Business Law

Opinion No. 72 / 45F

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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. Gordon L. Peterson
Attorney at Law
Smyth, Roston & Pavitt
550 Newport Center Drive
Newport Beach, CA 92660

Dear Mr. Peterson:

The request for an interpretive opinion contained in your letter dated September 19, 1972, has been considered by the Commissioner. Your letter raises the question whether the so-called Service Mark License Agreements between Adelaide Mitchell, dba Fashions by Robin, and persons-referred to therein. and hereinbelow as ā€œlicenseesā€ , are franchises within the definition of Section 31005 and subject to the provisions of the Franchise Investment Law. This question is answered in the affirmative.

You have represented that Miss Mitchell is the owner of State of California Service Mark Registration No. 1811 for ā€œFashions by Robinā€ which cover retail outlet services relating to womenā€™s wearing apparel, jewelry, and footwear. She proposes to grant to the licensees rights to the non-exclusive use of the service mark for such retail outlet services ( ā€œlicensed servicesā€). The licensee will pay Miss Mitchell $7,500 for the first location and for each additional location and a royalty of five percent of gross receipts resulting from the licensed services.

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 proposed agreements contain all of the elements of this definition. We do not concur in the opinion, which we understand you to express in your letter, that the agreements do not prescribe a marketing plan or system but merely provide means by which Miss Mitchell retains control over the nature and quality of goods and services offered under her mark. In making the determination whether there is a prescribed marketing plan or system, it is necessary to keep in mind the objective of the Law to deal with a multiplicity of business establishments created by the franchisor for all of which she ostensively assumes responsibility by causing them to be operated with the appearance of some centralized management and uniform standards as regards the quality and price of goods sold, services rendered, and of her material incidents of the operation (Dept. of Corps. Release No. 3-F, p.5).

In this connection, the agreement requires the licensee to employ adequate personnel having reasonable skill and appropriate manners to carry out the licensed services, to keep the interior and exterior of all locations neat, clean, and in a good state of repair, painted and attractively decorated, and to carry out only those licensed services which are specified in the agreement, unless Miss Mitchellā€™s written consent is obtained. It prohibits the licensee from carrying out licensed services at any location other than that specified without the prior consent of Miss Mitchell, and commits the licensee to obtain her written approval for the use of signs, advertising, and other material bearing the service mark. Miss Mitchell or her agents are given the right to enter and inspect the licenseeā€™s business premises.

We have noted the emphasis in your letter that the licensees are not required to purchase goods from Miss Mitchell and that they are under no other restrictions as to sources of supply, prices, attire or personnel, style or decor, and that there is no provision for a training program, cooperative advertising, or accounting control. In our opinion, a marketing plan or system may be ā€œprescribedā€ within the meaning of Section 31005, although there is no obligation on the part of franchisee to observe it, where a specified sales program is outlined, suggested, recommended, or otherwise originated by the franchisor (Dept. of Corps. Release No. 3-F, p.3). The requirements and restrictions contained in the agreement, as outlined above, when taken together, in our opinion, are sufficient to amount to a prescribed marketing plan or system.

Accordingly, it is our opinion that the agreements between Miss Mitchell and licensees, under the circumstances described by you,. are ā€œfranchisesā€ within the definition of Section 31005 and subject to the provisions of the Franchise Investment Law. We shall be pleased to give you our opinion concerning a revised form of agreement which you may wish to submit and which you may judge, in the light of the views herein expressed, not to constitute a ā€œfranchiseā€ within the definition of Section 31005. However, we cannot, as requested by you, otherwise assist you in the drafting of such an agreement.

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 27, 1972

By order of 
Commissioner of Corporations

By __________________ 
Assistant Commissioner
Office of Policy

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