LEGISLATION REGULATING INTERNATIONAL FRANCHISE CONTRACTS (luận văn thạc sỹ luật)

HO CHI MINH CITY UNIVERSITY OF LAW THE MANAGING BOARD OF SPECIAL TRAINING PROGRAMS BACHELOR’S THESIS INTERNATIONAL LAW MAJOR LEGISLATION REGULATING INTERNATIONAL FRANCHISE CONTRACTS Student: Le Thi Thanh Binh Student ID: 0955060138 Class: CLC34 Supervisor: LL.M Vu Duy Cuong HO CHI MINH CITY 2013 HO CHI MINH CITY UNIVERSITY OF LAW THE MANAGING BOARD OF SPECIAL TRAINING PROGRAMS BACHELOR’S THESIS IN LAW REGULAR EDUCATION COURSE 34 (YEAR 2009 - 2013) LEGISLATION REGULATING INTERNATIONAL FRANCHISE CONTRACTS Student: Le Thi Thanh Binh Student ID: 0955060138 Class: CLC34 Supervisor: LL.M Vu Duy Cuong HO CHI MINH CITY 2013 COMMITMENT I guarantee that this is my own research, all information used in the thesis about the footnote, references, quotation… is faithful I am completely responsible for this commitment The Thesis‟ author Le Thi Thanh Binh TABLE OF CONTENTS INTRODUCTION 1 The necessity of the research The objects and the scopes of the research 2.1 The objects 2.2 The scopes of the thesis 3 The situations of the research CHAPTER 1: BASIS CONTENTS ABOUT INTERNATIONAL FRANCHISE 1.1 The development of international franchise 1.2 Definition and features of international franchise 1.2.1 Definition 1.2.2 Features 12 1.3 Classification 15 1.3.1 Basing on the franchise methods 15 1.3.2 Basing on the objects of franchise 17 1.4 Some Legal issues about International Franchise 18 1.4.1 Intellectual property law 18 1.4.2 Competition law 21 1.4.3 The other kinds of law 24 CHAPTER 2: LAW ON INTERNATIONAL FRANCHISE CONTRACT 28 2.1 Common legal issues about international franchise contract 28 2.1.1 Definition of international franchise contract 28 2.1.2 Valid conditions of franchise contract 29 2.1.2.1 The subjects 30 2.1.2.2 The content 30 2.1.2.3 The form of the contract 31 2.1.3 Rights and liabilities of the parties 31 2.1.4 Suspending and terminating conditions 33 2.2 Vietnamese law regulating international franchise contract 34 2.2.1 The subjects in the contract 35 2.2.2 The form of the contract 37 2.2.3 The content 38 2.2.4 Suspending, changing and terminating the contract 38 2.3 Legislation governing international franchise contract in UK–in comparison with that in Vietnam 40 2.3.1 The subjects in the contract 40 2.3.2 The form of the contract 43 2.3.3 The content of the contract 43 2.3.4 Terminating the contract 45 2.3.5 Some other regulations 46 2.4 Recommendations 48 2.4.1 Something needs to be changed 48 2.4.2 Some additional terms 50 CONCLUSION 54 INTRODUCTION The necessity of the research Having appeared since the middle of 19 century in US1, franchise has become a very popular way of trading all over the world, which brings a lot of great results to many countries‟ economy This trading kind is not only a beneficial one for the franchisors but also a fast and safe way to business for the franchisees Therefore, it is obviously spreading from countries to countries as a tendency of copying what having so many merits Once getting out of the limitation of a country, franchise, somehow called international franchise in this case, must endure a variety of legal issues of both initial country and the franchised country such as the import or export aspects, tax, contract and commercial law, intellectual property and competition law… those are very necessary to pay attention to if the businessmen in franchise want to get benefits Among those legal issues concerning to international franchise, that of the contract is the most important and should be researched, in my opinion Firstly, the contract shows the most clearly about the relationship thus it is the prior proof when disputation happens Secondly, this kind of business is very special in the agreement of the parties because the contract, to some extent, doesn‟t contain the equality of them The franchisors can give out some conditions of trading that the franchisees must follow so what makes the franchisees accept the contract? Besides, the kind of contract can be misunderstood to be the others such as the licensing of the agency ones because it brings many similar characteristics of the thesis, so what makes it different? Finally, in the situation that the economic barrier is smaller and smaller, trading from countries to countries is a tendency of businessmen, franchise is not an exception Therefore, legislation on international franchise contract is worth considering because it brings us the new view of the world trading as well as getting experiences to prove our countries on franchise contract http://baohothuonghieu.com/banquyen/tin-chi-tiet/lich-su-nhuong-quyen-thuong-mai/514.html (accessing on 02/07/2013) In addition, in our country, international franchise has also developed much in the recent years More than 30 powerful trademarks appeared in Vietnam through franchise2 such as KFC (from USA since 1998), Lotteria (from Korea since 1998), Honda (from Japan since 1996), Suzuki (from Japan since 1996), Gloria Jean‟s coffee (from Australia since 2007) Besides, our domestic enterprises tend to franchise overseas more and more At this moment, there are some typical Vietnamese trademarks in foreign countries like Trung Nguyen coffee (since 1998), AQ silk (since 2002), Kinh Do bakery (since 2005)…It is very easy to understand that franchise is chose by many businessmen as an obvious tendency in our country Firstly, Vietnam is a very potential market attracting many foreign investors and secondly, domestic enterprises also want to try to business overseas However, because having just appeared in Vietnam from the 90s of the last century3, our legislation on international franchise has not much efficient completed Vietnamese businessmen still get many difficulties when receiving commercial rights from the foreign franchisors because once they have enough financial power, franchisors often tend to business themselves and franchisees can endure a lot of risks Besides, in the franchising relationship, the franchisors often have a lot of rights over the franchisees Therefore, our domestic legislation is responsible in regulating the international franchise contract in the ways to protect our domestic franchisees, especially to help them at least get back the huge amount of money they have to invest to build a franchising store (for example: to build a franchising store of Lotteria, a franchisee must pay 250.000 USD4) In addition, it is also necessary to control the case Vietnamese franchisors join the foreign markets In conclusion, because of the development of this international kind of business and the some weak points of Vietnamese law in regulating it, researching on the legislation regulating international franchise contracts is necessary The objects and the scopes of the research According to the report of integration and development newspaper in July and August (2012) http://nld.com.vn/20130319090841110p1014c1088/kinh-doanh-nhuong-quyen-tai-viet-nam.htm (accessing on 02/07/2013) http://tapchikinhdoanh.com.vn/3523/nhieu-kho-khan-trong-kinh-doanh-nhuong-quyen-thuong-mai/ (accessing on 02/07/2013) 3 2.1 The objects The thesis focuses on researching international franchise and the legislation on the contracts for this kind of business, its system composes two chapters with the contents below The first chapter gives a total understanding of international franchise: historical development in the world as well as in Vietnam, definition, characteristics, classification and some basic legislation worth paying attention in doing franchise overseas such as intellectual law, competition law or contract law… Besides, Through this, we can see generally about this kind of trading and take some attention to noticeable legal issues, which is the basement for the below part The second chapter studies about the law on international franchise contracts This is divided in three main parts: part researches for the common legislation of international franchise contracts that gives the basic knowledge about this kind, part particularly concentrates on the Vietnamese regulations To have clear evaluation about Vietnamese law, part combines studying UK law on international franchise contract and comparing it to Vietnamese law, from those I conclude some lessons for us in franchise legal aspects and give recommendations to improve Noticeably, the legislation on international franchise contracts are somehow similar to the domestic ones, the differences are only in the “foreign elements” Therefore, during studying them in the essay, in the similar parts, I use the world “franchise contract” or just “contract” to shorten the way calling as well as show that there are a lot of regulations which are used for both and the recommendations in the end of the essays can mostly be applied to both 2.2 The scopes of the thesis The thesis represents some characteristics and regulations on international franchise as well as the contract of this trading type Firstly, my scope covers some basic features of international franchise to create a general look on this kind of trading before coming to details in the contracts The essay refers to some main features of this trading way and legal aspects that must be paid attention in international franchise Secondly, there are contents of the legislation on the contracts concentrating on four main points: the definition, the valid conditions (forms, subjects, content), rights and liabilities of the parties and the case of suspending and terminating the contract From those basic contents, I exploit in details two certain legal systems (Vietnam and UK) I choose the legal system of UK to study and compare it to Vietnamese law because franchise in this country develops much and has long time appearing In addition, this country doesn‟t have its special law on franchise, it uses regulations of the British Franchise Association and some common legislation As a result, the legal system on franchise of this country can be regarded as very simple but effective, it helps reducing the liability for foreign franchisors to invest but still ensure the safety for the domestic franchisees Therefore, I evaluate that UK law on franchise is worth studying Finally, I give evaluation as well as conclude some recommendation on changing our legal system for regulating international franchise contracts to improve the legislation on these The situations of the research During the period researching for the documents, I have the evaluation that in Vietnam, there are many people studying the franchise contract but the subject of international franchise contracts is not paid attention much There can be two reasons, the first is that this kind is also under many similar regulations like the domestic franchise contract and the second is that international franchise is a new trading way in our country Besides, except the common economic information about the foreign franchisors (such as how much to invest in a franchising store, how much stores are there in a system…) it is impossible to approach to the particular details about the contracts or business methods (like the form, content… of the contract or the way to franchise is direct or indirect…) to evaluate about the legal elements of the contract The reason may be these are the secrets of the enterprise Therefore, somehow my thesis tends to concentrate on the theory more than practice In the part of Vietnamese documents, the subject of franchise has become an old one that is referred by many authors in both economic aspect and legal aspect, some typical ones used in this essays composes the book named “Pháp luật điều chỉnh hợp đồng nhượng quyền thương mại điều kiện kinh tế xã hội Việt Nam” of Ph.D Vu Dang Hai Yen issued in 2011, “Franchise- chọn hay không” of businessman Nguyen Khanh Trung issued in 2008 and the essay named “Pháp luật điều chỉnh hợp đồng nhượng quyền thương mại điều kiện kinh tế xã hội Việt Nam” of Mr Ly Quy Trung written in 2005…However, the research about franchise with foreign elements is studied much, during the studying time, I found out an essay of Mr Nguyen Ba Binh, teacher of Ha Noi university of law, about the international franchise contract named “Hợp đồng nhượng quyền thương mại quốc tế theo quy định pháp luật Việt Nam”- issued in 2008 in the fifth legal magazine of Ha Noi university of law It is clear that the subject about legislation on international franchise contract is not much referred by Vietnamese authors but researching on the franchise contracts can be applied to the international ones because they have many common regulations In the essay, I will impress the “foreign element” of franchise contract In the part of foreign documents, there are also a lot of documents about franchise in internet or books… The website franchise.org supplies many countries‟ legislations on franchise and some reports of the development of franchise over the years Besides, the book “Franchising Law” written by Mr M Mendelsohn gives out a large amount of features of international franchise as well as franchise law in UK, it also gives a lot of interesting knowledge about the concerning law to franchise such as intellectual property law, contract law, competition law, labor law…The book “Intellectual Property in Europe” by Mr Guy Tritton also provides understandings about the international franchise under the view from intellectual property law Although franchise is not a fresh subject in our country, international franchise contract has not been researched much specifically In my opinion, there are still many aspects that should be studied, and the thesis below is my effort to exploit them My studying way is considering Vietnamese law regulating international Ly Quy Trung , “Methods to get success by franchise model” (Bí thành cơng mơ hình nhượng quyền kinh doanh), The youth publisher (2007) Nguyen Khanh Trung, “Franchise- choose or not” (Franchise-chọn hay không), HCM City National university publisher (2006) PhD Vu Đang Hai Yen, “Law on commercial franchise contract in the Vietnamese economic and social conditions” (pháp luật điều chỉnh hợp đồng nhượng quyền thương mại điều kiện kinh tế xã hội Việt Nam), the politics and administration publisher (2011) ENGLISH DOCUMENTS: Guy Tritton, “Intellectual Property In Europe”, London Sweet & Maxwell (2002) M Mendelsohn ,” Franchising law”, Richmond Law & Tax Ltd (2004) WEBSITES http://www.wto.org/english/tratop_e/trips_e/t_agm3_e.htm#2 http://www.customs.gov.vn/Lists/VanBanPhapLuat/ViewDetails.aspx?L ist=b83d2062-3090-4797-af61-7498eff47f51&ID=5540 http://www.doanhnhansaigon.vn/online/kinh-doanh/nhuongquyen/2013/05/1073433/nhuong-quyen-kinh-doanh-khong-don-gian/ http://www.lapres.net/franchise.pdf http://www.franchise.org.au/ APPENDIX 1: SOME TERMS IN BUFFALO WILD WINGS(R) FRANCHISE AGREEMENT, WHICH RELATE TO THE THESIS BETWEEN: BUFFALO WILD WINGS INTERNATIONAL, INC 1600 UTICA AVENUE, SUITE 700 MINNEAPOLIS, MN 55416 AND AUTHORIZED LOCATION: -Street: -City State Zip Code EFFECTIVE DATE: -(To be completed by us) This Franchise Agreement is made this day of , 2006 between BUFFALO WILD WINGS INTERNATIONAL, INC., an Ohio corporation with its principal business located at 1600 Utica Avenue South, Suite 700, Minneapolis, Minnesota 55416 ("we" or "us"), and , a whose principal business address is ("franchisee" or "you") If the franchisee is a corporation, partnership, limited liability company or other legal entity, certain provisions to this Agreement also apply to its owners In consideration of the foregoing and the mutual covenants and consideration below, you and we agree as follows: DEFINITIONS For purposes of this Agreement, the terms below have the following definitions: G "Trademarks" means the BUFFALO WILD WINGS Trademark and Service Mark that have been registered in the United States and elsewhere and the trademarks, service marks and trade names set forth on Appendix A, as we may modify and change from time to time, and the trade dress and other commercial symbols used in the Restaurant Trade dress includes the designs, color schemes and image we authorize you to use in the operation of the Restaurant from time to time GRANT OF LICENSE The following provisions control with respect to the license granted hereunder: B Designated Area You must locate and operate the Restaurant at an Authorized Location within the area described in Appendix B (the "Designated Area") We and our affiliates will not locate and operate or grant to anyone else a franchise to locate and operate a BUFFALO WILD WINGS restaurant within the Designated Area so long as this Agreement is in effect, except as provided in subparagraph 2.D You not have any right to sublicense or subfranchise within or outside of the Designated Area and not have the right to operate more than one Restaurant within the Designated Area TRADEMARK STANDARDS AND REQUIREMENTS You acknowledge and agree that the Trademarks are our parent company's property and it has licensed the use of the Trademarks to us with the right to sublicense to others You further acknowledge that your right to use the Trademarks is specifically conditioned upon the following: A Trademark Ownership The Trademarks are our parent company's valuable property, and it is the owner of all right, title and interest in and to the Trademarks and all past, present or future goodwill of the Restaurant and of the business conducted at the Authorized Location that is associated with or attributable to the Trademarks Your use of the Trademarks will inure to our parent company's benefit You may not, during or after the term of this Agreement, engage in any conduct directly or indirectly that would infringe upon, harm or contest our parent company's rights in any of the Trademarks or the goodwill associated with the Trademarks, including any use of the Trademarks in a derogatory, negative, or other inappropriate manner in any media, including but not limited to print or electronic media PRODUCTS AND OPERATIONS STANDARDS AND REQUIREMENTS You must implement and abide by our requirements and recommendations directed to enhancing substantial System uniformity The following provisions control with respect to products and operations: A Authorized Menu Your business must be confined to the preparation and sale of only such Menu Items and other food and beverage products as we designate and approve in writing from time to time for sale by your Restaurant You must offer for sale from the Restaurant all items and only those items listed as Menu Items and other approved food and beverage products We have the right to make modifications to these items from time to time, and you agree to comply with any modifications You may not offer or sell any other product or service at the Authorized Location without our prior written consent B Authorized Products and Ingredients You must use in the operation of the Restaurant and in the preparation of Menu Items and other food and beverage products only the proprietary sauces and mixes and other proprietary and nonproprietary ingredients, recipes, formulas, cooking techniques and processes and supplies, and must prepare and serve Menu Items and products in such portions, sizes, appearance, taste and packaging, all as we specify in our most current product preparation materials or otherwise in writing We will supply to you a copy of the current product preparation materials prior to opening the Restaurant You acknowledge and agree that we may change these periodically and that you are obligated to conform to the requirements All supplies, including containers, cups, plates, wrapping, eating utensils, and napkins, and all other customer service materials of all descriptions and types must meet our standards of uniformity and quality You acknowledge that the Restaurant must at all times maintain an inventory of ingredients, food and beverage products and other products, material and supplies that will permit operation of the Restaurant at maximum capacity C Approved Supplies and Suppliers We will furnish to you from time to time lists of approved supplies or approved suppliers You must only use approved products, services, inventory, equipment, fixtures, furnishings, signs, advertising materials, trademarked items and novelties, and other items or services (collectively, "approved supplies") in connection with the design, construction and operation of the Restaurant as set forth in the approved supplies and approved suppliers lists, as we may amend from time to time Although we not so for every item, we have the right to approve the manufacturer, distributor and/or supplier of approved supplies and in some instances, require that you use designated sources or suppliers Along with a number of other approval criteria, to be an approved supplier, the supplier must have the ability to provide the product and/or service, on a national basis, to at least 80% of the then existing Restaurants You acknowledge and agree that certain approved supplies may only be available from one source, and we or our affiliates may be that source All inventory, products, materials and other items and supplies used in the operation of the Restaurant that are not included in the approved supplies or approved suppliers lists must conform to the specifications and standards we establish from time to time ALTHOUGH APPROVED OR DESIGNATED BY US, WE AND OUR AFFILIATES MAKE NO WARRANTY AND EXPRESSLY DISCLAIM ALL WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, WITH RESPECT TO SERVICES, PRODUCTS, EQUIPMENT (INCLUDING, WITHOUT LIMITATION, ANY REQUIRED COMPUTER SYSTEMS), SUPPLIES, FIXTURES, FURNISHINGS OR OTHER APPROVED ITEMS IN ADDITION, WE DISCLAIM ANY LIABILITY ARISING OUT OF OR IN CONNECTION WITH THE SERVICES RENDERED OR PRODUCTS FURNISHED BY ANY SUPPLIER APPROVED OR DESIGNATED BY US OUR APPROVAL OR CONSENT TO ANY SERVICES, GOODS, SUPPLIERS, OR ANY OTHER INDIVIDUAL, ENTITY OR ANY ITEM SHALL NOT CREATE ANY LIABILITY TO US J Confidential Information You, the Principal Owners, the Unit General Manager, your guarantors, officers, directors, members, managers, partners, employees or agents, or any other individual or entity related to, or controlled by, you may not, during the term of this Agreement or thereafter, disclose, copy, reproduce, sell or use any such information in any other business or in any manner not specifically authorized or approved in advance in writing by us any Confidential Information For purposes of this Agreement, "Confidential Information" means the whole or any portion of know-how, knowledge, methods, specifications, processes, procedures and/or improvements regarding the business that is valuable and secret in the sense that it is not generally known to our competitors and any proprietary information contained in the manuals or otherwise communicated to you in writing, verbally or through the internet or other online or computer communications, and any other knowledge or know-how concerning the methods of operation of the Restaurant, as well as the content of this Agreement and any other document executed in connection with this Agreement Any and all Confidential Information, including, without limitation, proprietary ingredients, sauces and mixes, secret formulas and recipes, methods, procedures, suggested pricing, specifications, processes, materials, techniques and other data, may not be used for any purpose other than operating the Restaurant We may require that you obtain nondisclosure and confidentiality agreements in a form satisfactory to us from any persons owning a minority interest in the franchisee, the Principal Owners, the Unit General Manager and other key employees You must provide executed copies of these agreements to us upon our request Notwithstanding the foregoing, you are authorized to disclose the terms of this Agreement to any lender providing you financing for the Restaurant as well as to your landlord APPENDIX 2: THE EUROPEAN CODE OF ETHICS FOR FRANCHISING BY THE BRITISH FRANCHISE ASSOCIATION Introduction This Code of Ethical Conduct in franchising takes as its foundation the Code developed by the European Franchise Federation In adopting the Code, the Federation recognised that national requirements may necessitate certain other clauses or provisions and delegated responsibility for the presentation and implementation of the Code in their own country to individual member National Franchise Associations The Extension and Interpretation which follows the European Code has been adopted by the British Franchise Association, and agreed by the European Franchise Federation, for the application of the European Code of Ethics for Franchising by the British Franchise Association within the United Kingdom of Great Britain and Northern Ireland European Code of Ethics for Franchising Preface The European Franchise Federation, EFF, was constituted on 23rd September 1972 Its members are national franchise associations or federations established in Europe The EFF also accepts affiliates, i.e non-European franchise associations or federations, and other professional persons, interested in or concerned with franchising Affiliates have no voting rights and cannot be appointed officers of the EFF The objectives of the EFF are, among others, the ongoing unbiased and scientific study of franchising in every respect, the co-ordination of its members' actions, the promotion of the franchise industry in general and of its members' interests in particular The EFF also comprises a Legal Committee, composed of two lawyers from each national member association or federation who are highly qualified in franchise matters The EFF has, furthermore, installed a Franchise Arbitration Committee which is at the disposal of parties preferring to submit their disputes for the latter's determination The evolution and the ever-growing importance of franchising in the EC economy as well as the EC Block Exemption Regulation for franchise agreements, entered into force on 1st February 1989, prompted the EFF to revise its existing Code of Ethics This Code of Ethics is meant to be a practical collection of essential provisions for fair behaviour for franchise practitioners in Europe, but not to replace possibly related national or EC law This Code of Ethics is the end-product of work carried out by the European Franchise Federation and its member associations (Austria, Belgium, Denmark, Germany, France, Italy, the Netherlands, Portugal and the United Kingdom) in conjunction with the Commission of the European Community It shall replace the previous European Code of Ethics as well as all national and regional Codes existing at that time in Europe By subscribing to the EFF, its members accept the European Code of Ethics and undertake not to delete or amend it in any way It is, however, recognised that national requirements may necessitate certain other clauses or provisions and, providing these not conflict with or detract from the Code and are attached to the Code in a separate document, permission to this will not be withheld by the EFF By adhering to the EFF its members commit themselves to impose on their own members the obligation to respect and apply the provisions of this Code of Ethics for Franchising Definition of Franchising Franchising is a system of marketing goods and/or services and/or technology, which is based upon a close and ongoing collaboration between legally and financially separate and independent undertakings, the franchisor and its individual franchisees The franchisor grants its individual franchisees the right, and imposes the obligation, to conduct a business in accordance with the franchisor's concept The right entitles and compels the individual franchisee, in exchange for a direct or indirect financial consideration, to use the franchisor's trade name, and/or trade mark and/or service mark, know-how(*), business and technical methods, procedural system, and other industrial and/or intellectual property rights This is supported by the continuing provision of commercial and technical assistance, within the framework and for the term of a written franchise agreement, concluded between parties for this purpose (*)"Know-how" means a body of non-patented practical information, resulting from experience and testing by the franchisor, which is secret, substantial and identified; "secret" means that the know-how, as a body or in the precise configuration and assembly of its components, is not generally known or easily accessible; it is not limited in the narrow sense that each individual component of the know how should be totally unknown or unobtainable outside the franchisors business; "substantial" means that the know-how includes information which is of importance for the sale of goods or the provision of services to end users, and in particular for the presentation of goods for sale, the processing of goods in connection with the provision of services, methods of dealing with customers, and administration and financial management; the know-how must be useful for the Franchisee by being capable, at the date of conclusion of the agreement, of improving the competitive position of the franchisee – in particular by improving the Franchisee's performance or helping it to enter a new market "identified" means that the know-how must be described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality; the description of the know-how can either be set out in the franchise agreement or in a separate document or recorded in any other appropriate form Guiding Principles 2.1 The Franchisor is the initiator of a franchise network, comprising itself and its individual franchisees, of which the franchisor is the long-term guardian 2.2 The obligations of the franchisor: The franchisor shall:  have operated a business concept with success, for a reasonable time and in at least one pilot unit before starting its franchise network  be the owner, or have legal rights to the use of its network's trade name, trade mark or other distinguishing identification  provide the individual franchisee with initial training and continuing commercial and/or technical assistance during the entire life of the agreement 2.3 The obligations of the individual franchisee: The individual franchisee shall:  devote its best endeavours to the growth of the franchise business and to the maintenance of the common identity and reputation of the franchise network  supply the Franchisor with verifiable operating data to facilitate the determination of performance and the financial statements necessary for effective management guidance, and allow the Franchisor, and/or its agents, to have access to the individual franchisee's premises and records at the franchisor's request and at reasonable times  not disclose to third parties the know-how provided by the franchisor, neither during nor after termination of the agreement 2.4 The ongoing obligations of both parties: Parties shall exercise fairness in their dealings with each other The Franchisor shall give written notice to its individual franchisees of any contractual breach and, where appropriate, grant reasonable time to remedy default Parties should resolve complaints, grievances and disputes with good faith and goodwill through fair and reasonable direct communication and negotiation Recruitment, Advertising and Disclosure 3.1 Advertising for the recruitment of Individual Franchisees shall be free of ambiguity and misleading statements 3.2 Any publicly available recruitment, advertising and publicity material containing direct or indirect references to future possible results, figures or earnings to be expected by individual franchisees, shall be objective 3.3 In order to allow prospective individual franchisees to enter into a binding document with full knowledge, they shall be given a copy of the present Code of Ethics as well as full and accurate written disclosure of all information material to the franchise relationship, within a reasonable time prior to the execution of these binding documents 3.4 If a franchisor imposes a pre-contract on a candidate individual franchisee, the following principles should be respected:  prior to the signing of any pre-contract, the candidate individual franchisee should be given written information on its purpose on any consideration he may be required to pay to the franchisor to cover the latter's actual expenses, incurred during and with respect to the pre-contract phase; if the franchise agreement is executed, the said consideration should be reimbursed by the franchisor or set off against a possible entry fee to be paid by the individual franchisee  the pre-contract shall define its term and include a termination clause  the franchisor can impose non-competition and/or secrecy clauses to protect its know-how and identity Selection of Individual Franchisees A franchisor should select and accept as individual franchisees only those who, upon reasonable investigation, appear to possess the basic skills, education and personal qualities and financial resources sufficient to carry on the franchised business The Franchise Agreement 5.1 The Franchise agreement should comply with the National law, European community law and this Code of Ethics 5.2 The agreement shall reflect the interests of the members of the franchised network in protecting the franchisor's industrial and intellectual property rights and in maintaining the common identity and reputation of the franchised network All agreements and all contractual arrangements in connection with the franchise relationship should be written in or translated by a sworn translator into the official language of the country the individual franchisee is established in, and signed agreements shall be given immediately to the individual franchisee 5.3 The franchise agreement shall set forth without ambiguity, the respective obligations and responsibilities of the parties and all other material terms of the relationship 5.4 The essential minimum terms of the agreement shall be the following:  the rights granted to the franchisor  the rights granted to the individual franchisee  the goods and/or services to be provided to the individual franchisee  the obligations of the franchisor  the obligations of the individual franchisee  the terms of payment by the individual franchisee  the duration of the agreement which should be long enough to allow individual franchisees to amortize their initial investments specific to the franchise  the basis for any renewal of the agreement  the terms upon which the individual franchisee may sell or transfer the franchised business and the franchisor's possible pre-emption rights in this respect  provisions relevant to the use by the individual franchisee of the franchisor's distinctive signs, trade name, trade mark, service mark, store sign, logo or other distinguishing identification  the franchisor's right to adapt the franchise system to new or changed methods  provisions for termination of the agreement  provisions for surrendering promptly upon termination of the franchise agreement any tangible and intangible property belonging to the franchisor or other owner thereof The Code of Ethics and The Master-Franchise System This Code of Ethics shall apply to the relationship between the franchisor and individual franchisees and equally between the master franchisee and individual franchisees It shall not apply to the relationship between the franchisor and masterfranchisees British Franchise Association Code of Ethical Conduct: Extension and Interpretation This Extension and Interpretation forms an integral part of the Code of Ethical Conduct adopted by the British Franchise Association and to which its members adhere Application This Code of Ethical Conduct forms part of the membership agreement between the British Franchise Association and its member companies It does not form any part of the contractual agreement between franchisor and franchisees unless expressly stated to so by the franchisor in the franchise agreement Neither should anything in this Code be construed as limiting a franchisor's right to sell or assign its interest in a franchised business Disclosure The objectivity of recruitment literature (Clause 3.2) refers specifically to publicly available material It is recognised that in discussing individual business projections with franchisees, franchisors are invariably involved in making assumptions which can only be tested by the passage of time Confidentiality For the generality of this Code of Ethical Conduct, 'know-how' is taken as being as defined in the European Block Exemption to Article 85 of the Treaty of Rome However for the purposes of Article 3.4 of the European Code of Ethics it is accepted that franchisors may impose non-competition and secrecy clauses to protect other information and systems where they may be reasonably regarded as material to the operation of the franchise Contract Language Franchisors should seek to ensure that they offer to franchisees contracts in a language in which the franchisee is competent Contract Term In suggesting in Article 5.4 of the European Code of Ethics that the minimum term for a franchise contract should be the period necessary to amortize those of a franchisee's initial investment which are specific to the franchise, it is recognised: that for a minority of the largest franchise opportunities amortizing initial investments may not be a primary objective for the franchisee In such cases the objective should be to adopt a contract period which reasonably balances the interests of the parties to the contract that this section could be subject to national laws concerning the restraint of trade and may need to be met through renewal clauses Contract Renewal The basis for contract renewal should take into account the length of the original term, the extent to which the contract empowers the franchisor to require investments from the franchisee for relinquishment or renovation, and the extent to which the franchisor may vary the terms of a contract on renewal The overriding objective is to ensure that the franchisee has the opportunity to recover his franchise-specific investments, both initial and subsequent ones, and to exploit the franchised business for as long as the contract persists Adoption This Code of Ethical Conduct comprising this Extension and Interpretation and the European Code of Ethics for Franchising was adopted by the British Franchise Association, replacing its previous Code of Ethics on 30th August 1990, subject to a transitional period for full compliance ending 31st December 1991 During the transitional period members of the Association are nonetheless required to comply at least with the Code of Ethics previously in force In October 1991 the Association agreed with the European Franchise Federation some amendments to the Code agreed in August 1990 and at the same time extended the transitional period to full compliance to 31st December 1992 Additional Information If you would like more information about the work of the BFA please contact the BFA A full list of BFA members can be found on the Directory of Accredited Members and Advisors ... way to sort franchise below 1.3.1 Basing on the franchise methods There are two groups of international franchise: direct franchise and master franchise (indirect -franchise) - Direct franchise: ... the steps to create franchise contracts Recognizing the international franchise contracts, we had better firstly have a look on franchise contracts that covers definition of international ones... studies about the law on international franchise contracts This is divided in three main parts: part researches for the common legislation of international franchise contracts that gives the