Interpretive Opinion No. 71 / 20F

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. Charles R. Fredericksen
Attorney at Law
1900 First National Bank Building
Denver, CO 80202

Dear Mr. Fredericksen:

The request for an interpretive opinion contained in your letter dated March 5, l971, has been considered by the Commissioner. Your letter raises the question whether the agreements entitled "Wholesale Purchase Agreements", between Educational Motivation Systems, Inc., a Colorado corporation ( "Educational" ) and the individuals referred to in the agreement as "wholesalers", are "franchises" within the definition of Section 31005, and subject to the provisions of the Franchise Investment Law. This question is answered in the negative.

You have represented that Educational produces and manufactures education and motivation courses in the form of cassette tapes and printed materials, apparently copyrighted. and trademarked, which have a wholesale price of $199 and a suggested retail price of $399. Educational proposes to market these courses through individuals who market similar courses for other companies. These individuals pay a one-time charge, apparently in the amount of $1,000, for the continuing right to purchase the courses, according to the agreement, at the bona fide wholesale price.

You have represented, and the form of agreement submitted to us provides, that Educational prescribes no marketing plan or system for the wholesaler, imposes no quota on purchases, and permits the wholesaler to resell the courses however and whenever he so desires. We assume this representation and agreement will in fact govern the relationship between Educational and the wholesalers and that no marketing plan or system will be introduced into this relationship expressly or impliedly by practice or acquiescence.

The form of agreement further provides that the wholesaler is an independent contractor at his own risk and shall not operate his business so as to associate it, directly or indirectly, with Educational.

Section 31005 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 is commercial symbol, such as its trade name, and the franchisee is required to pay a franchise fee.

As stated above, based on your representations we assume the complete absence of a marketing plan or system prescribed by Educational for wholesalers. Predicated specifically on this assumption, we are of the opinion that the agreements described by you, as reflected above, are not "franchises" within the definition of Section 31005, and are not subject to the provisions of the Franchise Investment Law.

Dated: San Francisco California
March 25, 1971

By order of
ANTHONY R. PIERNO
Commissioner of Corporations

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HANS A. MATTES
Assistant Commissioner
Office of Policy