Who does Franchise law serve?

June 7, 2008

Laws should be like clothes. They should be made to fit the people they serve.

Clarence Seward Darrow (1857 – 1938).

I believe Darrow is correct: Existing franchise laws do protect who they are meant to protect. But it is not who most investors think it is.

If not Me, Who then?

  1. Many franchise investors think the laws are there to serve them.
  2. Franchisors (product and business format), franchisor associations, the franchise bar, bankers, sales agents, and bankers believe the laws are there to serve them.

Who do you think is likely to be more accurate?


  1. Laws are a result of a competition between brokered interests within a democratic political arena. Those without a voice, have no influence.
  2. The law can be used to present an illusion of safe (or safer) investing when, in fact, the opposite might be true.
  3. The business of providing legal services can further distort any attempts of remedy through the law.
  4. Any franchisee legal “win” lasts as long as it takes to sell the legal “software patch” by the franchise bar to their customers (franchisors).
  5. Franchise attorneys act as litigation gatekeepers. Perfectly valid claims are routinely sabotaged because the lawyers depend so much on profile and referrals from their national association.
  6. Legal services are a credence good AND an effective monopoly (once you choose one lawyer). The risk of experiencing a legal expert who cheats is quite high.

Credence Good Monopolists

With a credence good, consumers are never sure about the extent of the good that they actually need. Experts such as doctors and lawyers, as well as auto mechanics and appliance service-persons (the sellers) not only provide the services, but also act as the expert in determining the customer’s requirements. This information asymmetry between buyers and the seller creates strong incentives for the seller to cheat… Credence Goods Monopolists, Winand Emons, 1997

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