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Franchise Act Interpretive Statement FIS-06

RE: Filing Requirements in Connection with Franchise Advertising on the Internet

Question Presented:

Must copies of all advertising published via the Internet in connection with a registered franchise offering be filed with the Securities Division?

Statutes:

Washington’s Franchise Investment Protection Act (FIPA), at RCW 19.100.100, provides that "no person shall publish in this state any advertisements offering a franchise subject to the registration requirements of this law unless a true copy of the advertisement has been filed in the office of the director at least seven days prior to the publication..."

"Advertisement" is defined in RCW 19.100.010 as "any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communication media published in connection with an offer or sale of a franchise."

Discussion:

The North American Securities Administrators Association (NASAA), on September 9, 2001, adopted Statement of Policy Regarding Franchise Advertising on the Internet, which encourages states to take appropriate steps to exempt from advertising filing requirements certain offers of franchises over the Internet. See Bus. Franchise Guide (CCH) ¶ 5,810. In adopting this statement of policy, NASAA recognized that the Internet has facilitated greatly the ability to communicate and that a communication on the Internet about a franchise offering may be construed as "advertising" requiring the person making that communication to file that communication with regulators. NASAA further recognized that a communication made via the Internet may be directed to both specific recipients and also to anyone with access to the Internet.

RCW 19.100.100 pertains to advertisements published in Washington. Given the broad reach of the Internet, it is appropriate to provide guidance on when a communication broadcast over the Internet will be deemed to be published in Washington for purposes of RCW 19.100.100.

Conclusion:

Consistent with the approach contained in the NASAA statement of policy, the Administrator interprets advertising “publish[ed] in this state,” as used in RCW 19.100.100, to exclude Internet advertising of franchise offerings required to be registered in this state so long as the following conditions are satisfied:

The franchisor discloses to the Administrator the Uniform Resource Locator (“URL”) address or similar address or device identifying the location of the Internet Advertising: (1) on the cover page of a franchise offering circular included with an application for registration that is effective in the State of Washington; or (2) on a notice filed with the Administrator within 5 business days after publication; and

The Internet Advertising is not directed to any person in the State of Washington by or on behalf of the franchisor or anyone acting with the franchisor’s knowledge.

Franchisors should note the following in connection with the adoption of this interpretive statement:

This position pertains only to filing requirements for Internet advertisements of franchise offerings subject to the registration requirements of the FIPA. Internet offerings are still subject to the registration, anti-fraud and other sections of the FIPA. Further, franchisors are reminded that actual sales of franchises in Washington may only be conducted if the offering has been registered or is exempt from registration under RCW 19.100.030.

Internet advertising of registered franchise offerings remains subject to review by the Division and comments may be issued requesting additional or revised disclosure.

Franchisors should also note that since RCW 19.100.100 applies only to franchise offerings required to be registered under FIPA, this Interpretive Statement does not apply to offerings that are exempt from the franchise registration requirements. Advertisements concerning such exempt offerings are not required to be filed under FIPA.

Any offering involving a material misstatement or omission of fact or fraud is subject to regulatory enforcement action by the Division.

For a general discussion of franchise offerings on the Internet, please see Franchise Act Policy Statement No. 7, adopted Aug. 18, 1999.

Adopted: March 3, 2006
Michael Stevenson, Director of Securities
Prepared by: Faith L. Anderson, Senior Financial Examiner