International Franchise Regulations

https://www.twobirds.com/~/media/pdfs/brochures/franchising/which-eu-jurisdictions-most-heavily-regulate-franchising.pdf

France regulates disclosure such as:-

• The date of the founding of the franchisor’s enterprise and a summary of its business history and information necessary to assess the business experience of the franchisor.
• A description of the local market for the goods or services,
• The franchisor’s financial statements for the previous two years,
• A list of all other franchisees currently in the network,
• All franchisees who have left the network during the preceding year, whether by termination or non-renewal.
• The conditions for renewal, assignment, termination and the scope of exclusivity.

Italy also has specific franchise and disclosure laws of the last 3 years. There are also articles which dictate arrangements of two independent parties where a franchisee is granted which dictates and forms part of the franchise agreement.

Germany has no franchise-specific disclosure requirements, though the German Civil and Commercial Codes impose a general disclosure all material fact in requirement in all contractual negotiations on both parties. The Civil and Commercial Codes also impose a significant expectation of good faith, so care should be taken when making claims regarding profit to franchisees.

Spain has a Retail Trading Act regulates franchising, the agreement content at least must include:-

• The use of a common name or brand or any other intellectual property right and a uniform presentation of the premises or the transport means included in the agreement.
• The communication by the franchisor to the franchise of certain technical knowledge or substantial and singular know-how that has to be owned by the franchisor, and
• Technical or commercial assistance or both, provided by the franchisor to the franchisee during the agreement, without prejudice to any supervision faculty to which the parties could freely agree in the contract.
• Franchisors (with some exceptions) should be registered in the Franchisors’ Register and provide the requested information. According to the regulation in force in 2010 this obligation has to be met within three months after the start of its activities in Spain.
• The franchisor submits the disclosure information 20 days prior to signing the agreement or prior to any payment made by the franchisee to the franchisor. Franchisors are to disclose to the potential franchisee specific information in writing. This information has to be true and not misleading and include: –
  • Identification of the franchisor.
  • Justification of ownership or license for use of any trademark or similar sign and judicial claims affecting them as well as the duration of the license.
  • General description of the sector in which the franchise operates.
  • Experience of the franchisor.
  • Contents and characteristics of the franchise and its exploitation.
  • Structure and extension of the network in Spain.
  • Essential elements of the franchise agreement.

Romania is equally succinct and requires the parties to ‘continually cooperate’ and be ‘financially independent’ from each other. It requires the parties to be named as franchisor and franchisee, however, and is silent on intellectual property rights, which is far from ideal.

Norway does not have any specific laws regulating franchising but they have a Competition Act which prevent, limit or diminish the competition which can apply to vertical cooperation such as franchising.

Australia currently has 80,000 franchise units worth £182 billion to their economy and takes a very comprehensive approach and can be interpreted to cover a broad range of arrangements of licensing, distribution and agency arrangements not traditionally considered to be a franchise arrangement. Having an express list of non-qualifying arrangements such as landlord/tenant employee/employer and cooperatives is also an effective way of excluding non-franchise relationships.

The ACCC regulates, a mandatory code of conduct concluded under the Trade Practices Act 1974 that applies to the parties to a franchise agreement. This code requires franchisors to produce a disclosure document which must be given to a prospective franchisee at least 14 days before the franchise agreement is entered into. The code also regulates the content of franchise agreements such as marketing funds, a cooling-off period, termination, and the resolution of disputes by mediation. Including:-

• An obligation under the Code for parties to act in good faith in their dealings with one another.
• Disclosure requirements and an information sheet outlining the risks and rewards or franchising.
• Cooling off period.
• Requires franchisors to provide greater transparency in the use of and accounting for money used for marketing and advertising and to set up a separate marketing fund for marketing and advertising fees
• Dispute Resolution Mechanism.
• Financial penalties and infringement notices for serious breaches of the Code
• Additional disclosure about the ability of the franchisor and a franchisee to sell online
• Prohibits franchisors from imposing significant capital expenditure except in limited circumstances.
• Procedure for ending a franchise agreement

Full details – https://www.legislation.gov.au/Details/F2017C00182

New Zealand is served by around 423 franchise systems operating 450 brands, giving it the highest proportion of franchises per capita in the world. There is no separate law covering franchises, so they are covered by normal commercial law. This functions very well in New Zealand and includes law as it applies to contracts, restrictive trade practices, intellectual property, and the law of misleading or deceptive conduct.

The Franchise Association of New Zealand introduced a self-regulatory code of practice for its members in 1996. This contains many provisions like those of the Australian Franchising Code of Practice legislation, although only around a third of all franchises are members of the association and therefore bound by the code. However, membership is inclusive even to individuals interested in franchising, sharing best practice, franchisors have to give detailed disclosure to prospective franchisees, a dispute resolution process that protects the interest of franchisees and a strong relationship and sharing information to make a representation with government agencies.

A case of fraud in 2007 perpetrated by a former master franchisee of the country’s largest franchise system led to a review of the need for franchise law by the Ministry of Economic Development. The New Zealand Government decided there was no case for franchise-specific legislation at that time. This decision was criticised by the opposition, which had initiated the review when in power, and the review process was questioned by a leading academic. The Franchise Association originally supported the positive regulation of the franchise sector but its eventual submission to the review was in favour of the status quo of self-regulation.

United States in 2020 has over 780,000 units employing over 8.6 million providing £800million to the economy. According to the International Franchise Association approximately 44% of all US businesses are franchisee worked.

All franchisors must disclose a comprehensive document with 23 sections of specific uniform and comprehensive information about the franchisors business. Setting the tone for what is regarded at the most regulated country in the world.

In December 2020 a group of bipartisan members of Congress sent a letter to the Federal trade Commission urging to keep the franchise rule in its current form as it has increased transparency. Summering ‘the franchise community has consistently supported regulatory policies designed to ensure that prospective franchisees receive relevant information about their proposed franchise purchase sufficiently in advance of their purchase to permit them the appropriate time, as well as the pertinent information, to make a well-informed decision. To that end, we believe the current rule supports a proper balance between the legitimate disclosure needs of prospective franchisees and the compliance burdens and costs, borne by both franchisors and franchisees. It has created a more efficient franchising system, where expectations are clear, disclosures are transparent, and all franchise systems are required to comply with its requirements’.

The whole letter can be found:-
https://files.constantcontact.com/698ac235101/799a6967-c498-4f84-9c09-c9278a641e9b.pdf

Canada has 80,000 units and accounts for 20% of all customer spending. Recent legislation has mandated better disclosure and fair treatment of franchisees, including their right to form associations and launch collective action, even if they have signed contracts which prohibits such moves.

China has over 400,000 franchised units. In 2005 saw the birth of an updated franchise law (as the previous did not include foreign investors.

Franchisors must be registered by the regulator and must have operated at least two company franchises in China for more than one year with a track record of operations and provide long term operational guidance and training. A standard franchise agreement for a minimum of 3 years term, working manual and working capital. They are liable for certain actions of their suppliers and monetary and other penalties apply for infractions of the regulators.

They also must disclose any information requested by the franchisee. Including their experience in business, their principal officers, litigation during the last five years, initial and on-going fees, a list of good and services they can supply and terms of supply. Training franchisees receive and demonstration of franchisor’s ability to train, their trademarks, usage, registration, and litigation. An audited financial franchisor report and tax information an statistics about existing units, including numbers, locations and operational results and details of franchisees which has been terminated.

The franchisee’s confidentiality obligations can expire at the end of the agreement or continue indefinitely after termination. Also, after termination they are forbidden to use the franchisor’s trademark and any initial fee is refunded.
India may be in it’s infancy in franchising but because of the size of their population is one of the biggest markets such has McDonalds despite having a different menu to the rest of the world. Franchise agreements are covered under Contract Law and a Specific Relief Act which provides specific enforcements and remedies in the form of damages for breach of contract.

Russian franchisors cannot set standards or limit the prices of the franchisee’s goods.

Kazakhstan in the leader in the central Asian franchising market and has specific franchising laws. Promoting foreign investors in strong laws protecting their intellectual property and development grants supporting and promoting small businesses.

Lithuania still has its roots in the Russian Civil Code (reflecting the socialist past) defining the agreement as a contract between the ‘right holder’ and a ‘user’ rather than franchisor and franchisee.

Brazil is one of the largest franchise jurisdictions in terms of chains with 2,918 contributing $46.3 billion to the economy in 2019. The Brazilian Franchise Law defines the franchise as a system in which the franchisor licenses the franchisee, for a payment, the right to use a trademark or patent along with the right to distribute products or services on an exclusive or semi-exclusive basis. Their before exclusion disclosure document (Franchise Offer Circular) is mandatory. Failure to disclose voids the agreement, which leads to refunds and serious payments for damages. The Franchise Law does not distinguish between Brazilian and foreign franchisors. The National Institute of Industrial Property (INPI) is the registering authority. Indispensable documents are a Statement of Delivery (of disclosure documentation) and a Certification of Recording (INPI). The latter is necessary for payments. All sums may not be convertible into foreign currency. Certification may also mean compliance with Brazil’s antitrust legislation.

South Korea stipulates franchisors are obliged to support, educate as well as support the franchisee in the ways running the business. the franchisee in running the business.

Malaysia includes a responsibility on the franchisor to provide assistance to the franchisee to operate his business, including help with the provision or supply of materials, services, training, marketing, business or technology’.