1.If a franchisor develops, or grants to a franchisee the right to develop, a new outlet
or location which sells essentially the same goods or services under the same trademark,
service mark, trade name, logotype, or other commercial symbol as an existing franchisee
and the new outlet or location has an adverse effect on the gross sales of the existing
franchisee’s outlet or location, the existing adversely affected franchisee has a cause of
action for monetary damages in an amount calculated pursuant to subsection 3, unless any
of the following apply:
a.The franchisor has first offered the new outlet or location to the existing franchisee on
the same basic terms and conditions available to the other potential franchisee, or, if the new
outlet or location is to be owned by the franchisor
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1. If a franchisor develops, or grants to a franchisee the right to develop, a new outlet
or location which sells essentially the same goods or services under the same trademark,
service mark, trade name, logotype, or other commercial symbol as an existing franchisee
and the new outlet or location has an adverse effect on the gross sales of the existing
franchisee’s outlet or location, the existing adversely affected franchisee has a cause of
action for monetary damages in an amount calculated pursuant to subsection 3, unless any
of the following apply:
a. The franchisor has first offered the new outlet or location to the existing franchisee on
the same basic terms and conditions available to the other potential franchisee, or, if the new
outlet or location is to be owned by the franchisor, on the terms and conditions that would
ordinarily be offered to a franchisee for a similarly situated outlet or location.
b. The adverse impact on the existing franchisee’s annual gross sales, based on a
comparison to the annual gross sales from the existing outlet or location during the
twelve-month period immediately preceding the opening of the new outlet or location, is
determined to have been less than five percent during the first twelve months of operation
of the new outlet or location.
c. The existing franchisee, at the time the franchisor develops, or grants to a franchisee
the right to develop, a new outlet or location, is not in compliance with the franchisor’s then
current reasonable criteria for eligibility for a new franchise. A franchisee determined to be
ineligible pursuant to this paragraph shall be afforded the opportunity to seek compensation
pursuant to the formal procedure established under paragraph “d”, subparagraph (2). Such
procedure shall be the franchisee’s exclusive remedy.
d. The franchisor has established both of the following:
(1) A formal procedure for hearing and acting upon claims by an existing franchisee with
regard to a decision by the franchisor to develop, or grant to a franchisee the right to develop,
a new outlet or location, prior to the opening of the new outlet or location.
(2) A reasonable formal procedure for awarding compensation or other form of
consideration to a franchisee to offset all or a portion of the franchisee’s lost profits caused
by the establishment of the new outlet or location. The procedure shall involve, at the option
of the franchisee, one of the following:
(a) A panel, comprised of an equal number of members selected by the franchisee and the
franchisor, and one additional member to be selected unanimously by the members selected
by the franchisee and the franchisor.
(b) Aneutralthird-partymediatororanarbitratorwiththeauthoritytomakeadecisionor
awardinaccordancewiththeformalprocedure. Theprocedureshallbedeemedreasonableif
approvedbyamajorityofthefranchisor’sfranchiseesintheUnitedStates, eitherindividually
or by an elected representative body.
(c) Arbitration of any dispute before neutral arbitrators pursuant to the rules of the
American arbitration association. The award of an arbitrator pursuant to this subparagraph
division is subject to judicial review pursuant to chapter 679A.
2. Afranchisorshallestablishandmakeavailabletoitsfranchiseesawrittenpolicysetting
forth its reasonable criteria to be used by the franchisor to determine whether an existing
franchisee is eligible for a franchise for an additional outlet or location.
3. a. In establishing damages under a cause of action brought pursuant to this section,
the franchisee has the burden of proving the amount of lost profits attributable to the
compensable sales. In any action brought under this section, the damages payable shall
§523H.6, FRANCHISES 6
be limited to no more than three years of the proven lost profits. For purposes of this
subsection, “compensable sales” means the annual gross sales from the existing outlet or
location during the twelve-month period immediately preceding the opening of the new
outlet or location less both of the following:
(1) Five percent.
(2) The actual gross sales from the operation of the existing outlet or location for the
twelve-month period immediately following the opening of the new outlet or location.
b. Compensable sales shall exclude any amount attributable to factors other than the
opening and operation of the new outlet or location.
4. Any cause of action brought under this section must be filed within eighteen months of
the opening of the new outlet or location or within three months after the completion of the
procedure under subsection 1, paragraph “d”, subparagraph (2), whichever is later.
5. Upon petition by the franchisor or the franchisee, the district court may grant a
permanent or preliminary injunction to prevent injury or threatened injury for a violation
of this section or to preserve the status quo pending the outcome of the formal procedure
under subsection 1, paragraph “d”, subparagraph (2).