Excuses, Excuses: FTC's Top Franchise Enforcer Has Heard It All

Steven Toporoff is the Franchise Program Coordinator at the Federal Trade Commission (FTC), and one of the key people working on Franchise Rule enforcement. At the International Franchise Association (IFA) Legal Symposium in May 2003, Mr. Toporoff provided an update on federal regulatory developments and shared insights about how franchise enforcers go about their work. He also compiled the following list of excuses that he and fellow examiners hear from franchisors and their legal representatives. As Mr. Toporoff observed, “franchise attorneys should know better.”

10. I'm not a franchisor, I'm offering a business opportunity. “This statement is a huge red flag for us,” said Toporoff, adding that since most FTC enforcement actions under the Franchise Rule are taken against “business opportunity” providers, claiming to be a business opportunity hardly provides any excuse.

9. I'm not a franchisor, I'm a licensor. “Call it whatever you want, if a business arrangement meets the definition of a 'franchise,' it is covered by the Rule,” Toporoff said.

8. I don't charge an upfront fee. “The Rule doesn't require an upfront fee, only a required payment. If you are selling something to your franchisees and requiring that they purchase from you,” he said, “the business will be covered.”

7. I don't own the trademark. “But you own the right to use the trademark,” Toporoff said.

6. But my disclosure document is registered. Toporoff explained that the Commission retains the authority to review franchisors' disclosures, even if filed and approved by the states.

5. I'm not a franchisor under state law where I'm incorporated. “But you are selling your franchises nationally, so the FTC has jurisdiction,” said Toporoff.

4. But that mistake was made by my old attorney. Toporoff explained that that one needs no further elaboration.

3. Don't you have bigger fish to fry than my little company?

2. I spoke to my state examiner, and he told me … “Guess what. State and federal regulators talk to each other regularly, and we can check out your story,” said Toporoff.

1. My client really is a franchisor, but he doesn't want to be covered by the Franchise Act. Are there exceptions or loopholes for him? “We are in the business of protecting prospective franchisees, not helping franchisors skirt the Franchise Rule,” Toporoff said.

Steven Toporoff is the Franchise Program Coordinator at the Federal Trade Commission (FTC), and one of the key people working on Franchise Rule enforcement. At the International Franchise Association (IFA) Legal Symposium in May 2003, Mr. Toporoff provided an update on federal regulatory developments and shared insights about how franchise enforcers go about their work. He also compiled the following list of excuses that he and fellow examiners hear from franchisors and their legal representatives. As Mr. Toporoff observed, “franchise attorneys should know better.”

10. I'm not a franchisor, I'm offering a business opportunity. “This statement is a huge red flag for us,” said Toporoff, adding that since most FTC enforcement actions under the Franchise Rule are taken against “business opportunity” providers, claiming to be a business opportunity hardly provides any excuse.

9. I'm not a franchisor, I'm a licensor. “Call it whatever you want, if a business arrangement meets the definition of a 'franchise,' it is covered by the Rule,” Toporoff said.

8. I don't charge an upfront fee. “The Rule doesn't require an upfront fee, only a required payment. If you are selling something to your franchisees and requiring that they purchase from you,” he said, “the business will be covered.”

7. I don't own the trademark. “But you own the right to use the trademark,” Toporoff said.

6. But my disclosure document is registered. Toporoff explained that the Commission retains the authority to review franchisors' disclosures, even if filed and approved by the states.

5. I'm not a franchisor under state law where I'm incorporated. “But you are selling your franchises nationally, so the FTC has jurisdiction,” said Toporoff.

4. But that mistake was made by my old attorney. Toporoff explained that that one needs no further elaboration.

3. Don't you have bigger fish to fry than my little company?

2. I spoke to my state examiner, and he told me … “Guess what. State and federal regulators talk to each other regularly, and we can check out your story,” said Toporoff.

1. My client really is a franchisor, but he doesn't want to be covered by the Franchise Act. Are there exceptions or loopholes for him? “We are in the business of protecting prospective franchisees, not helping franchisors skirt the Franchise Rule,” Toporoff said.