Wednesday, October 13, 2010

Puerto Rico's Dealer and Franchise Statute Adapts to the Latest Developments in Law, Commerce and Technology

My partner Manuel Pietrantoni and this author published the referenced article on Law 75 in Volume 30, Number 1, of the Franchise Law Journal of the American Bar Association (Summer 2010). The legal currents under Law 75 addressed in the article include transfers, assignments or acquisitions, product sales diversion, constructive termination and preemption under federal copyright and trademark laws.

For those curious about the topics covered in the article, feel free to contact us at or

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Sunday, October 10, 2010

Puerto Rico’s Legislature moves to regulate franchising: is Law 75 inadequate?

El Nuevo Dia, Oct. 9, 2010 at 44, reported that representatives of a group of eight McDonald’s franchisees testified at a Commission of the House of Representatives to urge the passage of legislation to regulate unfair franchising practices. The hearing came about because McDonald’s franchisor sold its franchise rights or assets in Puerto Rico to “Arcos Dorados” an entity who is said to have refused to renew the franchise agreements and retaliated against the eight franchisees that complained to the press about alleged abusive franchising practices. There is ongoing litigation in Puerto Rico’s Court of First Instance, San Juan Part over this subject matter, including allegations that Arcos Dorados has failed to participate in coop advertising programs and allowed the establishment of competing restaurants in the territories of the existing franchisees. The Committee’s President allegedly remarked that the need to regulate franchising in Puerto Rico is “urgent and necessary.”

Is it urgent and necessary? Many states have statutes with disclosure requirements when franchisors offer to sell franchise rights for a fee. But problems with disclosures do not appear to be prominent in the McDonald’s dispute, at least as far as we are able to tell from the article. Many statutes in the states similar to Law 75 regulate abusive or unfair practices in dealer relationships, including franchising. Is the necessity to regulate a franchise based on a perceived notion that retail food establishments lack the protection of dealers under Law 75? It could be. But, there is no hard, fast, and absolute rule or statutory exclusion that retailers do not qualify for protection as Law 75 dealers. Who is a dealer turns on the facts and circumstances of each case. Is there another concern that an acquiring franchisor (or the seller) may impair at will the existing franchise agreements without violating Law 75? On this point there is a body of developed case law under Law 75 defining the rights and obligations of those selling and acquiring dealership rights.

Before the Legislature moves hastily to pass legislation it should consider whether or not Law 75, as enacted, is sufficient to protect the rights of franchisees.