Presentation on theme: "A Census of International Franchise Regulation"— Presentation transcript:
1A Census of International Franchise Regulation Andrew TerryProfessor and HeadSchool of Business Law & TaxationUniversity of South WalesSydney AustraliaPresented at the 2006 China Franchise International SummitInternational Franchise AcademyBeijing Normal UniversityZhuhai PRC11-12 November 2006
2a healthy franchise requires adequate and appropriate infrastructure political infrastructureeconomic infrastructurefranchisesectorcommercial infrastructurelegal infrastructure
3legal infrastructure Legal institutions and processes Commercial laws ofGeneral applicationfranchisesectorfranchise-specificlaw?
4franchising is a unique and proven model for business development entrepreneurship involves risknot the role of government to remove riskbut in the particular circumstances of franchising there are elements quite different to normal business development because of the control of the franchisor which can be an overriding risk for other than purely business or commercial reasonsthe challenge for franchise sectors – how to minimise these additional risks while leaving the commercial risks and decision to be handled by the parties.
5franchisee relationship informationimbalancefranchisor/franchisee relationshippowerprior disclosure lawswide acceptancerelational uncontroversialUnidroit Model Disclosure Law 2002Relationship / conduct lawsuneven acceptancehighly controversial
6justification for franchise-specific regulation to avoid economic and social costs of business failureprotect legitimate interestsfairnessstandardisationorderly developmentofficial recognition, education and encouragement (in developing sectors)“… to regulate commercial franchise operations, protect the legitimate interests of the parties involved and promote the healthy and orderly development of commercial franchising” (China)
7voluntary self-regulatory Codes of Ethics adopted by national franchise associationsfranchise specificregulationregulation by lawAct of ParliamentSubordinate legislationMinistry rules
8The regulated sectorsAustralia1998Belgium2006Brazil1995CanadaModel Law2005Alberta1980/1995Ontario2001PEI2007China1997/2005France1991Indonesia1997Italy2004Japan1983/2002Kazakhstan2002Korea1997/2002Lithuania2001Malaysia1998Mexico2001/2006Romania1997Russia1996Spain1996/2006Sweden2006Taiwan1999/2003USAfederal (FTC Rule)1979/2007state (UFOC)1970(CA)VietnamUnidroit Model Law2002Note: Little uniformity in nature, extent, scope and comprehensiveness of regulation.
9definition of franchise elementstrade marksystemfeecontrolassistancespecific inclusions / exclusionsmaster franchising
10registration Australia X Belgium Brazil Canada Model Law Alberta OntarioPEIChinaFranceIndonesiaItalyJapanKazakhstanKoreaLithuaniaMalaysiaMexicoRomaniaXRussiaSpainSwedenTaiwanUSAfederal (FTC Rule)state (UFOC)14 UFOC statesVietnamUnidroit Model Law
11Other pre-conditions to franchising AustraliaXBelgiumBrazilCanadaModel LawAlbertaOntarioPEIChina2 stores/1 yearFranceIndonesiaItalyconcept tested in marketJapanKazakhstanKoreaLithuaniaMalaysiaX (but discretion to refuse regulation)MexicoXRomaniaX (but discretion to refuse regulationRussiaSpainSwedenTaiwanUSAfederal (FTC Rule)state (UFOC)Vietnamoperation for 1 yearUnidroit Model Law
13Disclosure (cont’d) Franchisee prior disclosure Franchisor prior disclosureFranchisor continuing disclosureMalaysiaXMexicoRomaniaRussiaSpainSwedenTaiwanUSAfederal (FTC Rule)state (UFOC)VietnamUnidroit Model Law
14franchisor prior disclosure days pre contract/ paymentprescribed disclosure documentwarning/ advice to franchiseeAustralia14Belgium30XBrazil10CanadaModel LawAlbertaOntarioPEIChina20FranceIndonesianot specifiedItaly15JapanKazakhstanKorea5Lithuania
15franchisor prior disclosure (cont’d) days pre contract/ paymentprescribed disclosure documentwarning/ advice to franchiseeMalaysia10XMexico30Romanianot specifiedRussianoSpain20Sweden“well before”TaiwanUSAfederal (FTC Rule)state (UFOC)Vietnam15Unidroit Model Law14
20prior disclosure: contractual issues fees & paymentsrestriction on source/ supply of products & servicesfranchisee’s obligations (consolidated)franchisor’s obligations (consolidated)AustraliaBelgiumXBrazilsourceCanadaModel LawAlbertaOntarioPEIChinasupplyFranceIndonesiaItalyJapanKazakhstanKorea
21prior disclosure: contractual issues (cont’d) fees & paymentsrestriction on source/ supply of products & servicesfranchisee’s obligations (consolidated)franchisor’s obligations (consolidated)LithuaniaXMalaysiaMexicoRomaniaRussiaSpainSwedensourceTaiwanUSAfederal (FTC Rule)somestate (UFOC)VietnamUnidroit Model Law
22prior disclosure: contractual issues (cont’d) territoryIPparticipation in franchise business operationrenewal/termination/transfer/dispute resolutionother contract conditionsAustraliaBelgiumXsomeBrazilCanadaModel Lawcopy of agreementAlbertaOntarioPEIChinaFranceIndonesiaItalyJapanKazakhstanKorea
23prior disclosure: contractual issues (cont’d) territoryIPparticipation in franchise business operationrenewal/termination/transfer/dispute resolutionother contract conditionsLithuaniaXMalaysiaMexicoRomaniaRussiaSpainSwedenTaiwanUSAfederal (FTC Rule)state (UFOC)VietnamUnidroit Model Law
24the franchise agreement Mandatory contentPrior disclosure of specific provisionsAustraliaXBelgium someBrazil fewCanadaModel Law+ copy of agreementAlbertaOntarioPEIChinaFranceFewIndonesiaItalycopy of agreementJapanSomeKazakhstanKorea
25the franchise agreement (cont’d) Mandatory contentPrior disclosure of specific provisionsLithuaniaXMalaysiaMexicofranchisee obligationsRomaniaRussiaSomeSpainSwedenfewTaiwan + copy of agreementUSAfederal (FTC Rule)state (UFOC)VietnamUnidroit Model Law
27the franchise agreement (cont’d) Cooling offCertification re-independent adviceLithuaniaXMalaysiaMexicoRomaniaRussiaSpainSwedenTaiwanUSAfederal (FTC Rule)state (UFOC)VietnamUnidroit Model Law
28conduct / relationship issues General standards of conductPrescribed rights and obligations (consolidated)AustraliaXBelgiumBrazilCanadaModel Lawfair dealingAlbertaOntarioPEIChinaFranceIndonesiaItalyloyalty, fairness, good faithJapanKazakhstanKoreagood faith
29conduct / relationship issues (cont’d) General standards of conductPrescribed rights and obligations (consolidated)LithuaniaXMalaysiabest business practiceMexicoRomaniaRussiaSpainSwedenTaiwanUSAfederal( FTC Rule)state (UFOC)VietnamUnidroit Model Law
30conduct / relationship issues (cont’d) Specific relationship issues (of general application)terminationterm/ renewaltransferotherAustraliaXright to associate/ general release from liabilityBelgiumBrazilCanadaModel Lawright to associateAlbertaOntarioPEIChinaFranceIndonesiaencroachmentItalytermJapanvertical restraintsKazakhstanKoreaunilateral amendment/ unfair trade practices
31conduct / relationship issues (cont’d) Specific relationship issues (of general application)terminationterm/ renewaltransferotherLithuaniarenewalMalaysiaXconfidentiality/ post termination restraintsMexicoRomaniageneralRussiatrade practicesSpainSwedenTaiwanUSAfederal( FTC Rule)state (UFOC)19 states18 states10 states7 statesVietnamUnidroit Model Law
32dispute resolution Mediation of disputes Australia Belgium X Brazil CanadaModel LawAlbertaOntarioPEIChinaFranceIndonesiaItalyJapanKazakhstanKorea
33dispute resolution (cont’d) Mediation of disputesLithuaniaXMalaysiaMexicoRomaniaRussiaSpainSwedenTaiwanUSAfederal (FTC Rule)state (UFOC)VietnamUnidroit Model Law
34the regulatory futureThe balance of informed opinion throughout the franchising world is that in the special circumstances of franchising there are elements sufficiently different to normal business development to justify regulation.Clear trend to regulationAustralian experience is positive:Wide sector acceptanceStronger relationshipsIncreased certaintyReduced disputationMore effective dispute resolutionBetter sector/government and media cooperationsFocus for sector education, research, networkingCatalyst for strong sector body
35The experience in Australia under the mandatory Franchising Code of Conduct provides comfort to those franchising sectors facing regulation that appropriate and balanced regulation can have a beneficial effect on the franchising sector and encourage its orderly development for the benefit of all stakeholders.