October 24, 2019 | Legal News
WA Supreme Court Creates Guidance for Franchisor Mark-Ups
The Washington Franchise Investment Protection Act prohibits franchisors from selling or renting to a franchisee any product or service for more than a fair and reasonable price. But the determination of what constitutes fair market value can sometimes be in the eye of the beholder.
On September 19, 2019, the Washington Supreme Court held that what constitutes a fair and reasonable price is a question of fact. And it enumerated a lengthy list of non-exhaustive, non-exclusive, and non-mandatory factors a fact-finder might consider in determining whether the price charged was fair and reasonable, including:
- the price at which the franchisor acquired the product or service;
- competitor franchisors’ prices (and whether the prices of all franchisors are the same);
- the franchisor’s profit margin;
- the franchisor’s charges to other franchisees for the same or similar products or services;
- what similarly situated franchisors charge similarly situated franchisees for the same or similar products or services;
- business and industry practices;
- the price paid by the franchisor for the products or services;
- the price at which the franchisee could obtain the same or equivalent products or services elsewhere, including in an arms-length deal on the open market; and
- other less tangible market forces, like the value the franchisor adds to the product or service, if any.
The list ensures that litigating franchisor mark-ups will be expensive. But what’s more troubling is that the decision provides little guidance as to the standards that should be applied to determine whether the price charged was fair and reasonable beyond whether it “accords with a price acceptable to a prudent person in similar circumstances.”