Franchise Agreements

The Franchise Disclosure Document and the FTC Rule

Every franchise sale in the United States is governed by the FTC Franchise Rule (16 C.F.R. Part 436), which requires the franchisor to give each prospective franchisee a Franchise Disclosure Document, an FDD, at least 14 calendar days before any agreement is signed or any payment is made. The FDD runs to 23 required items covering the franchisor's litigation and bankruptcy history, the full fee structure, the franchisee's estimated initial investment, territory, trademarks, any financial performance representations, and audited financial statements. We prepare FDDs for franchisors and update them as the law and the system require, and on the franchisee side we read the FDD closely and tell you what the disclosures actually mean before you sign.

Washington registration and the Franchise Investment Protection Act

Washington is one of the states that regulates franchise sales directly. Under the Franchise Investment Protection Act (RCW 19.100), a franchisor generally must register its FDD with the Department of Financial Institutions before offering or selling a franchise in the state, unless an exemption applies, and the Act carries anti-fraud provisions and franchise-relationship rules that limit how a franchisor can terminate or decline to renew. We handle the Washington registration and renewal, assess whether an exemption fits, and keep franchisors on the right side of the Act's relationship requirements, which is exactly where out-of-state franchisors most often stumble.

The franchise agreement: fees, territory, and term

The agreement is the deal, and its economics and duration are where negotiation time goes. We draft and negotiate the initial franchise fee and ongoing royalty, the advertising or brand-fund contribution, the grant of territory and whether it is exclusive or protected, the term and the conditions for renewal, and the transfer and assignment rules that decide whether a franchisee can ever sell the business. For franchisors, we build a form agreement that is consistent across the system, because uneven deals create disclosure and relationship problems later; for franchisees, we negotiate the points that are actually negotiable and flag the ones that aren't.

Trademark license and system standards

A franchise is, at its core, a licensed right to operate under someone else's brand and system, so the agreement is also a trademark license and has to be drafted as one. Under the Lanham Act, a mark owner who licenses its trademark without controlling the quality of the goods and services sold under it risks a finding of a naked license and loss of the mark, so the franchisor's brand standards, operations manual, inspection rights, and quality controls are not just operational, they protect the trademark itself. We draft the license, the system standards, and the confidentiality and technology terms that keep the brand and the know-how protected while they sit in a franchisee's hands.

Termination, renewal, and post-term covenants

How a franchise ends is the part that gets litigated, so it is the part we draft most carefully. The agreement sets the grounds for termination, the notice and cure rights, and what happens at the natural end of the term, and Washington's Franchise Investment Protection Act overlays good-cause and notice requirements on much of that. The post-term provisions decide the real questions: the covenant not to compete and how far it can reach, the obligation to stop using the marks and return the manuals, and the franchisor's rights over the location and the customer relationships. When a franchise relationship breaks down, the firm's litigators handle the dispute, and we draft the agreement knowing how these terms get enforced.