(a) In other instances, franchise arrangements do result in bringing
a dealer's business into a larger enterprise with the one granting the
franchise. Where the franchise arrangement results in vesting control
over the operations of the dealer's business in the one granting the
franchise, the result is to place the dealer in a larger
enterprise with the one granting the franchise. Where there are multiple
units to which such franchises have been granted, the several dealers
are considered to be subject to the common control of the one granting
the franchise and all would be included in the same larger enterprise.
(b) It is not possible to lay down specific rules to determine
whether a franchise or other agreement is such that a single enterprise
results because all the facts and circumstances must be examined in the
light of the definition of the term ``enterprise'' as discussed above in
this subpart. However, the following example illustrates a franchising
company and independently owned retail establishments which would
constitute a single enterprise:
(1) The franchisor had developed a system of retail food store
operations, built up a large volume of buying power, formulated rules
and regulations for the successful operation of stores together
constituting a system which for many years proved in practice to be of
commercial value to the separate stores; and
(2) The franchisor desired to extend its business through the
operation of associated franchise stores, by responsible persons in
various localities to act as limited agents, and to be parts of the
system, to the end that the advantages of and the profits from the
business could be enjoyed by those so associated as well as by the
franchisor; and
(3) The stores were operated under the franchise as part of the
general system and connected with the home office of the franchisor from
which general administrative jurisdiction was exercised over all
franchised stores, wherever located; and
(4) The stores operated under the franchise agreement were always
subject to the general administrative jurisdiction of the franchisor and
agreed to comply with it; and
(5) The stores operated under the franchise agreed to install
appliances, fixtures, signs, etc. according to plans and specifications
provided by the franchisor and to purchase their merchandise through the
franchisor except to the extent that the latter may authorize local
purchase of certain items; and
(6) The stores operated under the franchise agreed to participate in
special promotions, sales and advertising as directed by the franchisor,
to attend meetings of franchise store operators and to pay a fee to the
franchisor at the rate of one-half of 1 percent of total gross sales
each month for the privileges to them and the advantages and profits
derived from operating a local unit of the franchisor's system; and
(7) The franchisor under the franchise agreement had the right to
place on a prohibited list any merchandise which it considered
undesirable for sale in a franchise store, and the stores operated
pursuant to the franchise agreed to immediately discontinue sale of any
such blacklisted merchandise.
(c) It is clear from the facts and circumstances surrounding this
franchise arrangement described in paragraph (b) of this section that
the operators of the franchised establishments are denied the essential
prerogatives of the ordinary independent businessman because of
restrictions as to products, prices, profits and management. The last
paragraph of the Senate Report quoted in Sec. 779.229 makes clear that
in such cases the franchised establishment, dealer, or concessionaire
will be considered an integral part of the related activities of the
enterprise which grants the franchise, right, or concession.
