Franchise program for automobile replacement glass business

Franchise program for automobile replacement glass business.

(File No. 703 7102)
Opinion Letter
June 16, 1970
Dear Mr. Rudnick:

This is in response to your recent letter requesting an advisory opinion with regard to the proposed franchise program of the Globe Glass Company.

The Commission understands that the program will operate as follows: Globe proposes to franchise qualified persons (principally existing automobile replacement glass businesses) to conduct an automobile replacement glass business, incorporating Globe methods and procedures including the mobile installation service, under Globe’s trade names and trade and service marks. Among the provisions of the franchise agreement outlined in your letter, we note that Globe will place no restrictions on the franchisee’s pricing policies, operating territory or customers to be served. Globe further proposes to charge an initial franchise fee, an advertising fee to be spent for advertising and promotion, plus a royalty and service fee for the use of its trade names and trade and service marks, in addition to various training, consulting, accounting and other services to be rendered by Globe to its franchisees. Globe states that franchisees will be completely free to pur-chase part or all of the glass requirements from other sources, provided minimum specifications are met.

However, we note that “Globe proposes to reduce the royalty and service fee payable by a franchisee in proportion ‘to the volume of his purchases of replacement glass from Globe, The proportionate reduction in royalty and service fees will be available to all franchisees on the same basis, though it is not intended that these reductions be based on any ‘cost justification’ formula.”

The Commission has carefully considered your proposal and is of the view that its Implementation in the manner described would be in violation of Section 8 of the Clayton Act, and possibly of Section 2 of the Clayton Act, as amended by the Robinson-Patman Act. Provisions in -the franchise agreement whereby the franchisee is precluded from dealing freely in the goods of competitors under pain of higher royalty and service fees are subject to Section 8 of the Clayton Act, and, insofar as such royalty and service fees are reduced to certain purchasers, a price discrimination under Section 2 of the Clayton Act, as amended, may result as to competing customers. .

By direction of the Commission, with Commissioner Elman not concurring.

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Letter of Request
March 19, 1970
Dear Mr. Secretary:

In accordance with Section 1 of the Procedures and Rules of Practice of the Federal Trade Commission, we hereby request an advisory opinion of the Commission with respect to the legality under Section 5of the Federal Trade Commission Act, Section 3 of the Clayton Act: and Section 2 of the Robinson-Patman Act of the franchise programy described herein. :

Globe Glass Company (“Globe”) is a large installer of replacement automobile glass purchased from several manufacturers and processors. Automobile glass replacement is a highly competitive business: with many individual business units in varying in size from annual volumes of $50,000 to $10,000,000. At the present time Globe operates: through approximately 13 company owned stores, all of which offer a mobile service (i.e., damaged automobile glass is replaced at the customer’s home or place of work). Globe proposes to franchise qualified persons (principally existing automobile replacement glass businesses ) to conduct an automobile replacement glass business, incorporating Globe methods and procedures, including the mobile installation service, under Globe's trade names and trade and service marks. Globe proposes to offer to sell to its franchisees at competitive prices part or all of their requirements for replacement automobile glass. The franchisees would be completely free to. purchase part or all of their glass requirements from other sources, provided minimum specifications are met. Globe further proposes to charge an initial franchisee fee for the grant of the franchise and a royalty and service fee for the use of its trade names and trade and service marks and various training, consulting, accounting and other services to be rendered by Globe to its franchisees on a continuing basis. Globe may also charge an advertising fee to be spent by it for advertising and promotion. Globe anticipates that it will earn a profit on sales of replacement glass to its franchisees sufficient to reimburse it in part for the services to be rendered to them. Globe desires to earn a reasonable fee for its: services to its franchisees and does not desire to collect a full royalty and service fee in addition to its profit on sales of replacement glass. Accordingly, Globe proposes to reduce the royalty and service fee payable by a franchisee in proportion to the volume of his purchases of replacement glass from Globe. The proportionate reduction in royalty and service fees will be available to all franchisees on the same basis, though it is not intended that these reductions be based on any “cost. justification” formula.

The undersigned believes the proposed plan is distinguishable from _ the Brown Shoe case by reason of the franchisee’s complete freedom of choice: he can pay for the services to be received as a franchise by payment of a full royalty and service fee and purchase his requirements of replacement glass from any source whose products meet minimum specifications; or he can purchase glass from Globe in sufficient quantities and pay a proportionately reduced royalty and service fee. No restrictions will be placed by Globe on the franchisee’s pricing policies, operating territory or customers to be served. The franchise program described herein is not presently in effect ‘(.e., Globe has granted no franchises as of the date hereof and has no existing agreements or arrangements with any automobile replacement glass business other than its own stores). Globe is not presently the ‘Subject of any investigation or other proceeding by the Commission -or any other Government agency.

Globe will appreciate having the Commission’s advisory opinion at the Commission’s earliest convenience. We will promptly supply any additional information that the Commission deems to be required to

render its advisory opinion.
Sincerely,
Lewis G. Rudnick
for RUDNICK & WOLFE