Interpretive Opinion No. 71 / 16F

State of California Department of Corporations

Anthony R. Pierno, Commissioner
In reply refer to: File No. _____

This interpretive opinion is issued by the Commissioner of Corporations pursuant to section 31510 of the franchise investment law. It is applicable only to the transaction identified in the request therefor, and may not be relied upon in connection with any other transaction.

Mr. William M. Sarnoff
Attorney at Law
6404 Wilshire Boulevard
Los Angeles, CA 90048

Dear Mr. Sarnoff:

The request for an interpretive opinion contained in your letter dated February 12, 1971, as supplemented by your letters dated February 18, 1971 and March 4, 1971, has been considered by the Commissioner. Your letters raise the question whether the agreements between Melvin Blons, dba Merchant sampler Advertising, a California corporation ("Sampler" ), and the so-called operators as described therein, are franchises within the meaning of Section 31005 and subject to the provisions of the Franchise Investment Law. Based on the assumptions stated below, this question is answered in the negative.

You have represented that Sampler sells, promotes and distributes "Merchant Sampler coupon books" pursuant to a technique and system developed by it under which retail merchants establish good will and obtain new customers by giving away free goods and services through coupons printed in booklet form.. The booklets contain gift certificates varying in total value from $75 to $100. They are sold to residents of a particular community for a nominal price, perhaps $13 or $14.

You have further represented that Sampler will train and assist operators in starting their business and render to them certain supplemental services specified in the form of agreement attached to your letters. On the execution of the agreement and its acceptance by Sampler, the operator pays Sampler $4,500. He pays an additional $4,500 when he commences business. The operator will also pay Sampler $1 per book sold and distributed in excess of 800 books per "operation".

Section 31005 of the Franchise Investment Law defines "franchise" to include an agreement, either oral or written, between two or more persons by which a franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor, the operation of the franchisee's business is associated with the franchisor's trademark, service mark, tradename, logotype, advertising or other commercial Symbol designating the franchisor, and the franchisee is required to pay a franchise fee.

In answer to our specific inquiry whether the operator in may use any trademark, service mark, logotype, advertising or any commercial symbol associated with Melvin Blons or Merchant Sampler advertising, you have stated in your letter dated March 4, 1971 that there will be a prohibition against such use. We note that Section 2.11 of the form of the proposed agreement restricts the use of the name "Merchant Sampler Advertising" and prohibits the use of that name. We assume that the operators will adhere to these prohibitions and that the operator's business will in no way be associated with a trademark, service mark, tradename, logotype, advertising or other commercial symbol designating Melvin Blons, Merchant Sampler or Merchant Sampler Advertising.

Based on these assumptions, we are of the opinion that the agreements described by you, as reflected above are not franchises within the definition of Section 31005 and consequently are not subject to the provisions of the Franchise Investment Law.

Dated: San Francisco, California
March 18, 1971

By order of
ANTHONY R. PIERNO
Commissioner of Corporations

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HANS A. MATTES
Assistant Commissioner
Office of Policy