A Global Look at Franchise Agreements and Brand Expansion Spotlight on US, Russia, Spain, Switzerland, Brazil and China Will Woods (US) Margarita Divina (Russia) Ana Alpera (Spain) Eva-Maria Strobel (Switzerland) Flavia Rebello (Brazil) Grace Wong (Hong Kong)
Introduction Franchising is the most prevalent method of brand expansion US franchisors expanding outside the US and non-us franchisors expanding into the US and other countries US and 20+ other countries have franchise specific regulation Franchise transactions are highly specialized and require a clear understanding of the parties respective interests
Agenda 1. Introduction 2. Overview of Franchise and Expansion Structures 3. Specific focus on: a. Russia b. Spain c. Switzerland d. Brazil e. China 4. Take-away messages 5. Live Q&A session
Speakers Margarita Divina Moscow E: margarita.divina@bakermckenzie.com T + 7 495 787 0714 Margarita Divina serves as head of the transactional, non-contentious and contractual IP sub-division of the Firm s Intellectual Property Practice Group in Moscow. Prior to joining Baker & McKenzie in 2003, she worked at a major Russian intellectual property law firm. Ms. Divina is a member of the International Trademark Association, the Licensing Executives Society of Russia and the Association of European Businesses. Grace Wong Hong Kong E: grace.wong@bakermckenzie.com T: + 852 2846 1743 Grace is a special counsel in Baker & McKenzie's Intellectual Property Practice Group in Hong Kong. Her practice covers different areas of intellectual property, including brand protection, trademark portfolio management, as well as commercial exploitation of IP. She also manages a number of high-profile trademark portfolios for MNCs and advises on general IP issues from time to time.
Speakers Eva-Maria Strobel Zurich E: eva-maria.strobel@bakermckenzie.com T + 41 (0)44 384 13 08 Eva-Maria s practice focuses on contentious and non-contentious matters involving all aspects of intellectual property, in particular Swiss, German and European trademark and design law, as well as unfair competition and food law. She advises on a wide variety of matters which fall within the area of trademark and design registration and enforcement as well as the enforcement of the clients rights against counterfeiters and parallel importers.. Ana Alpera Madrid E: ana.alpera@bakermckenzie.com T: + 34 91 230 46 21 Ana joined Baker & McKenzie in Madrid in 2001. She is involed in a wide range of IP/IT matters, including drafting and negotiating intellectual property licensing agreements, mainly for clients of the communication media, publishing and the audiovisual industry. She also regularly provides assessment to major advertising communications services companies on risks relating to trademarks, advertising, unfair competition and rights of self portrayal.
Speakers Will Woods Dallas E: will.woods@bakermckenzie.com T + 214 978 3022 Will is a cross-border commercial lawyer representing franchisors throughout their business life cycle: in the start-up stage; as middle-market franchisors; and as mature, global franchisors. He represents many of the leading hotel, lodging and hospitality franchise companies and has vast experience in negotiating complex franchise transactions both in the US and in many other countries around the world and in counseling clients across industries with respect to system restructuring and related relationship issues. Flavia Rebello Sao Paulo E: flavia.rebello@bakermckenzie.com T: + 55 (11) 3048 6851 Flavia has extensive experience in drafting, negotiating and reviewing agreements involving intellectual property, including supply of technology, technical assistance, trademark license, patent license, franchise, copyright license, software license and distribution, outsourcing, maintenance and support services, as well as assignment of intellectual property rights.
House rules
Will Woods Baker & McKenzie Dallas
Franchise Agreements and Brand Expansion: An Overview
Brand Expansion Through Franchising: An Overview
Brand Expansion Through Franchising: An Overview
FRANCHISE DISCLOSURE LAWS Sweden Romania Moldova Canada (AB, ON, PEI, NB, and MB only) Belgium U.S.A. (including territories) France Spain China South Korea Japan Mexico Italy Georgia Vietnam Taiwan Macau Albania Malaysia Brazil Indonesia Australia South Africa *Certain countries have franchise relationship laws or registration laws (without disclosure provisions), which are not indicated in the map. Additionally, some jurisdictions have non-franchise laws which regulate certain aspects franchising activities. Franchise laws change often.
Brand Expansion Through Franchising: An Overview
Margarita Divina Baker & McKenzie CIS, Limited
The Russian Federation General Facts and Trends on Franchising in Russia Relatively young phenomenon 20 years Initially, Russian franchise law was franchisee-friendly Now more balanced law, available real estate, financing, support Developing very fast 30% growth in 2013 Russian franchise market is still unsaturated and expected to grow
The Russian Federation Legislative Framework Civil Code of the Russian Federation Law of Trade Secrets Tax and customs laws Antimonopoly laws Real estate laws Rospatent s regulations
The Russian Federation Intellectual Property (IP) Issues Franchisee to be granted with a complex of IP rights: trademark, trade name, know-how, etc. Trademark and know-how to be adequately protected Grant of IP rights is subject to mandatory state registration with Rospatent
The Russian Federation Legal Issues Franchisor s secondary / joint and several liability Franchisee s right to re-conclude franchise agreement
The Russian Federation Antimonopoly / Tax / Customs / Issues Certain restrictive provisions are allowed (e.g. non-compete, fix prices, etc.) Always subject to antimonopoly law compliance Corporate Profit Tax franchise fees are deductible expenses VAT technological IP exemption Franchise fees might be included into custom value of imported goods
Ana Alpera Baker & McKenzie Madrid
Spain European Union Legal Framework: Lack of Harmonization However, there are closely related EU regulations: Trademark Directive and Community Trademark Regulation Competition law: EU Regulation 330/2010 on vertical agreements and concerted practices EU Directive 86/653/EEC on self-employed commercial agents Code of Ethics of the European Franchise Federation ( EFF ) (www.efffranchise.com) No projected EU harmonization on Franchise Contracts
Spain Spanish Legal Framework on Franchise Agreements: Art. 62 of Law 7/1996 on Retail Trade Royal Decree 201/2010 on Franchising activity and the Franchisors registry Closely related regulations: Spanish Trademark Law and CTM Regulation Spanish Civil Code Consumers Legislation
Spain Royal Decree 201/2010 on Franchising activity and the Franchisors registry: Pre-contractual disclosure obligations Franchise Registry obligations
Spain Hot topics
Eva-Maria Strobel Baker & McKenzie Zurich
Switzerland Legal Environment No codified Franchising Law But: Swiss Code of Obligations Swiss Trademark Act Swiss Cartels Act Swiss Unfair Competition Act Overall favorable environment for franchising Liberal towards standard form contracts
Switzerland Starting point: Contractual freedom No specific provisions on disclosure General contract and best practice rules apply Limits to contractual freedom: Maximum duration: 5, 10 or 20 years? Exclusion of liability: full vs. simple negligence? Dissolution: termination for important reasons
Switzerland Hot Topics Protection of proprietary concept and brands vs. freedom to operate Clientele compensation upon termination/expiration Fate of sub-franchises in case of termination of the master franchise agreement
Flavia Rebello Trench, Rossi e Watanabe Sao Paulo
Brazil Brazilian Franchising Act is quite simple and it basically regulates franchisor s obligation to deliver to a prospective franchisee a Franchising Disclosure Document (FDD) FDD must be delivered to the prospective franchisee 10 days before the execution of the franchise agreement or payment of any fee by franchisee Failure to timely deliver the FDD may subject the agreement to cancelation and franchisee may be entitled to claim back all monies paid to franchisor or to any third party indicated by franchisor, duly adjusted for inflation, plus damages
Brazil The FDD is very comprehensive the law lists the information that must be included in the document, such as: Corporate information of franchisor, including balance sheets and financial reports for the last 2 years Status of Brazilian trademarks and other IPR licensed to franchisee Information on any litigation associated with the franchising Description of the business and investments required Description of post-termination obligations List and contact details of existing franchisees Standard franchise agreement
Brazil In case of a franchise or master franchise agreement with a foreign entity, the relevant agreement will have to be registered with the Brazilian Patent and Trademark Office and the Central Bank of Brazil as a condition precedent for: The agreement to be effective before third parties Remittance of royalties abroad Deductibility of royalties by the Brazilian franchisee (for local corporate income tax purposes) Consider at least 60 days for registration proceeding
Brazil Brazilian tax laws limit the deductibility of royalties that is paid by a Brazilian franchisee to a foreign franchisor In case franchisor is a related party, Brazilian laws limit the maximum amount that can be remitted as royalties by the Brazilian franchisee varies from 1% to 5% of franchisee s net sales
Brazil Other relevant aspects:
Grace Wong Baker & McKenzie Hong Kong
Hong Kong and China Hong Kong: No specific regulatory framework; terms subject to agreement China: Explicitly regulated by pro-franchisee regulations and measures Subject to recordal requirement and statutory qualifications applicable to franchisors
China Commercial franchising defined broadly as: Business activities whereby an enterprise with operational resources such as registered trademarks, logos, patents, proprietary technology, etc., ( Franchisor ) contractually license another enterprise ( Franchisee ) to use its operational resources and Franchisee conducts business under a uniform model of operation according to the agreement and pays a franchise fee to Franchisor
China Franchisor s qualifications: It must have a mature business mode with the ability to continuously provide business guidance, technical support, business training and other services to Franchisee; and It must have a minimum of two directly-managed outlets (either in China or abroad) and 1 year of business operation ( 2 Shops +1 Year Requirement )
China Franchisor s recordal and reporting requirements: Within 15 days after signing first franchise agreement Required documents include Franchisor s business license, IP registration certificate, sample franchise agreement, operation manual, marketing plan, written undertaking and supporting materials showing compliance of the 2+1 Requirement, etc. Continuing obligation to report
China Franchise Agreement In writing and include provisions such as: Term of the franchise unless otherwise agreed, the term should not be less than 3 years Franchise fees Contents and methods for providing business guidance, technical support and business training Quality, standard requirements and warranty arrangements for products or services
China Franchise Agreement In writing and include provisions such as: Marketing and advertising Protection of consumers rights and product liability Liabilities for breach Methods for variation and termination Dispute resolution; and Other agreed matters Also a cooling-off period where Franchisee can unilaterally terminate the Franchise Agreement during a certain period after its execution
China Franchisor s disclosure obligations Must disclose in writing at least 30 days before signing Franchise Agreement: Information about Franchisor and the commercial franchising activities (including information about any bankruptcy filings against Franchisor or its affiliates in the past 2 years) Franchisor s operational resources (e.g., registered trademark, enterprise logo, patent, know-how, and business model) Franchise fees
China Franchisor s disclosure obligations Must disclose in writing at least 30 days before signing Franchise Agreement: Prices and conditions for the provision of products, services, or equipment to Franchisee Business guidance, technical support, business training and other services to Franchisee Guidance and supervision over Franchisee s operational activities; Investment budget for the franchised business Existing franchisees in China Summary of the accounts and audit reports of Franchisor for the preceding 2 years
China Franchisor s disclosure obligations Must disclose in writing at least 30 days before signing Franchise Agreement: Litigation and arbitration in connection with the franchising activities in the preceding five years Records of material illegal activities committed by Franchisor and its legal representative Sample Franchise Agreement Information must be true, accurate and complete Franchisor must not conceal the relevant information or provide any false information
China Opt for licensing to avoid application of regulatory framework IP protection remains key concern Selection of business partners, due diligence and policing very important
Wrap up: trends and common themes - franchising is a growth area - franchising is highly regulated in many key jurisdictions - be aware of the issues before expanding in home or foreign markets - important to obtain specialized legal and business counsel
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