Interpretive Opinion No. 71 / 23F
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. H. R. Moon
Manager of Marketing
1200 Greenleaf Avenue
Elk Grove Village, IL 60007
Dear Mr. Moon:
The request for an expression of our opinion, contained in your letter of February 16, 1971, has been considered by the Commissioner. In this letter, you have raised the question whether your agreements with independent distributors located within the State of California and with persons who operate equipment manufactured by you in their laundry and dry cleaning businesses are franchises within the definition of Section 31005 and subject to the provisions of the California Franchise Investment Law. On the assumption stated below, this question is answered in the negative.
You have represented that you sell commercial laundry and dry cleaning equipment to independent distributors located within the State of California for resale, and that no fees are charged by you in connection with this sale. You have further represented that the independent distributors sell the equipment purchased from you to persons who operate the same in their laundry and dry cleaning businesses. If such an operator desires to utilize your trademark NORGETOWN, he enters into a licensing agreement with you. By this agreement, you grant to him the right to use the trademark provided he maintains his store in accordance with certain standards. Again, you have represented that no fees are involved in this licensing agreement.
A "franchise", which is subject to the registration requirement and other provisions of the California Franchise Investment Law, is defined in Section 31005 of that Law to mean a contract or agreement, either expressed or implied, whether 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 trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and the franchisee is required to pay, directly or indirectly, a franchise fee. "Franchise fee" is defined in Section 31011 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 payment for goods and services, but not including the purchase or agreement to purchase goods at. a bona fide wholesale price. Rule 011 adopted by the Commissioner exempts from the registration requirement of Section 31110 of the Law, the offer or sale of a franchise. which would be subject to registration solely because of the purchase or agreement to purchase goods at a price other than at a bona fide wholesale price if the total payment which is in excess of the bona fide wholesale price computed on an annual basis does not exceed the sum of $100.
You have represented that no fees are involved in your agreements with either the independent distributors or the operators of January and dry cleaning businesses using your equipment. Therefore assuming that the, price paid by the independent distributors for your equipment does not exceed the bona fide wholesale price of such equipment, it is our conclusion that neither the independent distributors nor the operators are required to pay a franchise feet, and that, consequently, your agreements with these persons are not franchises within the definition of Section 31005, and are not subject to the provisions of the California Franchise Investment Law.
In accordance with your request, we attach here to a booklet containing the Franchise Investment Law and related rules We express no opinion concerning the question (which has not been raised by you) whether agreements or arrangements between the independent distributors and operators of the laundry and dry cleaning businesses are in the nature of franchises subject to the provisions of the Franchise Investment Law.
Dated: San Francisco California
March 29, 1971
By order of
ANTHONY R. PIERNO
Commissioner of Corporations
HANS A. MATTES
Office of Policy