Commercial law regulates the conduct of people, merchants, and businesses who are engaged in trade, sales, and commerce. Also known as business law, it is a considerably broad area of law that interacts with many other areas of law, such as:
- Environmental regulation;
- Real estate; and
- Food and safety laws.
Some of the definitive branches of commercial law include:
Contract violations form the majority of commercial law legal issues. Transactions between businesses and customers frequently involve a contract of some sort, and legal issues can arise in connection with the terms of that contract. In particular, a breach of contract can cause significant losses for either party to the contract.
In addition to contract issues, common commercial law legal issues include:
- Advertising and marketing disputes and violations;
- Unfair competition issues;
- Starting a new business;
- Transferring or terminating a business;
- Consumer complaints; and
- Protection of intellectual property and trade secrets.
Franchises are generally governed by commercial law concepts. A business franchise involves one party allowing another to utilize their company’s marketing techniques, materials, and logos in order to start another branch of the company. This is most common for businesses such as fast-food chains and retail department stores. The parent company is called the franchisor, while the party starting the new branch is called the franchisee. The franchisee generally purchases rights to use the material and business processes from the franchisor.
In an entire business format franchise, the franchisee receives the use of the:
- Reputation (good will);
- Trade secrets;
- Copyrights; and
- Marketing and service information of the franchisor.
In a product distribution franchise, the franchisor distributes a specific product to franchisees, such as vending machines.
What Are Distribution Agreement Laws?
A distribution agreement is essentially a contract between suppliers and distributors of a product. These agreements are also referred to as distributor agreements. Despite the name, these agreements may also involve other parties, such as manufacturers. A distribution agreement is what provides a distributor with the rights to sell and market a supplier’s products. Because distribution agreements are commonly associated with franchises, it is helpful to discuss distribution agreements in general before discussing franchise fraud.
Distribution agreements between suppliers and distributors vary based on the needs and goals of each specific distributor-supplier partnership. Generally speaking, such agreements are centered around the supply and distribution of a specific product.
Distribution agreements can address a wide variety of business and legal matters. The key terms of a distribution agreement include, but may not be limited to:
- The names and information of the different parties that are involved in the agreement, including their respective representative agents;
- Specific business details for the supply-distribution arrangement, such as shipment quantities and delivery dates;
- How long the relationship and agreement is intended to last;
- Any terms regarding contract renewal; and
- Specific termination provisions, including no-litigation clauses and/or arbitration agreements.
In many cases, distribution agreements may also be classified as exclusive dealing contracts. What this means is that the supplier and the distributor agree to work only with one another, and will not work with any other parties. Depending on the business goals of the parties, this could be the more desirable outcome.
Some of the most common types of distribution agreements include:
- Commission Distribution Agreement: Commissions give the distributor some added incentive to sell as much of the supplier’s goods as possible. A clause will be included in the document stating what the distributor will be paid for selling the product, as well as what the commission is to be. This is based on the number of products that the distributor sells;
- Exclusive Distribution Agreement: The distributor may be the only distributor of the supplier’s product within a specified geographical area. Alternatively, the distributor may have the sole authority to sell the product to specific customers; meaning, no other distributor will be allowed to sell those specific products to those specific customers. This type of agreement is most commonly used when the product in question is considerably expensive, or when the product is distinct and technical;
- Wholesale Distribution Agreement: The wholesale company provides their product in bulk quantities, and generally at a reduced cost. Wholesale distribution agreements are generally made-up terms used to describe the type of transaction. Such agreements intend for a distributor to contract with a wholesale company in order to sell their items in bulk. The wholesale distributor may buy the product from the supplier, in which case they would become the owner and sell to the next company for a profit; and
- Developer Distribution Agreement: This agreement is generally associated with software creation, as well as the intellectual property included in said software. It is between the developer of an app, as well as the company that distributes the app. The developer is allowed to offer a license to consumers in order to utilize the software.
What Is Franchise Fraud?
Franchise fraud commonly begins with an ad sent through the mail, or a booth at a business opportunity convention. The advertisement or a salesperson claims a great opportunity for business ownership and investment, and will generally make a lot of promises about how successful your business will be and how well you will be supported if you pay some fees for a franchising license.
Once you show interest in owning a piece of the franchise, the person might arrange a meeting in which they will pressure you into purchasing licensing rights for the franchise. After you pay for the licensing rights for the franchise, the person will generally disappear; as for any support or products that you were promised, it is most likely that none of those items will ever be delivered. Delivered materials will most likely be sub-par.
There are some signs that you should look for when evaluating whether or not to enter into a franchise or distributorship agreement:
- Avoid any franchises that promise that you will make a certain amount of money, as no business can control all market forces and influencing factors;
- Avoid any offers that guarantee you a refund if you are not completely satisfied as long as you operate your business according to the instructions, as this is a stipulation that allows them to deny your refund for nearly any reason;
- Ensure that the person is not selling the franchise or distribution license, but is also selling the product or service of the business itself; and
- Ensure that you are able to contact other investors who have participated in the franchise or distributorship.
What Should I Do If I Am The Victim Of Franchise Fraud?
There are a number of steps that you can take if you are the victim of franchise or distributorship fraud. Examples include, but may not be limited to:
- File a consumer complaint with your local Better Business Bureau, and/or your State Attorney General’s Office;
- File a complaint with the Federal Trade Commission;
- If you were contacted about the franchise through a mailed advertisement, file a complaint with your local post office; and
- Contact an attorney to determine whether you have a case for a lawsuit.
Do I Need A Lawyer For Franchise Fraud?
If you think that you have been a victim of franchise fraud, you should contact a business attorney experienced in franchise law. An attorney can help you understand your legal rights and options according to local laws as well as commercial law, and will also be able to represent you in court, as needed.