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“MAP” My Franchise?

“MAP” My Franchise?
May 14, 2019 by Christina Laun Fugate, Partner

Last week I had the opportunity to facilitate a roundtable discussion at the International Franchise Association Legal Symposium in Washington, D.C., discussing the enforcement of “Minimum Advertising Price” policies (commonly known as “MAP policies”). We had great discussions on how to effectively adopt and implement these policies and potential issues that can arise when terminating a franchisee based on a MAP policy violation.

As a preliminary matter, you may be wondering: what is a MAP policy. A MAP policy is a program designed by franchisors to require that their franchisees not advertise or publicly offer to sell the system’s products or services below a price set by the franchisor. Why are MAP policies adopted?  To name a few reasons, they are adopted to promote fair competition across the franchise system; to maintain brand identity; and to allow smaller franchisee outlets to compete with larger ones.

A franchisor needs to be careful that its MAP policy does not cross the line into the potentially dangerous land of triggering federal and state anti-trust laws. The key to a MAP policy is that it doesn’t actually restrict the price at which the product or service can be sold. In other words, it does not set a minimum price. This is an important distinction, because setting a minimum price could get a franchisor into trouble under anti-trust laws. Furthermore, the MAP policy should be adopted and implemented from the top-down; in other words, from the franchisor to its franchisees. It should not be a policy whereby franchisees come together (perhaps through a franchisee association) to encourage their franchisor to adopt. This could be viewed as horizontal competition, triggering anti-trust violations. MAP policies should be uniformly adopted, either across the entire franchise system or by geographical regions in order to promote brand consistency.

With respect to implementing a MAP policy, a franchisor needs to properly educate and train its sales personnel to distinguish a MAP policy from minimum price setting. A franchisor should include disclosures when communicating its MAP policy that would prevent reliance on statements made by its sales personnel. A franchisor also needs to ensure its Franchise Agreement is written in a way to allow the franchisor to implement MAP policies – for example, requiring all franchisees to comply with all lawful promotions established by the franchisor.

Failing to adhere to a MAP policy could support termination of a Franchise Agreement. During the roundtable discussions, we had an engaging conversation about what potential claims a franchisor could face if termination was based on a violation of a MAP policy. There is always a possibility that an anti-trust claim is asserted—that the MAP policy is really a disguised minimum price setting policy. A disgruntled franchisee could also potentially assert a good faith argument; that adoption of the MAP policy is simply unfair to the franchisee. This is true if the required promotion leads to a loss in revenue of a particular good or service. This can be particularly troublesome in states that have increased minimum wages, making it even more difficult to earn a profit. In response, a franchisor can counter that the promotion is adopted to draw people into the franchise outlet and ultimately leads to a customer purchasing more goods or services than if the promotion was never adopted. If the MAP policy is not uniformly implemented, a franchisee could also maintain that the franchisor is unfairly discriminating against the terminated franchisee. Thus, uniformity is a critical aspect of the MAP policy.

These are just a few claims that a franchisor could potentially face in the event of termination based on the failure to comply with a MAP policy. Before implementing any MAP policy, franchisors should consult their legal counsel in the creation and implementation of the policy.

For more information, contact Christina Fugate or another member of our Franchise and Distribution Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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