Item 3: Litigation
Content: A list of all the litigation the company is either currently involved in or anything the company has been convicted of over the last 10 years. It lists the details of the court cases so you can do your own research into them.
Purpose: A protection assuring the prospective franchisee is fully aware of past actions and actions pending.
Tips & Advice: You want to be careful if the franchisor has a large amount of activity in this area. Keep in mind the existence of litigation is not necessarily bad, such as litigation that enforces the integrity of the franchise system or if an action is labeled “ordinary routine litigation.” The litigation to worry about is action that threatens the viability of the overall system, such as a patent claim that could harm or remove a key component in the product mix or a judgment that has long-term financial implications. You also want to be wary of systems that simply resort to legal action every time a franchisor or franchisee is unhappy. Every system will have disagreements from time to time. A healthy system is able to resolve the disagreement without resorting to legal action in the majority of the cases.