Most Read Contributor in Hong Kong, September 2016
Keywords: Franchise Agreements, franchisee,
Franchising is a distribution model where the franchisor grants
a bundle of rights to an independent business (the franchisee),
allowing the franchisee to trade in the name of the franchisor and
adopt the franchisor's business model.
The franchisor achieves scalability for a successful business
model and offloads investment and operational risk to the
The franchisee gains quick market entry through acquiring the
right to adopt a proven business model and operate under an
established brand name, and the benefit of transfer of intellectual
property rights and know-how.
WHAT ARE THE POTENTIAL EFFECTS ON COMPETITION?
To protect the common identity and reputation of the franchised
network of businesses, a franchisor will usually:
Exercise quality control over the franchisee's business and
trading methods, such as, the décor and layout of sales
outlets, production process etc.
Impose an obligation to use the franchisor's know-how,
trade marks, trade names and other industrial property rights, but
only to do so as agreed.
Impose an obligation to sell only to end-users or other
Impose a non-compete obligation for the duration of the
Whilst it is permissible for a franchisor to exercise control
over the franchisee business, it is important to bear in mind that
restrictions imposed on the franchisee should not go beyond what is
necessary and proportionate to the aims of protecting brand unity,
know-how and licensed intellectual property rights.
The following restrictions, for example, may have
anti-competitive effects not justifiable by the franchise
Fixing minimum resale prices (as opposed to recommending
Imposing a post-agreement non-compete that is excessive in
duration or scope.
Prohibiting franchisees from selling to, or buying from, other
Next week we will take a look at joint venture agreements.
Mayer Brown is a global legal services organization
comprising legal practices that are separate entities (the Mayer
Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a
limited liability partnership established in the United States;
Mayer Brown International LLP, a limited liability partnership
incorporated in England and Wales; Mayer Brown JSM, a Hong Kong
partnership, and its associated entities in Asia; and Tauil &
Chequer Advogados, a Brazilian law partnership with which Mayer
Brown is associated. "Mayer Brown" and the Mayer Brown
logo are the trademarks of the Mayer Brown Practices in their
This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Omar Al Heloo discusses the developments in UAE competition law.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).