Two oil companies announced plans yesterday to sue the Federal Trade Commission in an attempt to revise new rules requiring extensive business disclosure by firms selling franchises.
Shell Oil Company has gone into federal court in New Orleans and Phillips Petroleum Company says it will soon file suit in Denver in an effort to block the franchise regulations.
The rules, which were published earlier this week, require complex and lengthy disclosures by franchisers, such as McDonalds, to potential investors.
Franchisers would, for example, have to give detailed reports on projected earnings for the franchise, as well as substantial background business information about the franchiser and its officers. They would also have to inform the investor of what protucts he would have to buy directly from the franchiser.
The rules were created to protect consumers from fraud at the hands of franchisers. There have been many reports, for example, of investors building up a money-making business only to have the franchiser then exercise a little-known or ill-understood clause allowing it to buy back the franchisee's interests.
The oil companies are affected because many gas station operations are franchises.
Oil company spokesmen claim, however, that this law merely duplicates many of the protective measures included for petroleum industry franchises in other legislation, including the recently enacted Petroleum Marketing Practices Act.
"These regulations were not designed for our kind of franchise," said Shell spokeman and attorney ,ike Minnotti in a telephone interview from New Orleans. "The petroleum industry should be excluded. Our franchiese don't even make an investment, and the abuses cited never happened in this industry.
"This rule," he added, "hits the consumer once through more expensive goods and services and then again through higher cost of government."
Shell contends that the rule creates "mounds" of unnecessary paperwork. "For example", the spokesman said, "Shell will have to publish several documents about the size of major city telephone directories, supply them to several thousand service station dealers, and then reprint updated versions every six months."
He called such activity "a continuing waste of millions of dollars."