Business Law

Opinion No. 72 / 44F

State of California Department of Corporations

Brian R. Van Camp, Commissioner 
In reply refer to: File No. _____

This letter is not an Interpretive Opinion for the reasons stated below.

Mr. Robert F. Tyler
Attorney at Law
1660 California Federal Plaza
5670 Wilshire Boulevard
Los Angeles, CA 90036

Dear Mr. Tyler:

The request for an interpretive opinion contained in your letter dated September 12, 1972, has been considered by the Commissioner. Your letter raises the question whether the arrangements between Redi-Strip, Inc., a California corporation (ā€œRedi-Stripā€), and persons referred to by you and hereinbelow as ā€œlicenseesā€ , are franchises within the definition of Section 31005 and subject to the requirements of the Franchise Investment Law. This question is answered in the affirmative.

You have represented that Redi-Strip is engaged in the business of removing rust, paint and other coatings from metallic or other materialā€™s pursuant to its own unique process, primarily electronic in method, and certain chemical materials which it manufactures under a secret formula which it is purchasing from the inventor. It proposes to enter into agreements with licensees granting them the right within a specified territory to use its trade name and process. The agreements require the licensees to purchase the aforementioned chemical materials from Redi-Strip and to use them and no other chemicals in the application of the process.

In addition to the purchase price for the chemicals, licensees will. be charged a lump sum by Redi-Strip for the use of the trade name and process and for the cost of fabrication and installation of tanks for the chemicals. In addition, licensees may be charged annually several hundred dollars for the continuing right to use the process.

Redi-Strip will provide licensees with training, sales aids and promotional materials, and it will conduct a participating advertising program subject to the licenseesā€™ approval.

Section 31005 of the Franchise Investment Law defines ā€œfranchiseā€ 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 franchiseeā€™s business pursuant to such plan or system is substantially associated with the franchisorā€™s commercial symbol, such as its trade name or trademark, and the franchisee is required to pay a franchise fee. In our opinion, the arrangements between Redi-Strip and the licensees contain all of the essential elements of a ā€œfranchiseā€ as so defined and are subject to the registration, disclosure and other requirements of the Franchise Investment Law.

Inasmuch as interpretive opinions are issued for the principal purpose of providing a procedure by which members of the public can protect themselves against liability for acts done or omitted in good faith in reliance upon the administrative determination made in the opinion, and since there can be no such reliance where the Commissioner asserts jurisdiction with respect to a particular situation or determines that a legal requirement is applicable, advice to that effect, as contained in this letter, does not constitute an interpretive opinion.

Dated: San Francisco, California
December 29, 1972

By order of 
Commissioner of Corporations

By __________________ 
Assistant Commissioner
Office of Policy

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