Interpretive Opinion No. 71 / 30F

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. Frederickson
Attorney at Law
Dawson, Nagel, Sherman & Howard
1900 First National Banking Building
Denver, CO 80202

Dear Mr. Frederickson:

The request for an interpretive opinion, contained in your letter dated April 19, 1971, has been considered by the Commissioner. Your letter raises the question whether the agreements, entitled "Wholesale Merchandise Distribution Agreements", between International Motivation Systems, Inc. , a Colorado corporation ("International" ) , and the individuals referred to in the agreements as "M.D.'s", 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 International produces and manufactures educational programs in the areas of motivation, management training, sales training, and personal improvement in the form of cassette tapes and printed materials, apparently copyrighted and trademarked, which have wholesale prices of between $150 arid $200 a program. Each program has a suggested resale price, but the M.D. is in no way bound to same. International proposes to market these programs to individuals who will pay a one-time charge, ranging between $4,000 and $5,000, for the continuing right to purchase the programs at the bona fide wholesale price. Included in this one-time charge is approximately $2,000 representing the retail value of the demonstration materials of the M.D.'s, and another approximately $2,000 constituting the cost of the initial inventory at the wholesale price.

You have represented, and the form of agreement submitted to us provides, that International prescribes no marketing plan or system for the M.D., imposes no quota on purchases, and permits the M.D. to resell the program however, wherever, whenever, and to whomever he so desires. We have not been presented with facts sufficient for us to make an independent determination that International does not prescribe a marketing plan or system. However, we shall assume that this representation is factually correct and will, in fact govern the relationship between International and the M.D.' s, 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 M.D. is an independent contractor at his own risk and shall not operate his business so as to associate, directly or indirectly, with International.

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's 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 International for the M.D.'s, 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
June 1, 1971

By order of
Commissioner of Corporations

Assistant Commissioner
Office of Policy