Interpretive Opinion No. 71 / 63F

State of California Department of Corporations

Brian R. Van Camp, 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. Lynn N. Takagaki
Attorney at Law
Suite 206-207, S. K. Uyeda Bldg.
312 East First Street
Los Angeles, CA 90012

Dear Mr. Takagaki:

Your letter dated November 23, 1971, requesting exemption from certain provisions of the Franchise Investment Law, has been considered by the Commissioner. Your letter raises the question whether the arrangements between Kawai Piano (America) Corporation, a California corporation ("Kawai") , and persons referred to by you and hereinbelow as. "dealers" call for payment of a "franchise fee" within the definition of Section 31011 of the Franchise Investment Law. Based upon the assumptions stated below, we concur in your opinion t:hat this question is to be answered in the negative, and that for that reason, the arrangements in question do not constitute franchises within the definition of Section 31005 and are not subject to the provisions of the Franchise Investment Law.

You have represented that Kawai is wholly owned subsidiary of Kawai Piano Musical Instruments Co. Ltd. of Hamamatsu, Japan, which is engaged in the manufacture and world-wide distribution of Kawai pianos and other musical instruments. Kawai since 1963, has been in the business of importing and distributing Kawai products in the United States through independent retail dealers. At the present time, it has approximately 300 such dealers throughout the United States, including 22 in California, who purchase Kawai products for resale to retail purchasers, and are referred to by it as "franchised dealers".

Kawai requires the dealers to purchase from its musical instruments, including an initial inventory based upon the size of the retail operation, location, population, and other factors bearing on possible sales. In addition, Kawai requires that the dealers purchase from it Kawai parts for warranty service. The dealers are free to purchase parts and accessories from other sources except as above stated. Kawai does not extend financial loans to dealers, nor does it require them to pay for services, supplies, products, fixtures, or other goods relating to the establishment of a dealership, except for such brochures and promotional material as the dealers elect to purchase.

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 trade name or trademark, 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 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 Ru1e 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 to the bona fide wholesale price computed on an annual basis does not exceed $100.

You have represented that the price charged by Kawai for the goods which the dealers are required to purchase from it, is their bona fide wholesale price, and that no other franchise fee, or other fee, royalty, commission or any other payment is charged directly or indirectly, to dealers by Kawai or on behalf of any third party.

Assuming that the price paid by the dealers for Kawai products is in fact the bona fide Wholesale price of these goods, and further assuming that the dealers are not required to purchase brochures, advertising material or other similar items which are not considered "goods" within the meaning of Section 31011(a); it is our opinion that, under the circumstances described by you as outlined above, the arrangement between Kawai and the dealers 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
December 30, 1971

By order of
BRIAN R. VAN CAMP
Commissioner of Corporations

By __________________
HANS A. MATTES
Assistant Commissioner
Office of Policy