On January 29, 2004, the FTC franchise rule staff issued a new advisory opinion (FTC Staff Advisory Opinion No. 04-2, available at http://www.ftc.gov/bcp/franchise/advops/advis04-2.htm) thoughtfully addressing the subject of earnings claims and internet advertising. The staff's advisory opinion makes for interesting reading.

The principal points addressed in the staff advisory opinion were that:

  • An earnings claim made in an advertisement will fall under the coverage of Section 436.1(e), whether the ad is in "traditional media - print, radio, and television" or whether the ad is electronically transmitted by means of the franchisor's web site or a third-party website.

  • Staff did not believe that there was any difference between different kinds of electronic ads, such as banner ads, pop-up ads, or static ads on a web site.

  • Ads sent by e-mail might fall into two categories: (a) communication to persons who started or were involved in a dialogue with a particular franchisor; and (b) communications in general to other persons.

  • Unsolicited commercial e-mail (UCE or "spam") sent to persons who expressed interest in a specific franchisor (or who otherwise initiated or were already having a dialogue with a particular franchisor) are covered as "point-of-sale" communications and come under the stricter standard for earnings claims found in Sections 436.1(b) or 436.1(c). (Of course, e-mail in reply to an expression of interest would also fall under Sections 436.1(b) or 436.1(c).)

  • An initial UCE sent to a person on a mailing list because he or she expressed a general interest in franchising, rather than interest in a specific franchisor, would be covered by the Rule's standards that govern claims made in general media, under Sections 436.1(e). If the recipient then contacted the franchisor, any follow-up e-mail, in staff’s view, would be a "point-of-sale" communication falling under Sections 436.1(b) or 436.1(c).

  • NASAA’s policy on internet advertisements doesn’t apply to the FTC Rule because of the absence of any filing requirement, and the Commission would not exclude internet ads from coverage under Section 436.1(e).

  • A reference in an e-advertisement to the fact that the franchisor's UFOC contains an earnings claim would not be deemed an earnings claim (but staff noted that it might reach a different conclusion if the e-advertisement contained a hot link to the UFOC or other earnings claim information).

With the pending adoption of the NASAA internet policy by one or more states, as well as the FTC's ultimate completion of the rulemaking that would possibly add internet/e-disclosure language in proposed new Section 436.7, we may expect further interesting developments.. Combined with the application of the CAN-SPAM Act of 2003, the late 2003 provisions of the FACT Act concerning safeguarding of consumers' data (online and offline), and developments in the domain name and cybergriping (online defamation) arenas, this area remains one to watch.

This article is intended to provide information on recent legal developments. It should not be construed as legal advice or legal opinion on specific facts. Pursuant to applicable Rules of Professional Conduct, it may constitute advertising.