IV. The Franchise Contract
A franchise contract must be in writing, and its term should be no shorter than 3 years if a term is fixed. Absent an agreed term, the contract is presumed to last for an undetermined period of time. And no cooling off period is available for a franchisee, which means that once the contract is signed, a franchisee cannot back out of it without a material breach by the franchisor.
As a general principle, the MCC recognizes a contractual duty of good faith and fair dealing. Thus, the franchisor must:
1. allow the franchisee to use its intellectual property associated with the franchise;
2. allow quiet and peaceful enjoyment of such IP;
3. update the know-how and technology associated with franchise system to ensure its competitiveness;
4. provide adequate training to the franchisee and its associates;
5. conduct advertising of the franchise system at the international and regional level;
6. supply requisite goods or products for the operation of a franchise;
7. compensate the franchisee for a post contract NDA;
8. not compete with the franchisee in the agreed territory absent express agreement to the contrary;
9. inform the franchisee of any changes, modifications that are material to the operation of a franchise.
10. not engage in tying arrangements with respect to the operation of a franchise unless the use of certain goods and equipment are strictly for maintaining the industrial and intellectual property rights of the franchisor; and
11. to the extent such goods and equipment are required, provide warranty for such goods and equipment (critical point for franchisors to consider b/c of liability)
Similarly, a franchisee is also obligated by contract to perform its duties and obligations in good faith, to wit:
1. pay royalties to the franchisor;
2. use the intellectual property of the franchisor in a manner consistent with the rights conferred upon the franchisee;
3. maintain the quality of goods and services in a uniform fashion as required in the franchise system;
4. obtain permission from the franchisor prior to changing the premise of the franchise unit;
5. furnish information that may be requested by the franchisor concerning the operation of the franchised unit;
6. comply with the recommended price for goods and /or services as recommended by the franchisor;
7. allow the franchisor and /or its agents to inspect the premise;
8. attend training sessions as required by the franchisor;
9. grant and authorize the franchisor the right to use any improvement know-how gained in the course of operating the franchised unit;
10. submit all adverting material to the franchisor for pre-approval;
11. keep confidential the information related to the operation of a franchised unit;
12. report to the franchisor any breach or misuse of the intellectual property of the franchisor; and
13. maintain minimum volume of sale as required by the franchisor in the contract.
(note: the above are all based on the MCC)
As far as I know, there is no administrative registration requirement to franchise in Macau.
Wednesday, August 8, 2007
IV. The Franchise Contract