Tesla and the Auto Franchising Debate

The issue of auto franchising is front and center in Connecticut. Senate Majority Leader Bob Duff, D-Norwalk introduced a bill to allow electric car manufacturers to sell their vehicles directly to Connecticut consumers. The bill limits electric car manufacturers to three Connecticut stores.

This is a change from the current system that requires all car manufacturers to apply for a franchise license and offer vehicle servicing. The Connecticut Automotive Retailers Association (CARA) wants electric car manufacturer Tesla to be held to the same standards and requirements as other car companies. CARA President James Fleming said. “We would welcome (Tesla) to join us in the franchise system today, as we have asked them over the past couple of years when they’ve come in to visit the state of Connecticut.”

CARA, the Alliance of Auto Manufacturers, and General Motors joined to make the statement that the state’s auto franchise system is effective and special treatment should not be given. “What we want to make sure we have is one set of regulations for everybody who’s going to compete in this marketplace,” said Landon Fulmer, vice president of state affairs for the Alliance of Auto Manufacturers. “We don’t need carve-outs, we don’t need loopholes. We need to make sure everybody plays by the same rules.”

Watch and see whether Tesla and other electric car manufacturers will be given special treatment.

Auto Retailers, Makers Call on Tesla to Apply for Franchise The CT Mirror Mar 1, 2016

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Hong Kong Franchise Laws

Franchises and franchise agreements must comply with the competition rules in Hong Kong’s Competition Ordinance. While franchises have a right to protect their brand and intellectual property, they don’t have a right to limit competition. Excessive restrictions demanded by franchises will run afoul of competition law, but measures specifically necessary to implement the franchise agreement will not.

Beware these restrictions:

  1. Resale Price Maintenance (RPM). The Ordinance’s First Conduct Rule (FCR) prohibits an agreement or arrangement between two parties that has the object or effect of harming competition in Hong Kong. A franchisor may, therefore, provide a franchisee with  a recommended price list and a maximum price, but may not require a franchisee to resell goods or services at a fixed or minimum resale price.
  2. Non-compete. An overly zealous non-compete with a broad scope or extended duration likely breaches the First Conduct Rule. Franchisors may restrict a franchisee’s operation to a specific territory and prevent a franchisee from selling competitive goods.
  3. Franchisee suppliers. “A franchisor may require franchisees to purchase goods or services from the franchisor, a related company, a particular supplier, or a list of nominated suppliers.” Such arrangements, however, should not limit competition.

Navigating the Hong Kong Competition Law – Competition Issues in Franchise Agreements Bird & Bird Feb 25, 2016

Today’s Headline: Wage Law Heads to Supreme Court

“The International Franchise Association is appealing part of Seattle’s $15 minimum wage law that it claims discriminates against franchise owners,” reports the Seattle Times.

The association lost to a federal appeals court panel last fall. The group’s original lawsuit was filed in 2014, arguing that franchises should be treated as small, locally-owned companies rather than enterprise-level companies with hundreds of employees.

The International Franchise Association President and CEO Robert Cresanti said, “Our appeal to the Supreme Court will be focused solely on the discriminatory treatment of franchisees under Seattle’s wage law and the motivation to discriminate against interstate commerce.”

Seattle has 30 days to respond to the petition. The Supreme Court is expected to decide this spring if they will hear the case.