News Briefs

Before the change, Virginia's franchise registration forms referred to “grants” of franchises; in contrast, the FTC and the North American Securities Administrator's Association, Inc., use the term “sale.” A “sale” in Virginia is now defined as “including every contract or agreement of sale or grant of, contract to sell, or disposition of a franchise or interest in a franchise for value.”

Maryland Considers Price-Minimum Bill

Maryland's legislature is considering a bill that would prohibit manufacturers and resellers from instilling price minimums for resale of products, therefore blunting the impact of the 2007 U.S. Supreme Court decision Leegin Creative Leather Products, Inc. v. PSKS, Inc. , 551 U.S. 877 (2007). The Leegin decision ruled that minimum vertical price fixing is not per se illegal, which gives manufacturers and resellers some avenues to set price minimums.

Franchise attorneys could not identify situations in which franchisors had yet adopted price minimums since Leegin, but they noted that franchisors are reviewing price minimums as one strategy to halt harmful intra-franchise price wars that occasionally occur.

The proposed Maryland Antitrust Act (HB 657 and SB 239) states that “a contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service is an unreasonable restraint of trade.”

“The effect of this bill would be to make 'resale price maintenance' per se unlawful in Maryland,” said David Cahn, partner with Baltimore-based Franchise & Business Law Group. “The wording is identical to a bill that was introduced into the U.S. Senate last year, but died.”

The Maryland State Bar Association, Business Law Section Council drafted a letter to oppose the bill, said Cahn. “The opposition is purely on economic-development grounds,” said Cahn. “The Council is not taking a stance on the merits of Leegin, but we are saying that this is not a good year to pass any legislation that would put Maryland at a disadvantage in attracting businesses.”

Presently, Maryland forbids resale price maintenance arrangements for gasoline stations, indicative of its general preference for competition that reduces prices for consumers.

In Leegin, the Supreme Court ruled that price maintenance programs that do not stifle competition could be allowed if competition is not thwarted. In the franchise context, Leegin potentially gives trademark owners greater power to protect their brands with price minimums. However, attorneys general will still be watching to make sure that antitrust laws that prohibit intrabrand price fixing and “horizontal cartels” are not violated.

“Since Leegin, we have generally changed our clients' FDDs to state that, to the extent permitted by law, the franchisor can require the franchisee to sell at a price minimum,” said Cahn. “This is different than in the past, when the law proscribed price minimums, and franchise contracts would expressly disclaim price minimums. But I can't give an example of when a price minimum has been imposed.”

Super 8 Franchisees Claim Victory

During the annual convention for Super 8 and Days Inn franchisees in February, franchisor Wyndham Hotel Group (“WHG”) announced that it will halt a program that automatically enrolled guests at Super 8 motels in Wyndham's frequent-visitor program.

For more than two years, Super 8 owners have opposed their inclusion in the program, known as Wyndham Rewards, because they did not feel it was providing marketing benefits commensurate with the 5% fee that the franchisor collected on each room visit by a Wyndham Rewards guest. Super 8 owners argued that they were not likely to benefit from a program aimed at the more upscale guests of other Wyndham properties, and that the fee was excessive and imposed even when guests did not know they were participating in Wyndham Rewards.

“As franchisees, most of us are in favor of a frequent-stay program that works in a positive manner and generates revenue for the franchisees,” said Jay Patel, interim president of the independent franchisee association O8A Group. “In simple terms, WHG had created many members in Wyndham Rewards who simply were unaware of membership in the program; and, to make matters more complex, they were collecting the 5% fees that are being charged to the individual franchisees.”

VA Passes Bill to Harmonize State Franchise Language With Federal Rules

The Virginia General Assembly passed the Virginia Retail Franchise Act on Feb. 27, eliminating any confusion that could have arisen for franchisors in Virginia due to the state using different terminology on registration forms than that used by other states and by the Federal Trade Commission (“FTC”). Because the bill was deemed emergency legislation, it took effect on Feb. 27 after both the House speaker and Senate president signed the bill.

Before the change, Virginia's franchise registration forms referred to “grants” of franchises; in contrast, the FTC and the North American Securities Administrator's Association, Inc., use the term “sale.” A “sale” in Virginia is now defined as “including every contract or agreement of sale or grant of, contract to sell, or disposition of a franchise or interest in a franchise for value.”