Published on June 18, 2015
Many franchisors utilize their website as a tool to advertise and to solicit information from prospective franchisees. The franchisor may then contact the prospect or even pre-qualify the potential inquirer while on-line. This article examines the rights and responsibilities of franchisees providing information and franchisors collecting and using the information. Instead of a review of case law and statutes, we will look at the practicalities.
Franchisee Perspective. Suppose you are a prospective franchisee and desire to ascertain if a franchise business is right for you. You could pursue this by obtaining various business opportunity guides, reading ads in various publications, visiting a franchise convention, visiting franchise sites on-line, calling a franchisor or franchisee and visiting a franchise location, among other methods. Of these approaches, one method you can pursue at home with minimal cost is to undertake some on-line visits. These visits seem like quick, safe ways to learn basic information about a franchisor and the franchisor’s system, so you start your search. After viewing a colorful, professional web site, you are asked to provide your name, address, phone number and/or e-mail address so the franchisor may contact you. You hesitate because you do not like just entering your name in cyberspace. Will salespeople hound you? Worse yet, will your information end up on some e-mail or direct mail marketing list? Looking closer, you see that the web site also can be used to start the pre-qualification process to become a franchisee. You are asked to provide more personal information, such as educational background, work experience, financial information, etc. This catches you a little off guard. You can call the franchisor or you can decide if you feel safe enough to disclose the information to the franchisor on-line. You peruse the web site for assurance, but there is no statement or promise as to what happens to the information once disclosed. Do you disclose the information? Are there other things to look for to feel safer?
Franchisor Perspective. Now suppose you are a franchisor and you want to locate prospective franchisees. You can advertise, include your company listings, attend franchise conventions, grant incentives to your franchisees to find more franchisees, and create a web site, among other ideas. You decide to spend the money to create a nice web site and hope prospective franchisees will come for a visit. Better yet, you hope they leave information so you can contact them. To make your contacts more effective, it would be even better if the visitors left just a little pre-qualification information. Will they feel comfortable doing so? Should you provide a statement or promise as to what happens to the information once disclosed? Are there other things you can do?
Summary. This report begins with the premise that franchisors want to have prospective franchisees visit their web sites, complete information requests, and give pre-qualification disclosures. To help encourage disclosures by prospective franchisees, a franchisor may need to consider the on-line privacy expectations of its prospective franchisees, the “fair information practices” of the FTC, and the prospect of federal legislation.
The FTC’s goal in implementing its regulations is to “encourage and facilitate effective self-regulation as the preferred approach to protecting consumer privacy on-line.” See, Federal Trade Commission, Self-Regulation and Privacy On-Line: A Report to Congress (1999). The “fair information practices” espoused by the FTC and applied to franchisors are shown in the following five general principles.
- 1. Notice. Prospects should be given notice of the franchisors’ on-line information practices so they can decide for themselves if they feel secure to disclose the information.
- 2. Consent. The prospect should be able to decide whether to allow the actual use of the information.
- 3. Participation. The prospect should be able to access or request information collected about them.
- 4. Security. The information should be in a safe and secure location.
- 5. Enforcement. The prospect should have a mechanism for redress.
Franchisors utilizing web sites to collect information from franchisees or prospective franchisees should become familiar with the FTC “fair information practices.”
III. The OPA and Privacy Seal Programs
The 1999 FTC report also discussed the On-Line Privacy Alliance issuance of guidelines (see http//www.privacyalliance.org) and the new “privacy seal” programs started by groups such as TRUSTe, BBB On-Line and CPA Web Trust.
The On-Line Privacy Alliance (OPA) defines itself on its web site as “a diverse group of corporations and associations who have come together to introduce and promote business-wide actions that create an environment of trust and foster the protection of individuals’ privacy on-line.” The OPA is designed to provide self-regulating guidelines, but does not contain any enforcement mechanisms. Use of the guidelines is voluntary.
One of the recommendations of the OPA is for businesses on the web to use “privacy seal” programs.
Privacy seal programs operate like a seal of approval representing that the web site operators have agreed to comply with certain specified privacy standards. The seal is conveyed through the display of the logo of the particular privacy seal program. The logo then is a certification trademark, a special type of trademark representing a certification of or compliance with certain educational or other prerequisites. It is beyond the scope of this article to review all of the privacy seal programs, but we will examine some examples:
A. BBB On-Line
The Better Business Bureau has a subsidiary known as BBB On-Line. BBB On-Line has implemented a Code of On-Line Business Practices. A number of web sites now display the BBB On-Line seal, signifying that they adhere to the BBB On-Line Code of On-Line Business Practices.
The practices require the franchisor utilizing the web site and displaying the BBB On-Line mark to adhere to five general principles:
- 1. Disclose! Disclose! Disclose! This relates to easy-to-understand, accurate information.
- 2. Tell the whole truth and nothing but the truth. This precludes use of deceptive or misleading trade practices.
- 4. Aim to please! This includes resolution of disputes in a timely and responsive manner.
- 5. Take special care with children. If the site targets children under 13, special care is required.
There are a number of detailed disclosures and procedures required by BBB On-Line in order to satisfy the above five principles. If one desires to use the BBB On-Line seal then one also needs to disclose how its compliance with BBB On-Line is investigated, that is, by itself, by a third party, or by the BBB. A violation of BBB On-Line practices could result in a revocation of the BBB On-Line seal and a possible referral to a law enforcement agency. BBB On-Line is currently monitoring sites and is looking to implement a third-party verification plan. For more information on BBB On-Line, see http://www.bbbon-line.com.
C. CPA Web Trust
This program comes from the American Institute of Certified Public Accountants, together with the Canadian Institute of Chartered Accountants, and has a scope which is much broader than TRUSTe or BBB On-Line. Compliance also includes business practices and company order fulfillment policies. Also different is that independent auditors administer this program instead of members of the organization. Enforcement includes mandatory arbitration of disputes. This program is used much less broadly than the other programs because of the breadth of the coverage.
Because each situation is different, this information is intended for general information purposes only and is not intended to provide legal advice on any specific facts and circumstances. Ryan, Swanson & Cleveland, PLLC is a full-service law firm located in Seattle, Washington.