Interpretive Opinion No. 71 / 18F

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. Merle L. Silverstein
Rosenblum and Goldenhersh
230 So. Bemiston
Clayton, MO 63105

Dear Mr. Silverstein:

The request for an interpretive opinion contained in your letter. dated February 24, 1971, has been considered by the Commissioner. Your letter raises the question whether the contracts described therein between Commander Board International, Inc., a Missouri corporation ("Commander"), and its distributors are. franchises within the definition and subject to the provisions of the Franchise Investment Law. On the assumption which will be stated below, we are of the opinion that this question must be answered in the negative.

You have represented that Commander manufactures and sells portable, changeable signs designed for small commercial establishments. Sales are made primarily through distributors in the continental United States, including California. Each distributor normally enters into a written contract with Commander under which he agrees to buy a certain minimum amount of merchandise from Commander in consideration for which Commander agrees not to sell to another distributor in the specified area. You have represented that Commander's sales to distributors are "strictly at wholesale prices which are uniform except for discounts allowed in the case of large quantities".

You have further represented that Commander does not charge franchise fees, royalties, or advertising fee, and makes no charges in excess of bona fide wholesale prices, that it does not require distributors to use its trademarks, name, or logo, does not restrict their handling of other products or the territory in which they may sell Commander's products, and does not control retail prices.

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 a franchisor, the operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's commercial symbol, such as its trademark, tradename or logo, and the franchisee is required to pay a franchise fee. Section 31011 defines. "franchise fee" to mean any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any such payment for goods and services. The purchase or agreement to purchase goods at a bona fide wholesale price is not considered the payment of a "franchise fee" pursuant to Section 31011 (a) and Rule 011 of the Commissioner exempts from the registration requirement of Section 31110 of the Law, any offer or sale of a franchise which would be subject to registration solely because the franchisee purchases or agrees to purchase goods at a price other than the bona fide wholesale price, if the total payment in excess of the bona fide wholesale price computed on an annual basis does not exceed $100.

We understand you to represent that the distributors are not required to pay a franchise fee, and that the sale of goods by Commander to them is at bona fide wholesale prices. On this assumption, we are of the opinion that the contracts 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.

If the distributors pay Commander for its goods a price in excess of the bona fide wholesale price, and if Commander, moreover, has a trademark, trade name, or logo which the distributors may use in connection with their business, the contracts in question would be franchises within the definition of Section 31005 and subject to the provisions of the Franchise Investment Law That the distributors are not required to use the symbol, in our opinion, would be immaterial.

Dated: San Francisco, California
March 26, 1971

By order of
Commissioner of Corporations

Assistant Commissioner
Office of Policy