State franchise laws and the Small Business Franchise Act of 1999: Barriers to efficient distribution

This Article looks at how state franchise laws have been applied to manufacturers. Because of definitional overbreadth, the laws have been applied to conventional supplier-reseller relationships, not just traditional franchises, to override bargained-for promises in distribution agreements, such as termination at will. The Article also looks at the Small Business Franchise Act of 1999, pending in Congress, and considers its potential effect on product distribution by manufacturers. In contrast to federal antitrust policy, which favors competition and promotion of consumer welfare, state franchise laws have been applied to protect underperforming dealers and distributors or limit efficiency-enhancing distribution changes by manufacturers, and the Small Business Franchise Act of 1999 could be expected to have the same application. These laws pose significant obstacles to manufacturers seeking to adapt distribution systems to the demands of e-commerce and globalization of the economy.