Accidental Franchising March 7 2019 Marcellus Chase 816

Accidental Franchising March 7, 2019 Marcellus Chase 816 -502 -4647 Marcellus. Chase@Kutak. Rock. com 1

Is This A Franchise? Hypothetical Scenario 2

Why Does It Matter? • Registration & Disclosure Requirements • Ongoing Relationship Obligations • Termination Restrictions 3

Federal: The FTC Rule • TM License • Significant Control or Assistance • Payment 16 CFR § 436. 1(h) 4

Federal: Exemptions & Exclusions • Fractional Franchise • Minimum Payment • Others 5

State Disclosure / Registration Laws 15 States: • California • Florida • Hawaii • Illinois • Indiana • Maryland • Michigan 6 • Minnesota • New York • North Dakota • Rhode Island • South Dakota • Virginia • Washington • Wisconsin

State Franchise Relationship/Termination Laws • Arkansas • California • Connecticut • Delaware • District of Columbia • Hawaii • Idaho • Maryland • Michigan 7 • Minnesota • Mississippi • Missouri • Nebraska • New Jersey • Tennessee • Virginia • Washington • Wisconsin

Other State Laws • Business Opportunity Laws • Industry-Specific Laws 8

Federal: The FTC Rule • TM License • Significant Control or Assistance • Payment 9

Naked License vs. Franchise • No Quality Controls • Significant Control over Manner or Method of Operations • Significant Assistance to the Business Operations 10

Significant Control or Assistance Degree of Control? Site/location approval Site design or appearance requirements Hours of operation Production techniques Accounting practices Personnel policies and procedures Promotional campaigns (requiring Franchisee participation or financial contribution) Restrictions on customers Geographic limitations 11 Degree of Assistance? • Training programs • Accounting systems/software • Management, marketing, or personnel advice • Assistance in selecting site locations • Providing or assisting in setting up hardware, software, or website • Operations manual • Licensing other IP: patented (or nonpatented) systems, software copyrights, or specialized know-how

Is This A Franchise? Revisit Hypothetical Scenario 12

Is This A Franchise? Examples 13

Accidental Franchising March 7, 2019 Marcellus Chase 816 -502 -4647 Marcellus. Chase@Kutak. Rock. com 14