Commissioner's Opinion No. 73 / 18F

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. Thomas A. Branson
Attorney at Law
Gallingan, Thrasher, Branson &
Fitzgerald
500 Allerton Street
Redwood City, CA 94063

Dear Mr. Branson:

The request for an interpretive opinion contained in your letter dated February 7, 1973, asking for reconsideration of the views expressed in Policy Letter 14F, has been considered by the Commissioner. Your letter raises the question whether the agreements between Filmland Corporation, a California corporation ("Filmland" ) , and persons referred therein and hereinbelow as "distributors", under the circumstances described in your letter, are franchises within the definition of Section 31005 and subject to the provisions of the Franchise Investment Law. On the assumption stated below, this question is answered in the negative.

You have represented that Filmland has revised the agreement described in Policy Letter 14F. Under the new agreement, Filmland sells camera supplies, including Eastman Kodak film, Sylvania flash bulbs and Polaroid accessories, as well as other products such as vacuum bags, spray paints, sunglasses, pantyhose, and flashlights to distributors who maintain sales racks in retail outlets. Under the new agreement, distributors are responsible for placing their products on consignment with the retail store owner whereas, in the earlier agreement, the consignment was between the consignee and Filmland. Moreover, distributors now obtain their own locations, and no location charge is paid. If the distributor expressly requests that Finland find a location, he will be obligated to pay Filmland a fee for their services. Distributors agree to attend an initial training program without cost to them and, we assume, they will receive operational and training manuals similar to that enclosed with the letter from Henry O. Lienhard, dated February 18, 1971.

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 is substantially associated with a commercial symbol, such as, a trade name or trademark of the franchisor or its affiliate and the franchisee is required to pay a franchise fee.

The Commissioner has expressed the opinion that for the operation of the franchisee's business to be substantially associated with the commercial symbol, such symbol must be communicated to the customers of the franchisee. A trademark which a supplier of goods only uses in his invoices or in his advertising to his distributors but which he does not permit his distributors to show in dealings with their customers is not in the eyes of the public substantially associated with the operation of the supplier (Dept. of Corp. Release No. 3-F, p. 6).

In this connection, you have represented that Filmland has removed from all "point of sale" paraphernalia any references to Filmland. Assuming the display racks used by distributors no longer contain any Filmland commercial symbol, including signs, fliers and envelopes, it is our opinion that the agreements between Filmland and distributors are not "franchises" within the meaning of Section 31005 and subject to the provisions of the Franchise Investment Law. In addition, we conclude that the commercial symbols of Eastman Kodak, Sylvania and Polaroid and any other commercial symbols of manufacturers whose products are displayed on racks are not the commercial symbols of an "affiliate" of Filmland as that term is used in Section 31005.

Since we have concluded that the operation of distributor's business is not associated with Filmland's commercial symbol, we express no opinion as to whether the agreements call for the payment of a "franchise fee" within the meaning of Section 31011 of the Law or whether a marketing plan or system is prescribed in substantial part by Filmland.

Dated: San Francisco, California
May 2, 1973

By order of
BRIAN R. VAN CAMP
Commissioner of Corporations

By __________________
J. DOMINIQUE OLCOMENDY
Supervising Corporations Counsel
Office of Policy