade Commission, Washington, 
D.C. 20580, (202) 326-2047.

SUPPLEMENTARY INFORMATION: 

Before the Federal Trade Commission

Order Granting Exemption In the Matter of a Petition for Exemption from 
the Trade Regulation. Rule Entitled ``Disclosure Requirements and 
Prohibitions Concerning Franchising and Business Opportunity Ventures'' 
Filed by Navistar International Transportation Corporation.
    On April 16, 1998, the Commission published a notice in the Federal 
Register soliciting comments on a petition filed by Navistar 
International Transportation Corporation (``Navistar''). Navistar 
manufactures heavy-duty and medium-duty trucks, truck parts, and 
military tractors, and enters into distributorship agreements with 
businesspeople throughout the United States to sell and service 
Navistar's trucks and parts. The petition sought an exemption, pursuant 
to Section 18(g) of the Federal Trade Commission Act, from coverage 
under the Commission's Trade Regulation Rule entitled ``Disclosure 
Requirements and Prohibitions Concerning Franchising and Business 
Opportunity Ventures'' (``Franchise Rule'').
    In accordance with Section 18(g), the Commission conducted an 
exemption proceeding under Section 553 of the Administrative Procedure 
Act, 5 U.S.C. Sec. 553, and invited public comment during a 60-day 
period ending June 15, 1998. No comments were received. After reviewing 
the petition, the Commission has concluded that the Petitioner's 
request should be granted.
    The statutory standard for exemption requires the Commission to 
determine whether application of the Trade Regulation Rule to the 
person or class of persons seeking exemption is ``necessary to prevent 
the unfair or deceptive act or practice to which the rule relates.'' If 
not, an exemption is warranted.
    The abuses that the disclosure remedy of the Franchise Rule is 
designed to prevent are most likely to occur, as the Statement of Basis 
and Purpose of the Rule notes, in sales where three factors are 
present:
    (1) A potential investor has a relative lack of business experience 
and sophistication;
    (2) The investor has inadequate time to review and comprehend the 
unique and often complex terms of the franchise agreement before making 
a major financial commitment; and
    (3) A significant information imbalance exists in which the 
prospective franchisee is unable to obtain essential and relevant facts 
known to the franchisor about the investment.
    The pre-sale disclosures required by the Franchise Rule are 
designed to negate the effect of any deceptive acts or practices where 
these conditions are present. The Rule requires franchisors to provide 
investors with the material information they need to make an informed 
investment decision in circumstances where they might otherwise lack 
the resources, knowledge, or ability to obtain the information, and 
thus protect themselves from deception.
    Where the conditions that create a potential for deception in the 
sale of franchises are not present, however, a regulatory remedy 
designed to prevent deception is unnecessary. Our review of the record 
in this proceeding persuades us that an exemption is warranted for that 
reason. The Petitioner has convincingly shown that the conditions that 
create a potential for a pattern or practice of abuse are absent; thus, 
there is no likelihood of unfair or deceptive acts or practices in the 
appointment of its truck dealership franchises.
    The petition demonstrates that potential Navistar dealers are and 
will continue to be a select group of highly sophisticated and 
experienced businesspeople; that they make very significant 
investments; and that they have more than adequate time to consider the 
dealership offer and obtain information about it before investing. We 
not in particular that Navistar has only about 450 dealers; that 
prospective Navistar dealers usually have years of experience in truck 
or other heavy duty equipment sales; that investment costs for Navistar 
dealerships are approximately $1 million; and that prospective dealers 
participate in an extensive application and approval process, lasting 
anywhere from four months to a year, during which time a good deal of 
information is exchanged between the parties.
    As a practical matter, investments of this size and scope typically 
involve knowledgeable investors, the use of independent business and 
legal advisors, and an extended period of negotiation that generates 
the exchange of information necessary to ensure that investment 
decisions are the product of an informed assessment of the potential 
risks and benefits. The Commission has reviewed the potential for 
unfair or deceptive acts or practices in connection with the licensing 
of motor vehicle dealership franchises on eight prior occasions since 
1980, and found no evidence or likelihood of a significant pattern or 
practice of abuse by any of the Petitioners. If any such evidence 
exists, it has not yet been brought to the Commission's attention in 
this or any of the prior proceedings.
    Thus, both the record in this proceeding and all prior experience 
to date with other Franchise Rule exemptions for automobile dealerships 
support the conclusion that Petitioner's licensing of new truck dealers 
accomplishes what the Rule was intended to ensure. The conditions most 
likely to lead to abuses are not present in the licensing of Navistar 
dealerships, and the process generates sufficient information to ensure 
that applicants will be able to make an informed investment decision. 
For these reasons, the Commission finds that the application of the 
Franchise Rule to Petitioner's licensing of truck dealer

[[Page 64617]]

franchises is not necessary to prevent the unfair or deceptive acts or 
practices to which the Rule relates.
    Accordingly, the Commission has determined that the provisions of 
16 CFR Part 436 shall not apply to the advertising, offering, 
licensing, contracting, sale or other promotion of truck dealerships by 
Navistar International Transportation Corporation.
    It is so ordered.

    By the Commission.

    Issued: November 10, 1998.

List of Subjects in 16 CFR Part 436

    Trade practices and franchising.
Donald S. Clark,
Secretary.
[FR Doc. 98-31203 Filed 11-20-98; 8:45 am]
BILLING CODE 6750-01-M