Not All Franchise Acts Govern French Fry Franchises

To someone new in the alcoholic beverage industry, the word “franchise” likely conjures up images of fast-food restaurants. Indeed the relationship between an entity that adopts another entity’s trademarks and sells only its goods and/or services in a manner such that both entities profit is described as a franchise relationship. These relationships are governed by federal and state franchise laws. Those familiar to the alcoholic beverage industry, especially the beer segment, are also aware of “Franchise Acts,” which are state level acts governing the relationship between various alcohol suppliers and wholesalers. Not all states have such acts, although most do for beer. Some states also have them for wine or distilled spirits. These laws frequently govern, among other things, the termination of the relationship between the supplier and wholesaler. They sometimes govern regardless of the contents of any written agreement between a supplier and wholesaler, and almost always govern if there is no written agreement between a supplier and wholesaler.

Nevada, for example, defines a “franchise” as “a contract or agreement either expressed or implied, whether written or oral, between a supplier and wholesaler, wherein: (1) A commercial relationship of definite duration or continuing indefinite duration is involved; and (2) The wholesaler is granted the right to offer, sell and distribute within this state or any designated areas thereof such of the supplier’s brands of packaged malt beverages, distilled spirits and wines, or all of them, as may be specified (emphasis added)” Nev. Admin. Code § 597.130. Thus, regardless of whether or not there is a written agreement in place, a franchise relationship may be formed in Nevada when a supplier allows a wholesaler to distribute the supplier’s product in any portion of the state (Nevada does require that a certain amount of cases be sold in a calendar year before the legal restrictions go into effect.) The real difficulty is that each state is different in both their provisions and approach to applying such provisions. In a rush to get products to market, some suppliers skip looking into these laws and then find themselves locked into relationships they thought could be easily ended. Becoming familiar with these laws and taking the time to think through how they might affect ones relationship with a wholesaler is often invaluable to a product’s long-term success. For more information on the effect of state franchise acts on supplier and wholesaler relationships, please feel free to contact any of the attorneys at Strike Kerr & Johns.

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Franchises

This entry was posted on July 22, 2011.