Baskin-Robbins charges a dairy supplier a so-called "commercial factor" fee for the right to make and sell Baskin-Robbins proprietary ice cream to franchisees. The supplier's pricing to franchisees includes an amount equal to this fee. In Association of Independent BR Franchise Owners v. Baskin-Robbins Franchising, LLC, a franchisee association asked a federal court to rule this price component was an unauthorized fee. But the court ruled for Baskin-Robbins, holding that the charge to franchisees was permissible.

The court found that Baskin-Robbins franchisees pay a "price" for products they buy, not a "fee." Relying on dictionary definitions of "fee" and "price," and noting that Baskin-Robbins franchisees pay a single amount to the supplier for products, the court found that while the commercial factor was a fee the franchisor charged its supplier for the privilege of selling ice cream under Baskin-Robbins's name, the supplier simply charged franchisees for the products and that was not a fee.

The court also considered whether Baskin's franchise agreement prohibited the supplier from charging a pass-through cost to franchisees. The court found that the relevant provisions in the franchise agreement required franchisees to buy products from Baskin-Robbins' designated supplier, at the supplier's price. The court noted that pass-through costs and charges along the supply chain are standard industry practice. The court added that even if it found ambiguity in the franchise agreement, the parties' course of dealing showed that a supplier passing along its cost to franchisees was not prohibited. The franchisees paid for many years without objection and Baskin-Robbins disclosure document noted that the franchisor received revenue from franchisees' purchases of products from designated suppliers.

Some franchisors are creative in finding ways to collect monies from franchisees beyond straight royalties and advertising fees. Prospective franchisees should carefully review the disclosure document, talk with other franchisees and learn about practices in their system, to be informed about each source of revenue, and both direct and indirect charges, their franchisor imposes.

Read: Association of Independent BR Franchise Owners v. Baskin-Robbins Franchising, LLC