A. 3823 2
2. "FRANCHISE" SHALL MEAN A CONTRACT OR AGREEMENT, WHETHER EXPRESSED
OR IMPLIED, AND WHETHER WRITTEN OR ORAL, BETWEEN TWO OR MORE PERSONS BY
WHICH:
(A) A FRANCHISEE IS GRANTED THE RIGHT TO ENGAGE IN THE BUSINESS OF
OFFERING, SELLING OR DISTRIBUTING GOODS OR SERVICES PURSUANT TO A
MARKETING PLAN OR SYSTEM PRESCRIBED IN SUBSTANTIAL PART BY A FRANCHISOR;
(B) OPERATION OF THE FRANCHISEE'S BUSINESS PURSUANT TO SUCH PLAN OR
SYSTEM IS SUBSTANTIALLY RELATED TO THE FRANCHISOR'S TRADEMARK, SERVICE
MARK, TRADE NAME, LOGOTYPE, ADVERTISING OR OTHER COMMERCIAL SYMBOL
DESIGNATING THE FRANCHISOR OR ITS AFFILIATE; AND
(C) THE FRANCHISEE PAYS OR IS REQUIRED TO PAY, DIRECTLY OR INDIRECTLY,
A FRANCHISE FEE.
3. "FRANCHISE FEE" SHALL MEAN A FEE OR CHARGE FOR THE RIGHT TO ENTER
INTO OR MAINTAIN A FRANCHISE, INCLUDING ANY PAYMENT FOR GOODS OR
SERVICES, BUT NOT INCLUDING:
(A) PAYMENT, AT A BONA FIDE WHOLESALE PRICE, FOR A REASONABLE QUANTITY
OF INVENTORY;
(B) PAYMENT OF A REASONABLE SERVICE CHARGE TO THE ISSUER OF A CREDIT
OR DEBIT CARD BY A PERSON ACCEPTING OR HONORING SUCH A CARD; AND
(C) PAYMENT AT FAIR MARKET VALUE FOR A REASONABLE QUANTITY OF REAL
ESTATE, FIXTURES, EQUIPMENT OR OTHER TANGIBLE PERSONAL PROPERTY TO BE
UTILIZED IN AND NECESSARY FOR THE OPERATION OF A FRANCHISED BUSINESS.
4. "FRANCHISEE" SHALL MEAN A PERSON TO WHOM A FRANCHISE IS GRANTED.
5. "FRANCHISOR" SHALL MEAN A PERSON WHO GRANTS OR HAS GRANTED A FRAN-
CHISE.
6. "GOOD CAUSE" SHALL MEAN THE FAILURE BY A PARTY TO A FRANCHISE TO
CORRECT A DEFAULT OF A MATERIAL PROVISION OF THE FRANCHISE WITHIN THIRTY
DAYS OF RECEIPT OF A WRITTEN NOTICE FROM THE OTHER PARTY WHICH SPECIFIES
THE DEFAULT, OR WITHIN FORTY-EIGHT HOURS OF RECEIPT OF A WRITTEN NOTICE
WHICH SPECIFIES A DEFAULT CONSTITUTING A CLEAR AND PRESENT DANGER TO THE
PUBLIC HEALTH, WELFARE OR SAFETY, AND IN EITHER INSTANCE DESCRIBES THE
CORRECTIVE ACTION REQUIRED TO BE TAKEN. SUCH TERM SHALL ALSO INCLUDE THE
COMPLETE WITHDRAWAL OF THE FRANCHISOR FROM CONDUCTING BUSINESS IN THIS
STATE.
7. "GOOD FAITH" SHALL MEAN HONESTY IN FACT AND THE OBSERVANCE OF
REASONABLE STANDARDS OF FAIR DEALING IN THE TRADE.
8. "OUTLET" SHALL MEAN A PLACE OF BUSINESS, WHETHER TEMPORARY OR
PERMANENT, FIXED OR MOBILE, FROM WHICH GOODS OR SERVICES ARE OFFERED FOR
SALE.
9. "TRADE SECRET" SHALL MEAN INFORMATION, INCLUDING A FORMULA,
PATTERN, COMPILATION, PROGRAM, DEVISE, METHOD, TECHNIQUE OR PROCESS,
WHICH:
(A) DERIVES INDEPENDENT ECONOMIC VALUE, ACTUAL OR POTENTIAL, FROM NOT
BEING GENERALLY KNOWN TO AND NOT BEING READILY ASCERTAINABLE BY PROPER
MEANS BY OTHER PERSONS WHO CAN OBTAIN ECONOMIC VALUE FROM ITS DISCLOSURE
OR USE; AND
(B) IS THE SUBJECT OF EFFORTS WHICH ARE REASONABLE UNDER THE CIRCUM-
STANCES TO MAINTAIN ITS SECRECY.
§ 698-B. PROCEDURAL FAIRNESS. 1. THE PROVISIONS OF THIS ARTICLE SHALL
APPLY TO ANY FRANCHISE ANY PART OF THE PERFORMANCE OF WHICH IS TO OCCUR
IN THIS STATE, OR TO BE OPERATED IN WHOLE OR IN PART IN THIS STATE AND
TO THE PARTIES TO SUCH FRANCHISE. THESE PROVISIONS SHALL NOT BE WAIVED,
AND THEIR APPLICATION TO A FRANCHISE OR A PARTY THERETO SHALL NOT BE
AVOIDED, IN WHOLE OR IN PART BY AGREEMENT OR BY CONDUCT, EXCEPT PURSUANT
TO A SETTLEMENT OF A BONA FIDE DISPUTE.
A. 3823 3
2. ANY PARTY TO A FRANCHISE MAY COMMENCE A CIVIL ACTION OR, IF AGREED
TO BY THE PARTIES, INITIATE AN ARBITRATION PROCEEDING FOR A VIOLATION OF
ANY PROVISION OF THIS ARTICLE.
3. NO FRANCHISEE SHALL BE DEPRIVED OF THE APPLICATION OF THE
PROVISIONS OF THIS ARTICLE BY ANY PROVISION OF A FRANCHISE WHICH DESIG-
NATES THE LAW OF ANOTHER JURISDICTION AS GOVERNING THE PROVISIONS OF
SUCH FRANCHISE, OR DESIGNATING A VENUE OUTSIDE OF THIS STATE FOR THE
RESOLUTION OF DISPUTES.
4. PROVISIONS OF A FRANCHISE PROVIDING FOR LIQUIDATED DAMAGES,
CONFESSIONS OF JUDGMENT OR LIKE PROVISIONS SHALL BE UNENFORCEABLE.
5. THE PROVISIONS OF THIS ARTICLE ARE DECLARATORY OF THE PUBLIC POLICY
AND LAW OF THE STATE OF NEW YORK. TO THE EXTENT PERMITTED BY THE CONSTI-
TUTION OF THE UNITED STATES AND OF THIS STATE, THIS ARTICLE SHALL APPLY
TO FRANCHISES GRANTED, TRANSFERRED, RENEWED, AMENDED, REPLACED OR IN
EXISTENCE AFTER THE EFFECTIVE DATE OF THIS ARTICLE. A PROVISION OF A
FRANCHISE DESIGNATING THE LAW OF THE STATE OF NEW YORK AS GOVERNING THE
FRANCHISE, OR BY WHICH THE FRANCHISE IS TO BE INTERPRETED OR CONSTRUED
SHALL BE CONSTRUED AS INCORPORATING THE LAW OF THIS STATE AS IN EFFECT
FROM TIME TO TIME DURING THE TERM OF THE FRANCHISE.
§ 698-C. PRIVATE RIGHT OF ACTION. ANY PARTY TO A FRANCHISE WHO IS
INJURED OR LIKELY TO BE INJURED BY A VIOLATION OR IMPENDING VIOLATION OF
THIS ARTICLE OR ANY RULES OR REGULATIONS OF THE FEDERAL TRADE COMMISSION
SHALL HAVE A CAUSE OF ACTION FOR RESCISSION OF THE FRANCHISE, DAMAGES,
INJUNCTIVE RELIEF OR OTHER APPROPRIATE RELIEF. THE PREVAILING PARTY MAY
RECOVER ITS COSTS, INCLUDING REASONABLE ATTORNEY'S FEES, IN ANY SUCH
ACTION OR PROCEEDING. THE COURT SHALL PRESUME THE EXISTENCE OF IRREPARA-
BLE HARM BASED ON A VIOLATION OF THE PROVISIONS OF THIS ARTICLE OR OF
ANY RULE OR REGULATION OF THE FEDERAL TRADE COMMISSION, AND MAY AWARD
PRELIMINARY INJUNCTIVE RELIEF WITHOUT BOND OR OTHER FINANCIAL SECURITY.
§ 698-D. DUTY OF GOOD FAITH. EVERY FRANCHISE SHALL INCLUDE AN IMPLIED
DUTY UPON ALL PARTIES TO EXERCISE GOOD FAITH IN THE PERFORMANCE AND
ENFORCEMENT OF THE TERMS OF THE FRANCHISE. SUCH DUTY OF GOOD FAITH OBLI-
GATES EACH PARTY TO A FRANCHISE, WHEN MAKING A DECISION OR EXERCISING A
RESERVED POWER OR DISCRETION WHICH DIRECTLY AFFECTS THE INTERESTS OF
ANOTHER PARTY OR PARTIES TO THE FRANCHISE, TO GIVE DUE AND EQUAL REGARD
TO THE INTERESTS OF SUCH OTHER PARTY OR PARTIES TO THE FRANCHISES THAT
ARE LIKELY TO BE AFFECTED.
§ 698-E. DUTY OF COMPETENCE. UNLESS A FRANCHISOR REPRESENTS THAT IT
HAS GREATER SKILL OR KNOWLEDGE, OR CONSPICUOUSLY DISCLAIMS THAT IT HAS
SUCH SKILL OR KNOWLEDGE, THE FRANCHISOR SHALL, IN ITS UNDERTAKING WITH
THE FRANCHISEE, BE REQUIRED TO EXERCISE THE SKILL AND KNOWLEDGE NORMALLY
POSSESSED BY FRANCHISORS IN GOOD STANDING IN SIMILAR COMMUNITIES OR
TRADE AREAS. THE PROVISIONS OF THIS SECTION SHALL NOT BE WAIVED OR QUAL-
IFIED BY AGREEMENT OR BY CONDUCT; PROVIDED, HOWEVER, THAT THE FRANCHISOR
MAY BY WRITTEN AGREEMENT PARTICULARLY DEFINE THE NATURE AND SCOPE OF ITS
SKILL AND KNOWLEDGE, AND OF ITS UNDERTAKING WITH THE FRANCHISEE.
§ 698-F. NEGOTIATED CHANGES PERMITTED. A FRANCHISOR, WHO HAS LAWFULLY
DELIVERED AN OFFERING TO A PROSPECTIVE FRANCHISEE, MAY NEGOTIATE THE
TERMS OF A FRANCHISE WITH SUCH PROSPECTIVE FRANCHISEE, AND MAY EXECUTE A
FRANCHISE CONTAINING NEGOTIATED TERMS WHICH ARE DIFFERENT FROM THE
INITIAL OFFERING.
§ 698-G. INDEPENDENT SOURCING. 1. EXCEPT AS OTHERWISE PROVIDED IN
SUBDIVISION TWO OF THIS SECTION, A FRANCHISEE MAY OBTAIN EQUIPMENT,
FIXTURES, SUPPLIES AND SERVICES USED IN THE ESTABLISHMENT AND OPERATION
OF A FRANCHISED BUSINESS FROM SOURCES OF THE FRANCHISEE'S OWN CHOOSING,
A. 3823 4
PROVIDED THAT SUCH GOODS AND SERVICES SHALL MEET REASONABLE STANDARDS,
AS TO THEIR NATURE AND QUALITY, AS PROMULGATED BY THE FRANCHISOR.
2. SUBDIVISION ONE OF THIS SECTION SHALL NOT APPLY TO A REQUIREMENT BY
A FRANCHISOR THAT REASONABLE QUANTITIES OF INVENTORY GOODS OR SERVICES
(INCLUDING DISPLAY AND SAMPLE ITEMS) BE OBTAINED FROM THE FRANCHISOR OR
ITS AFFILIATE, IF SUCH GOODS OR SERVICES ARE A CENTRAL FEATURE OF THE
FRANCHISE BUSINESS AND:
(A) ARE ACTUALLY MANUFACTURED OR PRODUCED BY THE FRANCHISOR OR ITS
AFFILIATE; OR
(B) ARE MANUFACTURED SOLELY ON BEHALF OF THE FRANCHISOR OR ITS AFFIL-
IATE AND INCORPORATE A TRADE SECRET OWNED BY THE FRANCHISOR OR ITS
AFFILIATE.
§ 698-H. TERMINATION AND NON-RENEWAL. NO FRANCHISOR SHALL TERMINATE OR
REFUSE TO RENEW A FRANCHISE WITHOUT GOOD CAUSE.
§ 698-I. TRANSFER OF A FRANCHISE. 1. A FRANCHISEE SHALL HAVE THE RIGHT
TO TRANSFER THE FRANCHISED BUSINESS AND THE FRANCHISE TO ANOTHER PERSON
WHO MEETS THE FRANCHISOR'S CURRENT REASONABLE, ESSENTIAL AND NONDISCRI-
MINATORY STANDARDS FOR NEW FRANCHISEES OR TRANSFEREES. A FRANCHISOR MAY
NOT WITHHOLD ITS CONSENT TO A TRANSFER OF A FRANCHISE WITHOUT GOOD
CAUSE.
2. A FRANCHISOR MAY EXERCISE A RIGHT OF FIRST REFUSAL IN RELATION TO A
PROPOSED TRANSFER, IF THE FRANCHISOR HAS RESERVED SUCH RIGHT IN THE
FRANCHISE. HOWEVER, A RIGHT OF FIRST REFUSAL SHALL NOT BE INVOKED MORE
THAN THIRTY DAYS AFTER RECEIPT OF THE FRANCHISEE'S REQUEST FOR CONSENT
TO THE TRANSFER. SUCH RIGHT OF FIRST REFUSAL MAY NOT BE EXERCISED IF
THE RESULT WOULD BE TO LEAVE THE FRANCHISOR HOLDING A PARTIAL OWNERSHIP
INTEREST IN THE FRANCHISE OR FRANCHISEE. A FRANCHISOR SHALL ONLY BASE
ITS DECISION TO EXERCISE A RIGHT OF FIRST REFUSAL IN A PROPOSED TRANSFER
OF A FRANCHISE, UPON THE MERITS OF THE PROPOSED TRANSFER AND THE PARTIC-
ULAR CIRCUMSTANCES OF THE PROPOSED TRANSFER.
3. A FRANCHISOR MAY REQUIRE AS CONDITIONS OF A TRANSFER THAT:
(A) THE TRANSFEREE SUCCESSFULLY COMPLETES A REASONABLE, ESSENTIAL AND
NONDISCRIMINATORY TRAINING PROGRAM;
(B) A REASONABLE TRANSFER FEE BE PAID TO REIMBURSE THE FRANCHISOR FOR
ITS REASONABLE AND ACTUAL EXPENSES DIRECTLY RELATED TO THE TRANSFER; AND
(C) THE FRANCHISEE PAY OR MAKE REASONABLE PROVISIONS TO PAY ANY AMOUNT
DUE THE FRANCHISOR OR ITS AFFILIATE.
4. A FRANCHISOR SHALL NOT WITHHOLD ITS CONSENT TO A PUBLIC OFFERING BY
A FRANCHISEE OF ITS SECURITIES, PROVIDED THAT THE FRANCHISEE OR OWNERS
OF THE FRANCHISE RETAIN MORE THAN FIFTY PERCENT OF THE VOTING POWER IN
THE FRANCHISE. A FRANCHISOR SHALL NOT WITHHOLD ITS CONSENT TO A POOLING
OF INTERESTS OR EXCHANGE OF ASSETS OF ITS EXISTING FRANCHISEES.
5. A FRANCHISEE MAY ASSIGN ITS INTEREST IN ITS FRANCHISE FOR THE UNEX-
PIRED TERM OF THE FRANCHISE WITHOUT ANY CHANGE IN THE TERMS OF SUCH
FRANCHISE. FURTHERMORE, THE FRANCHISOR SHALL NOT REQUIRE THE FRANCHISEE
OR THE TRANSFEREE TO ENTER INTO ANY NEW OR DIFFERENT TERMS DURING THE
UNEXPIRED TERM OF THE FRANCHISE.
6. FOR THE PURPOSES OF THIS SECTION THE FOLLOWING SHALL NOT CONSTITUTE
A TRANSFER AND A FRANCHISOR SHALL NOT INTERFERE WITH:
(A) THE SUCCESSION TO OWNERSHIP OR MANAGEMENT OF A FRANCHISE UPON THE
DEATH OR DISABILITY OF A FRANCHISEE, OR AN OWNER, OFFICER OR DIRECTOR OF
A FRANCHISEE, BY THE SPOUSE, CHILDREN, PARTNERS OR FELLOW SHAREHOLDERS
OF SUCH DECEASED OR DISABLED PERSON;
(B) INCORPORATION BY A FRANCHISEE;
A. 3823 5
(C) TRANSFER OF INTERESTS WITHIN AN EXISTING GROUP OF OWNERS OF A
FRANCHISEE WHEN SUCH TRANSFERS DO NOT RESULT IN A CHANGE IN THE CONTROL-
LING INTEREST IN THE FRANCHISE;
(D) TRANSFERS OF LESS THAN A CONTROLLING INTEREST IN THE FRANCHISE TO
THE SPOUSE OR CHILDREN OF THE FRANCHISEE, OR OWNERS, OFFICERS OR DIREC-
TORS OF THE FRANCHISEE;
(E) TRANSFERS OF LESS THAN A CONTROLLING INTEREST IN THE FRANCHISE
PURSUANT TO AN EMPLOYEE STOCK OWNERSHIP PLAN, EMPLOYEE INCENTIVE COMPEN-
SATION PLAN OR DEFERRED BENEFIT PLAN;
(F) A GRANT OR RETENTION OF A SECURITY INTEREST IN THE FRANCHISE, THE
FRANCHISED BUSINESS OR ITS ASSETS, OR AN OWNERSHIP INTEREST IN THE FRAN-
CHISEE, PROVIDED THAT THE SECURITY AGREEMENT CREATES AN OBLIGATION ON
THE PART OF THE SECURED PARTY, WHICH IS ENFORCEABLE BY THE FRANCHISOR,
TO GIVE NOTICE TO THE FRANCHISOR SIMULTANEOUSLY WITH NOTICE TO THE FRAN-
CHISEE OF THE SECURED PARTY'S INTENTION TO FORECLOSE ON THE COLLATERAL,
AND GRANTING A REASONABLE OPPORTUNITY TO REDEEM THE INTEREST OF THE
SECURED PARTY AND RELEASE THE SECURED PARTY'S LIEN UPON THE FRANCHISE
AND THE FRANCHISED BUSINESS BY SATISFYING THE FRANCHISEE'S OBLIGATIONS
TO THE SECURED PARTY; OR
(G) THE FRANCHISEE'S USE OF MANAGEMENT CONSULTANTS OR HIRING OF A
PROFESSIONAL MANAGER.
7. SUBJECT TO THE PROVISIONS OF PARAGRAPH (F) OF SUBDIVISION SIX OF
THIS SECTION, NO FRANCHISOR SHALL PREVENT A FRANCHISEE, WHO HAS TRANS-
FERRED THE FRANCHISE, FROM RETAINING OR FORECLOSING UPON A SECURITY
INTEREST IN ONE OR MORE ASSETS TRANSFERRED, INCLUDING THE FRANCHISE,
CREATED TO SECURE THE OBLIGATIONS OF THE TRANSFEREE TO THE TRANSFEROR.
8. EVERY FRANCHISEE SHALL GIVE ITS FRANCHISOR NOT LESS THAN THIRTY
DAYS' NOTICE OF A PROPOSED TRANSFER AND UPON REQUEST SHALL ADVISE THE
FRANCHISOR, IN WRITING, OF THE OWNERSHIP INTERESTS OF ALL PERSONS HOLD-
ING OR CLAIMING AN EQUITABLE OR BENEFICIAL INTEREST IN THE FRANCHISE OR
THE FRANCHISEE.
9. NO FRANCHISOR SHALL TRANSFER ITS INTEREST IN A FRANCHISE UNLESS IT
MAKES REASONABLE PROVISION FOR THE PERFORMANCE BY THE TRANSFEREE OF ITS
OBLIGATIONS PURSUANT TO THE FRANCHISE. A FRANCHISOR SHALL PROVIDE ITS
FRANCHISEES WITH NOTICE OF THE PROPOSED TRANSFER AT SUCH TIME AS SUCH
DISCLOSURE WOULD BE REQUIRED PURSUANT TO APPLICABLE SECURITIES AND
EXCHANGE LAWS, IF SECURITIES OF THE FRANCHISOR WERE PUBLICLY TRADED.
10. A FRANCHISOR SHALL BE OBJECTIVELY REASONABLE IN DETERMINING TO
WITHHOLD ITS CONSENT TO A PROPOSED TRANSFER OF A FRANCHISE. EVERY TRANS-
FER SHALL BE DEEMED APPROVED THIRTY DAYS AFTER THE FRANCHISEE SUBMITS
THE PROPOSED TRANSFER FOR CONSENT TO THE FRANCHISOR, UNLESS THE FRANCHI-
SOR SHALL EARLIER PROVIDE WRITTEN NOTICE OF ITS DISAPPROVAL, OR EXERCISE
OF RIGHT OF FIRST REFUSAL. ALL SUCH NOTICES STATING THE BASES OF DISAP-
PROVAL SHALL BE PRIVILEGED AGAINST CLAIMS OF DEFAMATION.
11. NO FRANCHISOR SHALL DISCRIMINATE AGAINST A PROPOSED TRANSFEREE OF
A FRANCHISE ON THE BASIS OF RACE, COLOR, NATIONAL ORIGIN, RELIGION, SEX,
OR DISABILITY.
12. AS A CONDITION OF A TRANSFER OF A FRANCHISE, NO FRANCHISOR SHALL
OBLIGATE A FRANCHISEE TO UNDERTAKE OTHER OBLIGATIONS OR FORGO OTHER
RIGHTS OUTSIDE THE SCOPE OF THE FRANCHISE PROPOSED TO BE TRANSFERRED, OR
TO ENTER INTO RELEASE OF CLAIMS BROADER IN SCOPE THAN A COUNTERPART
RELEASE OF CLAIMS OFFERED BY THE FRANCHISOR TO THE FRANCHISEE.
13. NO FRANCHISOR SHALL ENFORCE AGAINST THE TRANSFEROR OF A FRANCHISE
AFTER A TRANSFER, ANY COVENANT IN THE TRANSFERRED FRANCHISE PROHIBITING
THE TRANSFEROR FROM ENGAGING IN ANY LAWFUL OCCUPATION OR ENTERPRISE.
HOWEVER, THE PROVISIONS OF THIS SUBDIVISION SHALL NOT LIMIT THE RIGHT OF
A. 3823 6
THE FRANCHISOR TO ENFORCE CONTRACTUAL COVENANTS PROHIBITING THE TRANSFE-
ROR FROM EXPLOITING THE FRANCHISOR'S TRADE SECRETS OR INTELLECTUAL PROP-
ERTY RIGHTS.
14. FOR THE PURPOSES OF THIS SECTION:
(A) "TRANSFER" SHALL MEAN ANY CHANGE IN OWNERSHIP OR CONTROL OF A
FRANCHISE, FRANCHISED BUSINESS OR FRANCHISEE.
(B) "FRANCHISE" SHALL INCLUDE FRANCHISEE AS APPROPRIATE IN CONTEXT.
§ 698-J. ANTI-COMPETITIVE COVENANTS. NO FRANCHISOR SHALL PROHIBIT OR
ENFORCE A PROHIBITION AGAINST A FRANCHISEE FROM ENGAGING IN ANY LAWFUL
BUSINESS AT ANY LOCATION AFTER EXPIRATION, TERMINATION FOR GOOD CAUSE OR
TRANSFER OF A FRANCHISE, UNLESS NOT LESS THAN TEN DAYS BEFORE SUCH EXPI-
RATION, TERMINATION OR TRANSFER THE FRANCHISOR OFFERS IN WRITING TO
PURCHASE THE FRANCHISED BUSINESS FOR ITS FAIR MARKET VALUE AS A GOING
CONCERN. SUCH AN OFFER MAY BE CONDITIONED UPON ASCERTAINMENT OF THE FAIR
MARKET VALUE BY AN IMPARTIAL APPRAISER. THE PROVISIONS OF THIS SECTION
SHALL NOT PROHIBIT ENFORCEMENT OF PROVISIONS OF A FRANCHISE REQUIRING A
FRANCHISEE, AFTER EXPIRATION OR TERMINATION OF THE FRANCHISE TO:
1. ALTER THE APPEARANCE OF THE PREMISES AND THE MANNER OF OPERATION OF
THE FORMERLY FRANCHISED BUSINESS TO AVOID THE LIKELIHOOD OF CONFUSION AS
TO THE AFFILIATION OF THE BUSINESS WITH ITS FORMER FRANCHISOR OR THE
ORIGIN OF THE GOODS OR SERVICES IT OFFERS; OR
2. CEASE AND REFRAIN FROM USING A TRADE SECRET OF THE FRANCHISOR OR
ITS AFFILIATE.
§ 698-K. FREEDOM OF ASSOCIATION. 1. NO FRANCHISOR SHALL DIRECTLY OR
INDIRECTLY INHIBIT ITS FRANCHISEES FROM FORMING AN ASSOCIATION OR FROM
ASSOCIATING WITH OTHER FRANCHISEES FOR ANY LAWFUL PURPOSE. NOR SHALL ANY
FRANCHISOR PENALIZE, IN ANY WAY, ITS FRANCHISEES FOR SUCH ACTIVITIES.
2. EVERY FRANCHISOR WHICH HAS MORE THAN FIVE HUNDRED FRANCHISES OR
MORE THAN THREE HUNDRED FRANCHISEES, WITHIN THE UNITED STATES, SHALL
HAVE A DUTY TO BARGAIN IN GOOD FAITH WITH AN ORGANIZATION OF ITS FRAN-
CHISEES WHICH REPRESENTS IN GENERAL OR ON A SPECIFIC ISSUE OR SET OF
ISSUES A MAJORITY OF ITS FRANCHISEES IN THIS STATE.
§ 698-L. ENCROACHMENT. 1. SUBJECT TO THE PROVISIONS OF SUBDIVISION
THREE OF THIS SECTION, NO FRANCHISOR SHALL PLACE OR LICENSE ANOTHER TO
PLACE A NEW OUTLET IN AN UNREASONABLE PROXIMITY TO AN ESTABLISHED FRAN-
CHISED OUTLET WHICH OFFERS GOODS OR SERVICES IDENTIFIED BY THE SAME
TRADEMARK AS THE NEW OUTLET, IF THE INTENT OR PROBABLE EFFECT OF ESTAB-
LISHING THE NEW OUTLET IS TO CAUSE A DIMINUTION OF GROSS SALES BY THE
EXISTING OUTLET OF MORE THAN TEN PERCENT IN THE TWELVE MONTHS FOLLOWING
THE ESTABLISHMENT OF THE NEW OUTLET.
2. A FRANCHISEE INJURED OR LIKELY TO BE INJURED BY VIOLATION OF THE
PROVISIONS OF THIS SECTION MAY ENJOIN THE VIOLATION OR PENDING VIOLATION
AND RECOVER DAMAGES CAUSED BY THE VIOLATION, WHICH MAY INCLUDE A REASON-
ABLE ESTIMATION OF THE PLAINTIFF'S PROFITS LOST AS A CONSEQUENCE OF THE
VIOLATION, AND OTHER APPROPRIATE RELIEF.
3. THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO THE ESTABLISHMENT
OF A NEW OUTLET IF, BEFORE THE NEW OUTLET OPENS FOR BUSINESS THE FRAN-
CHISOR OFFERS IN WRITING TO THE FRANCHISEE OF THE ESTABLISHED OUTLET OR
OUTLETS TO PAY TO THE FRANCHISEE, IF THE SALES OF THE ESTABLISHED OUTLET
OR OUTLETS DECLINE BY MORE THAN TEN PERCENT IN THE TWELVE MONTHS FOLLOW-
ING ESTABLISHMENT OF THE NEW OUTLET AS A CONSEQUENCE OF OPENING THE NEW
OUTLET, AN AMOUNT EQUAL TO TEN PERCENT OF THE GROSS SALES (NET OF SALES
TAXES, RETURNS AND ALLOWANCES) OF THE NEW OUTLET FOR THE FIRST TWENTY-
FOUR MONTHS OF THE NEW OUTLET'S OPERATION.
4. IF THE FRANCHISOR MAKES A WRITTEN OFFER UNDER THE PROVISIONS OF
SUBDIVISION THREE OF THIS SECTION, OR IN AN ACTION OR PROCEEDING UNDER
A. 3823 7
SUBDIVISION TWO OF THIS SECTION, THE FRANCHISOR HAS THE BURDEN OF PROOF
TO SHOW THAT, OR THE EXTENT TO WHICH, A DECLINE IN SALES OF THE ESTAB-
LISHED FRANCHISE OUTLET OR OUTLETS OCCURRED FOR REASONS OTHER THAN THE
OPENING OF THE NEW OUTLET.
§ 698-M. DISCRIMINATION PROHIBITED. IN GRANTING FRANCHISES, CONSIDER-
ING APPROVAL OF TRANSFERS OF FRANCHISES, AND IN ADMINISTERING ITS FRAN-
CHISE SYSTEM, A FRANCHISOR SHALL NOT DISCRIMINATE AGAINST A FRANCHISEE
OR PROSPECTIVE FRANCHISEE ON THE BASIS OF RACE, COLOR, RELIGION,
NATIONAL ORIGIN, SEX, OR DISABILITY.
§ 2. This act shall take effect on the thirtieth day after it shall
have become a law.