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Many lawyers find out the hard way that franchising laws aren’t just for setting up and expanding the next KFC or Holiday Inn. A frighteningly wide variety of contracts — from software licenses to joint ventures, distribution agreements to strategic alliances — can trigger the creation of a franchise where one was never intended. A business, unaware that a franchise has been created through a given contract, may take seemingly innocent actions without realizing it is stepping onto a franchise land mine. And violations of franchise laws can have severe consequences. Companies can be hammered by multimillion-dollar verdicts and government actions, and lawyers who drafted the contract can find themselves on the losing end of a malpractice suit. WHAT IS A FRANCHISE? Understanding what constitutes a franchise is problematic because there is no singular definition. One thing is certain, however: A franchise is a far more expansive concept than most lawyers realize. Franchising laws, regulated by strict-liability statute at the federal and state level, are notorious for being fraught with ambiguity, complexity, and contradiction. The Federal Trade Commission Act (commonly referred to as the FTC Rule) does not recognize oral contracts, and holds that a franchise is created when three elements are present in a written contract:

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