The necessity of the research
Franchising, which emerged in the mid-19th century in the United States, has evolved into a globally popular trading model that significantly boosts the economies of various countries This business approach benefits franchisors while providing franchisees with a quick and secure means of operation As franchising spreads internationally, it faces numerous legal challenges, including import/export regulations, taxation, contract and commercial law, intellectual property rights, and competition law Addressing these legal considerations is crucial for franchise businesses to maximize their potential benefits.
The international franchise contract is a critical legal issue that warrants thorough examination, as it serves as the primary evidence of the franchisor-franchisee relationship during disputes Unlike typical agreements, franchise contracts often impose specific trading conditions dictated by franchisors, raising questions about the perceived equality between parties and the reasons franchisees accept such terms Additionally, the nuances of franchise contracts can easily be confused with licensing agreements due to their similar characteristics, highlighting the need for clarity As global trade barriers diminish, franchising is increasingly becoming a common practice among businesses, making it essential to consider legislation surrounding international franchise contracts This focus not only enhances our understanding of global trade dynamics but also provides valuable insights for improving our own franchise contract frameworks.
1 http://baohothuonghieu.com/banquyen/tin-chi-tiet/lich-su-nhuong-quyen-thuong-mai/514.html (accessing on 02/07/2013)
In recent years, international franchising has significantly expanded in Vietnam, with over 30 prominent brands entering the market, including KFC (USA, since 1998), Lotteria (Korea, since 1998), Honda (Japan, since 1996), Suzuki (Japan, since 1996), and Gloria Jean’s Coffee (Australia, since 2007) Additionally, Vietnamese companies are increasingly pursuing franchise opportunities abroad, with notable examples such as Trung Nguyen Coffee, which has been established internationally since 1998.
Franchising has become a popular trend among Vietnamese entrepreneurs, with notable examples like AQ Silk and Kinh Do Bakery leading the way since the early 2000s Vietnam's burgeoning market attracts foreign investors, while local businesses are eager to expand internationally However, the country's franchise legislation, still developing since the 1990s, presents challenges for Vietnamese franchisees, particularly when foreign franchisors prioritize direct operations over partnerships This imbalance often leaves franchisees vulnerable to financial risks, as they invest significant amounts—such as the $250,000 required to establish a Lotteria franchise To foster a healthier franchising environment, it is essential for domestic laws to protect franchisees' rights and ensure they can recoup their investments, while also regulating the entry of Vietnamese franchisors into foreign markets.
In conclusion, the growth of international business, coupled with the shortcomings of Vietnamese law in regulating it, highlights the need for comprehensive research on the legislation governing international franchise contracts.
The objects and the scopes of the research
The objects
The thesis focuses on researching international franchise and the legislation on the contracts for this kind of business, its system composes two chapters with the contents below
The first chapter provides a comprehensive overview of international franchising, detailing its historical development globally and in Vietnam It defines key characteristics and classifications of franchising while highlighting essential legislation for overseas operations, including intellectual property law, competition law, and contract law This foundational understanding emphasizes significant legal considerations crucial for engaging in franchising, setting the stage for further exploration in subsequent sections.
The second chapter examines the legal framework surrounding international franchise contracts, divided into three key sections The first part investigates the common legislation governing these contracts, providing essential insights into their foundational principles.
This article focuses on Vietnamese regulations regarding international franchise contracts, with a comparative analysis of UK law to enhance understanding By examining both legal frameworks, the study identifies key lessons and offers recommendations for improving franchise laws in Vietnam Notably, while the legislation for international franchise contracts shares similarities with domestic contracts, the primary distinction lies in the presence of foreign elements Throughout the essay, the terms "franchise contract" and "contract" are used interchangeably to emphasize the common regulations applicable to both types, ensuring that the final recommendations are relevant to both contexts.
The scopes of the thesis
This thesis explores the characteristics and regulations surrounding international franchises, focusing on the essential features and legal aspects of this trading model before delving into contract specifics It highlights key elements of international franchising and emphasizes important legal considerations The legislation on contracts is examined through four main points: definitions, valid conditions (including forms, subjects, and content), the rights and obligations of the parties involved, and the circumstances under which a contract may be suspended or terminated Additionally, the thesis provides an in-depth analysis of the legal systems in Vietnam and the UK, offering insights into their respective frameworks for international franchising.
The UK presents a valuable case study for understanding franchise law, particularly in comparison to Vietnam, where franchising has a longer history and more developed framework Unlike Vietnam, the UK lacks a specific franchise law; instead, it relies on the regulations set forth by the British Franchise Association and general legislation This approach results in a straightforward yet effective legal system that minimizes liability for foreign franchisors while ensuring protection for domestic franchisees Consequently, the UK's franchise law merits thorough examination for its practical implications and efficiency.
Finally, I give evaluation as well as conclude some recommendation on changing our legal system for regulating international franchise contracts to improve the legislation on these.
The situations of the research
In Vietnam, while many individuals study franchise contracts, there is a noticeable lack of focus on international franchise agreements This oversight may stem from two primary factors: first, international franchises are governed by similar regulations as domestic ones, and second, the concept of international franchising is relatively new in the country Furthermore, while general economic information about foreign franchisors is accessible, specific details regarding contracts and business methods—such as contract formats, content, and the nature of franchising (direct or indirect)—remain elusive, likely due to the proprietary nature of these enterprises Consequently, my thesis leans more towards theoretical exploration rather than practical application.
Franchise-related topics have been extensively explored in Vietnamese literature, particularly from economic and legal perspectives Notable works include "Pháp luật điều chỉnh hợp đồng nhượng quyền thương mại trong điều kiện kinh tế xã hội ở Việt Nam" by Ph.D Vu Dang Hai Yen (2011), "Franchise- chọn hay không" by businessman Nguyen Khanh Trung (2008), and Mr Ly Quy Trung's essay on franchise law (2005) However, there is a scarcity of research focusing on international franchise contracts within Vietnam A significant contribution to this area is Mr Nguyen Ba Binh's essay, "Hợp đồng nhượng quyền thương mại quốc tế theo quy định của pháp luật Việt Nam," published in 2008 in the fifth legal magazine of Hanoi University of Law This indicates that while Vietnamese authors have not extensively addressed international franchise legislation, insights gained from domestic franchise contracts can be relevant due to shared regulatory frameworks.
“foreign element” of franchise contract
The landscape of international franchise documentation is rich, with resources available online and in print The website franchise.org offers comprehensive insights into various countries' franchise legislations and reports on the franchise sector's growth over the years Additionally, "Franchising Law" by Mr M Mendelsohn delves into the intricacies of international franchise and UK franchise law, covering essential topics such as intellectual property, contract, competition, and labor law Furthermore, "Intellectual Property in Europe" by Mr Guy Tritton enhances understanding of international franchising from the perspective of intellectual property law.
While franchising is not a new concept in our country, the specific study of international franchise contracts remains limited This thesis aims to explore various under-researched aspects of this topic by examining Vietnamese law governing international franchise contracts and comparing it with UK law Through this analysis, I seek to draw valuable lessons from the more developed legal framework of the UK.
BASIS CONTENTS ABOUT INTERNATIONAL FRANCHISE
The development of international franchise
In the world, franchise appeared officially the first time in USA in 1851, when a sewing machine producing firm named Singer signed a franchise contract In
Franchising began in the automotive sector in the 1880s, primarily focusing on the distribution and sale of products The emergence of service franchises in the 1930s and rapid growth after World War II, driven by a population boom, marked significant milestones in the franchise industry The establishment of the International Franchise Association (IFA) in 1960 further accelerated global franchise development Today, franchising is recognized as a powerful economic driver, particularly in the United States, where it generates substantial profits According to the IFA, franchise establishments in the U.S are projected to grow by 1.3% in 2013, creating 1.9% more jobs and contributing to a 4.0% increase in GDP Globally, the number of franchised stores rose from 847,244 in 2007 to approximately 901,093 in 2010, with sales increasing from $803 million to about $868 million.
Vietnam's franchise industry is in its early stages compared to other developing countries, having begun in the 1990s Over the past five years, it has experienced rapid growth, with well-known international brands such as KFC, Gloria Jean’s Coffees, and Pizza Hut making their mark in the Vietnamese market.
5 Data is collected from http://www.franchise.org/Franchise-News-Detail.aspx?idY741 (accessing on 01/06/2013)
6 Data is collected from http://vfpress.vn/threads/nhuong-quyen-thuong-mai-%E2%80%93-100-do-soi.4332/ (accessing on 01/06/2013)
Mr Young Jin Cho, CEO of Lotteria Co., Ltd (Korea), highlighted the company's journey in Vietnam since 1998, where it has established 140 stores despite initial challenges due to cultural differences and unfamiliarity with fast food Lotteria has focused on tailoring its offerings to local tastes by prioritizing product quality, competitive pricing, and effective service Meanwhile, successful Vietnamese franchises like Trung Nguyen coffee and “Phở 24” demonstrate the growing potential of the food and beverage sector, which generated approximately $33.7 billion in revenue in 2012, according to the Ministry of Industry and Trade of Vietnam As consumer preferences evolve, there is a notable increase in openness to new brands, presenting significant opportunities for investors in the Vietnamese franchise market.
Franchising has become a leading business model in many countries, prompting governments to invest significantly in its expansion Additionally, non-governmental organizations have formed international bodies to facilitate the exchange of knowledge and experiences in franchising Since the establishment of the International Franchise Association (IFA) in 1960 and the World Franchise Council in 1994, the trend of franchising continues to grow steadily This business model presents substantial opportunities for economic development and profitability, making it essential for entrepreneurs to consider implementing a franchise system when launching their enterprises The increasing global focus on franchising highlights its potential for business expansion and revenue generation.
7 http://marketing.24h.com.vn/brand-marketing/kien-thuc-thuong-hieu/xu-huong-nhuong-quyen-thuong-mai- 2013/ (accessing on 01/06/2013)
In Vietnam's competitive market, many traders face challenges in investing due to limited capital and management skills Consequently, selling commercial rights to franchisees emerges as a viable solution, allowing business owners to expand while mitigating financial and human resource constraints For franchisees, this model proves advantageous as they can quickly generate profits without the need to establish a brand or product quality from scratch Instead, they simply invest capital, adhere to the franchisor's established processes, and leverage the existing reputation of the franchise Ultimately, this approach represents an effective and mutually beneficial trading strategy amid market difficulties.
Definition and features of international franchise
To study about the international franchise, it is necessary to have a look on the definition of franchise There are different ways to identify franchise in different countries or organizations:
According to the International Franchise association (IFA), franchise means:
Franchise is an agreement or license between two legally independent parties which gives:
A person or group of people (the franchisees) the right to market a product or service using the trademark or trade name of another business (the franchisors)
The franchisees the right to market a product or service using the operating methods of the franchisors
The franchisees the obligation to pay the franchisors fees for these rights
The franchisors the obligation to provide rights and support to franchisee 9
9 http://www.franchisedirect.com/information/guidetobuyingafranchise/whatisfranchising/29/190/ (accessing on 02/06/2013)
The definition of franchise by the European Franchise Federation (EFF) is showed below:
Franchising is a marketing system that involves a collaborative relationship between the franchisor and independent franchisees The franchisor grants franchisees the right to operate a business under its established concept, which includes the use of its trade name, trademarks, and proprietary methods In exchange for financial consideration, franchisees are obligated to adhere to the franchisor's standards and practices This partnership is supported by ongoing commercial and technical assistance, governed by a written franchise agreement.
According to the Franchise Council of Australia, a franchise is defined as a business relationship where franchisors, who own the business and its products or services, grant independent franchisees the rights to market and distribute these goods or services, as well as use the franchisor's business name for a specified duration.
Under Vietnamese law, a commercial franchise is defined as a business arrangement in which franchisors authorize franchisees to independently buy or sell products or offer services, adhering to specific conditions set by the franchisor.
1 The purchase or sale of goods or provision of services shall be conducted in accordance with methods of business organization prescribed by franchisors and associated with the franchisors'
10 Article1 Code of Ethics issued by European Franchise Federation
11 http://www.franchise.org.au/what-is-franchising-.html (accessing on 02/06/2013) trademarks, trade names, business knows-how, business slogans, business logos and advertisements
2 Franchisors shall be entitled to supervise and assist franchisees in conducting their business activities 12
A franchise is a business model where franchisors grant franchisees the rights to utilize their proprietary knowledge and commercial rights in exchange for fees Additionally, franchisors have the authority to oversee and monitor the operations of franchisees.
International franchising extends beyond national borders, allowing franchisors to grant franchisees in other countries the rights to utilize their business models and intellectual property in exchange for fees This process is inherently more complex than domestic franchising due to the challenges of assessing the suitability of products, services, or systems in foreign markets Franchisors must consider the cultural nuances, including local habits, preferences, and business ethics, often opting for countries with similar cultural backgrounds Additionally, navigating the legal landscape is crucial, as franchisors must address various legal requirements and barriers in the target country However, as globalization progresses, cultural and legal differences are diminishing, making international franchising increasingly accessible.
In international franchising, the master franchise model is widely utilized, where franchisors select a single franchisee to hold commercial rights in a specific area or country This master franchisee is then responsible for expanding the franchise system within that region by either onboarding sub-franchisees or establishing their own stores This method of franchising will be explored in detail in the following classification section Notably, Vietnam currently lacks a formal definition or framework for this franchising approach.
Article 284 of the Vietnamese Commercial Law 2005 outlines specific regulations regarding "international franchises," focusing on foreign parties involved in franchise contracts This indicates that international franchises include foreign elements, a concept that is further explored in Chapter II of this essay, which delves into Vietnamese law pertaining to international franchise contracts.
International franchise is a special business method with some features below:
International franchising involves the transfer of commercial rights from foreign franchisors to domestic franchisees, allowing for the establishment of franchise systems in new markets This process often utilizes the master franchise model for efficient operations A notable example of this is the influx of foreign franchises into Vietnam, where brands like KFC from the USA, Honda from Japan, Aptech from India, and Gloria Jean's Coffee from Australia have successfully expanded their presence.
The most critical feature of a franchise system is similarity, which ensures that all franchised stores maintain consistent methods of operation, product quality, and service standards For franchisors, this consistency simplifies management and allows for effective comparison and guidance among stores Franchisees benefit from uniform training, ensuring that their investment yields competitive products Additionally, customers perceive a franchise brand primarily through its similarities; a single store's shortcomings can tarnish the reputation of the entire chain A notable example is Trung Nguyen, Vietnam's first franchise system, which thrived initially with over 1,000 locations but faltered in 2005 due to a lack of uniformity, resulting in varied service quality and pricing across its stores This inconsistency led to negative customer perceptions However, Trung Nguyen has since recognized its shortcomings and is gradually achieving success by reinstating similarity within its franchise system.
Franchisors hold significant rights and responsibilities in overseeing franchisee operations to ensure uniformity across the franchise system, thereby protecting their trademark This oversight is crucial, as it guarantees that all franchise locations adhere to the established business methods of the original store Additionally, monitoring is a key aspect of the franchise agreement, with franchisors obligated to assist franchisees in understanding and implementing commercial practices According to Article 286.3 of Vietnam's Commercial Law 2005, franchisors are empowered to conduct such oversight effectively.
Tran My Loan's bachelor's thesis, titled "Law on Franchise Under Regulations of Commercial Law 2005," emphasizes the importance of conducting regular and extraordinary inspections of franchisee activities These inspections are crucial for maintaining uniformity within the commercial franchise system and ensuring the consistent quality of goods and services offered.
Franchisees have limited rights to use know-how and industrial property over an extended period, as franchisors do not sell their intellectual properties but rather transfer commercial rights temporarily Once the franchise agreement concludes, franchisees must cease operations of the franchised stores This long-term contract structure is essential, as franchisors require sufficient time to recoup their investments and generate profits before the agreement ends.
Franchisees operate independently, generating profits and investing their own capital while assuming all associated risks However, their independence is somewhat limited by the franchise contract, which grants them access to the franchisor's know-how and industrial property Although franchisees maintain autonomy in terms of capital and profit, they rely on the franchisor's guidelines for conducting business Additionally, to safeguard their trademark, franchisors actively oversee franchisee operations.
Franchising involves the exchange of valuable assets such as industrial property, trademarks, and proprietary formulas, making it challenging to assess their true worth This type of business arrangement relies heavily on trust; franchisees must have confidence in the franchise system's success and the brand's reputation Conversely, franchisors must trust the integrity of their franchisees, as sharing commercial secrets poses significant risks to their business.
In conclusion, International Franchise is a unique trading model characterized by significant similarities that shape its overall structure and are crucial for its success Key features include long-term contracts, a distinct relationship between franchisors and franchisees, and the franchisors' rights to monitor and evaluate franchisees These characteristics differentiate franchising from other business models, highlighting its specialized nature.
Classification
There are not exactly ways to classify franchise in the legislation of countries in the world However, basing on researching some documents 14 , I get the way to sort franchise below
1.3.1 Basing on the franchise methods
There are two groups of international franchise: direct franchise and master franchise (indirect-franchise)
Direct franchise refers to a franchising model where there are no intermediaries between franchisors and franchisees In this arrangement, franchisors directly transfer commercial rights to franchisees, who then assume all associated risks and legal responsibilities for their businesses This model can be structured in various ways to suit the needs of both parties.
Franchisors can establish direct relationships with individual franchisees by considering their financial and legal circumstances By signing franchise contracts with those interested in opening franchise business stores, franchisors integrate these franchisees into the broader franchise system.
The second way is authorizing branch or subcompany of franchisors to sign franchise contract with franchisees directly In this way, the existence of the
“branch or subcompany” is just legal representation and the relationship between the franchisors and the franchisees is direct
Franchisors can grant commercial rights to special franchisees, allowing them to operate like standard franchisees and generate profits These special franchisees also have the authority to transfer the owner's commercial rights to other franchisees As representatives of the commercial rights owner, special franchisees become key parties in franchise contracts with individual franchisees.
Dr Vu Đang Hai Yen's work, "Law on Commercial Franchise Contract in the Vietnamese Economic and Social Conditions," published by the Politics and Administration Publisher in 2011, explores the legal framework governing commercial franchise agreements within Vietnam's unique economic and social context.
In the franchise model, franchisors appoint initial franchisees and establish contracts that grant them exclusive rights to operate within designated areas, allowing them to manage commercial rights This approach is known as indirect franchising, as once the contract is signed with sub-franchisors, the initial franchisors have minimal responsibilities beyond those outlined in the original agreements Consequently, the sub-franchisors assume roles similar to those of direct franchisors, effectively managing the franchise operations.
International franchises often utilize the master franchise model, allowing franchisors to efficiently transfer commercial rights to a single franchisee in a specific country or region, rather than managing multiple individual franchises Notable brands like McDonald's, Burger King, and 7-Eleven commonly adopt this approach For instance, Burger King entered the Vietnamese market in 2012 through a master franchise agreement, where BK Asia Pacific granted rights to the Vietnam Food & Beverage Service Limited Company, enabling them to establish the first store in Ho Chi Minh City Franchisors typically select between two types of master franchises: the monopoly master franchise, which allows sub-franchisors to directly manage and charge fees to sub-franchisees, and the developing master franchise, where master franchisees are responsible for establishing the franchise system themselves without transferring rights to others Successful master franchisees must possess substantial financial resources to support their operations across the designated area.
15 http://www.doanhnhansaigon.vn/online/kinh-doanh/chuyen-lam-an/2013/03/1072210/sau-starbucks-la- mcdonald-s/ (accessing on 02/06/2013)
1.3.2 Basing on the objects of franchise
In this way, the franchisors transfer the rights to trade some services created by themselves to the franchisees and take fees
The most popular franchising model is straightforward, requiring minimal standards in commerce and legality from both parties Franchisees can distribute products manufactured by franchisors while benefiting from their established reputation Unlike service or processing franchises, franchisees do not need to invest in elaborate facilities or highly skilled workers to acquire know-how This arrangement alleviates concerns for franchisors regarding the protection of trade secrets and brand reputation, as franchisees are less likely to meet product standards Additionally, franchisors find it easier to monitor franchisee operations While this model resembles a commercial agency, a key distinction is that franchisees bear full responsibility for their business, even though it operates under the goods and brand name of the franchisor.
Franchisors grant franchisees the rights to produce and sell goods using their established methods, trademarks, and trade names In processing franchises, the exchange of formulas or production methods can lead to the potential exposure of trade secrets As a result, this type of franchising is relatively uncommon and is typically associated with distribution franchises.
In addition to the various types of international franchises, there exists a joint venture model where parties from two different countries collaborate to establish a company In this arrangement, both franchisors and franchisees invest capital based on a mutual agreement, with franchisors typically contributing the majority of the trading system or cash, while franchisees provide financial resources and local market insights Essentially, this joint venture operates as a sub-franchisor However, this model is less popular due to its lack of traditional franchise characteristics and the increased financial risks for franchisors.
Some Legal issues about International Franchise
International franchising involves expanding a franchise into foreign markets, requiring franchisors to be well-versed in the legal frameworks governing franchises in those countries Similar to other forms of international trade, franchising is subject to various laws that must be carefully considered.
Franchise law plays a crucial role in regulating franchising agreements, encompassing various aspects of intellectual property law This includes trademarks, trade names, industrial designs, copyrights, know-how, and trade secrets, all of which are essential components of franchising.
Franchising presents a challenge in protecting intellectual property rights, as many operational elements are disclosed to franchisees, making them vulnerable to violations To safeguard the interests of franchisors, it is essential to implement robust intellectual property laws Additionally, franchisors must ensure their legal ownership of these rights and protect themselves and their franchisees from potential lawsuits by third parties during the usage of intellectual property It is important to examine the specific assets that franchisors transfer to franchisees.
- The trade names: The trade names are protected automatically since registering The fact that franchisees use trade names is not compulsory, the parties can use their own trade name
In franchising relationships, copyright plays a crucial role, particularly in service and processing franchises, where franchisors are responsible for training franchisees on customer service and production methods This often involves the transfer of intellectual property such as videos, software, and reference materials Intellectual property law safeguards the copyright of logos, systems, and operational guidelines created by franchisors Consequently, franchisees are prohibited from copying these materials in any form without the franchisor's consent, and they must adhere strictly to the terms outlined in their franchise agreements.
Trademarks play a crucial role in distinguishing franchised products, as most countries require registration for trademark protection, with the exception of well-known marks To prevent legal issues and safeguard their brand, franchisors must ensure all trademark registrations are completed before transferring rights For instance, Buffalo Wild Wings (BWW) explicitly defines its registered trademark in its franchise contract, emphasizing the importance of proper registration Furthermore, franchisees are obligated to use the trademark in accordance with the franchisor's guidelines regarding imagery, size, language, and logos, and any modifications require the franchisor's consent, as highlighted in Article 3.A of their contract.
Franchisees must refrain from any actions that could infringe upon or harm the parent company's trademark rights and associated goodwill, including using the trademarks in a negative or inappropriate manner across all media Additionally, franchisees are prohibited from using any identical or similar elements that could mislead consumers regarding the franchisor's trademarks, and they are only permitted to use the trademarks in designated geographical areas and for specific products approved by the franchisors.
Industrial designs, akin to trademarks, require registration for effective protection of ownership Consequently, franchisors bear the responsibility of completing all necessary registration procedures for industrial designs, safeguarding both their interests and those of the franchisees Additionally, franchisees hold a degree of liability in this process.
16 For the whole view, see Appendix 1,term 1.G
17 For the whole view, see Appendix 1, term 3.A to keep secret for the designs transferred and help franchisors‟ right to avoid being violated by the third party
Trade secrets and technological methods play a crucial role in the production process by enhancing the competitive edge of products These elements include operational principles, marketing strategies, and unique design features of franchised stores All parties involved in a franchising relationship are obligated to maintain the confidentiality of these secrets, with franchisees prohibited from disclosing them to third parties Certain aspects, such as store decor, staff uniforms, and scents, cannot be individually protected and must be considered collectively The BWW franchise contract emphasizes the importance of confidentiality regarding trade secrets and technological methods, as outlined in term 6J, which addresses the handling of "Confidential Information."
During the term of this Agreement and thereafter, you and your affiliates, including guarantors, officers, directors, members, managers, partners, employees, or agents, are prohibited from disclosing, copying, reproducing, selling, or using any Confidential Information in any unauthorized manner Any use of such information must receive prior written approval from us.
Intellectual property law plays a significant role in international franchise contracts, making it essential for franchisors to understand its implications In Vietnam, the 2005 Law on Intellectual Property outlines various conditions for the protection of industrial property for franchisors A key aspect to note is the registration procedure, which serves as a prerequisite for franchisors to safeguard their commercial rights in the country Foreign franchisors should pay particular attention to the "priority principle" outlined in Article 91, as it governs the competition among registrants for priority rights.
18 PhD Vu Dang Hai Yen, footnote 10, page 82
In Vietnam, when multiple parties submit registration applications for the same industrial property, the first applicant must assert their prior claim in accordance with the provisions of relevant treaties signed by Vietnam This includes treaties that stipulate priority conditions or mutual agreements regarding industrial property rights For a comprehensive understanding, please refer to Appendix 1, term 6.J.
Franchising relationships require regulation under competition law due to the potential for anti-competitive practices and abuse of dominant positions inherent in franchise agreements These agreements often include competitive elements that can lead to market sharing and territorial division, as evidenced by clauses related to sale locations and restrictions on franchisee advertising outside the system Additionally, proprietary trading concerning trademarks and brands can further exacerbate these issues However, competition law provides necessary regulations to limit these competitive elements when they negatively impact the market Below are some typical types of competitive franchise agreements.
A location agreement is essential in franchising, as it restricts franchisees from operating outside the designated area set by franchisors and mandates that they manage only one establishment supplied by the franchisor Franchisors typically determine the number of franchise stores within a specific geographic region by allocating trading areas to each franchisee This strategy aims to ensure equitable profits among franchisees, minimizing competition within the same franchise system in a given area, and enhancing overall business efficiency For instance, the BWW contract includes a clause in Article 2B stating, "You must locate and operate the Restaurant at an Authorized."
The franchisors will exclusively designate the area outlined in Appendix B (the "Designated Area") for BUFFALO WILD WINGS restaurants, prohibiting any operation or franchise grants to others within this area while the Agreement is in effect, except as specified in subparagraph 2.D Franchisees are not permitted to sublicense or subfranchise, nor can they operate more than one restaurant within the Designated Area This clause emphasizes the importance of adhering to the designated operational boundaries established by the franchisors.
A proprietary supplying and distributing agreement, commonly observed in distribution franchises, mandates that franchisees exclusively sell branded products from the franchisors in stores that display the franchisors' trade names or symbols In service or processing franchises, franchisees are required to adhere to the standards and pricing set by the franchisors to maintain uniformity across the franchise system Consequently, franchisees must demonstrate absolute loyalty to the franchisors and are prohibited from engaging in activities that could benefit third parties or competitors For instance, Article 6A of the Buffalo Wild Wings contract stipulates that franchisees are restricted to offering only the menu items and approved food and beverage products designated by the franchisors, with any modifications subject to the franchisors' written consent.
LAW ON INTERNATIONAL FRANCHISE CONTRACT
Common legal issues about international franchise contract
When expanding a franchise into foreign countries, it is essential to adhere to the local franchise laws that govern franchise contracts Consequently, international franchise agreements must be aligned with the domestic legal frameworks Based on my research, I have identified several common considerations regarding franchise contract laws across various countries.
Franchise contract legislation is a crucial aspect of franchise law in many countries, focusing on defining franchise contracts, outlining their essential contents, and specifying the types and valid conditions required This legislation addresses fundamental issues related to franchise agreements, ensuring clarity and compliance within the franchising framework.
2.1.1 Definition of international franchise contract
Franchise contract laws provide a clear definition of franchise agreements, highlighting their key characteristics and distinguishing them from similar contracts such as agency or licensing agreements This definition also clarifies the relationships between the parties involved, enabling contracting parties, third parties, and government agencies to effectively oversee the creation and implementation of franchise contracts.
Recognizing the international franchise contracts, we had better firstly have a look on franchise contracts that covers definition of international ones According to
In "Intellectual Property in Europe," Mr Guy Tritton outlines four key features of franchise contracts: the independence of franchisors and franchisees, the existence of a contractual license for the use of the franchisors' trade name and trademarks, the provision of ongoing assistance from franchisors to franchisees, and the contractual control over the franchisee's business operations Consequently, franchise contracts exhibit characteristics similar to various types of agreements, including licensing contracts that facilitate the transfer of rights to utilize intellectual property.
In "Intellectual Property In Europe," Guy Tritton discusses various forms of intellectual property, including trade names, patents, and industrial designs He highlights the significance of know-how transfer agreements, where franchisors provide franchisees with essential technological processes and guiding documents.
Franchise contracts, as defined by legislation in countries like Germany and France, are agreements that encompass key aspects such as the transfer of intellectual property rights to franchisees for profit generation, the support provided by franchisors to franchisees, and the financial obligations of franchisees towards franchisors This definition offers a fundamental understanding of franchise contracts that is widely applicable across various nations.
International franchise contracts are agreements that encompass international elements, transcending national boundaries These contracts define the rights and obligations of the parties involved in a franchise relationship, allowing for the creation, modification, or termination of these rights They also address the transfer of intellectual property rights to franchisees, enabling them to generate profits, while providing support from franchisors to franchisees and other franchisees.
„financial responsibilities with franchisors This is also the proof to solve disputes during contract time
2.1.2 Valid conditions of franchise contract
Franchise law outlines the essential conditions for valid franchise contracts, requiring parties to meet specific commercial and economic criteria, such as the type of business entity (e.g., limited liability company or joint stock company) and the qualifications of the franchisors and franchisees Additionally, this legislation specifies the necessary requirements for the contract's format and the collaborative actions required by both parties Typically, franchise contracts must be documented in writing or similar formats, which vary based on each country's regulations regarding franchise agreements.
29 PhD Vu Dang Hai Yen, footnote 10, page 96
There are two subjects in franchise relationship: the franchisors and franchisees
In master franchising, also known as indirect franchising, sub-franchisees are the third parties that obtain commercial rights from the primary franchisees designated by the franchisors The specific conditions for these sub-franchisees are outlined below.
Franchisors face strict conditions due to their significant influence in the franchising process In many countries, such as China, they are required to operate as formal enterprises Additionally, the duration of franchising operations is subject to legal regulations, often necessitating a minimum operational period of one year Financial capability is another crucial requirement, as franchisors must possess robust and competitive franchise systems with multiple stores in the market.
Franchisees must operate as legally independent entities from franchisors, bearing all trading risks while adhering to specific legislation, finance, and investment requirements In China, franchisees are required to be established as a certain type of enterprise, ensuring compliance with legal standards set for franchising.
An international franchise contract must have some basic elements below:
- The objects must be legally accepted in the franchisees‟ countries The objects are often the commercial rights composing trade name, trade mark, know-how, guiding documents…
- Term about the fact that franchisors transfer rights to use their commercial rights
- The right and liabilities of both parties This will be showed in 2.1.3
- The splitting market term composing splitting market areas
- The similarity in price in all system
30 Article7 of Measures for the Regulation of Commercial Franchise (Franchise law of China)
31 Article 8 of Measures for the Regulation of Commercial Franchise
2.1.2.3 The form of the contract
Franchising involves significant risks and can lead to disputes due to the exchange of trade secrets between parties To effectively resolve these disputes, clear and well-defined agreements are essential Most countries mandate that franchise agreements be documented in writing to explicitly outline the responsibilities of each party Given the complexities introduced by international elements, international franchise contracts must be particularly clear and comprehensive compared to other types of franchise agreements.
2.1.3 Rights and liabilities of the parties
Franchise law specifically governs the rights and responsibilities of parties within a franchise contract, distinguishing it from general civil and commercial law Unlike other contracts where equal agreement is standard, franchise agreements often favor franchisors, who impose specific operational methods and maintain oversight of franchisees Consequently, franchisees face limitations outlined in the disclosure document, which stipulates conditions for opening a franchise This imbalance has led to a trend in various countries to implement legislation that offers greater protection for franchisees.
Franchisors hold the rights to collect franchise fees, promote the franchise system and its stores, and monitor franchisees to maintain product and service consistency and quality They are also responsible for providing a comprehensive disclosure document to help potential franchisees understand the system before joining, offering training and technical support, designing the franchise location, protecting intellectual property rights outlined in the franchise agreement, and ensuring fair treatment of all franchisees within the system.
The disclosure documents play a crucial role in franchisors' liability, as they require franchisors to provide essential information to franchisees According to Chinese franchise law, franchisors must supply prospective franchisees with a copy of the franchise agreement and a written disclosure document that includes accurate and genuine information about the franchise operation This information is vital for franchisees to gain a comprehensive understanding of the franchise system and make informed decisions about joining Typically, the disclosure document includes details such as the history of the franchise system and the nature and scope of the franchisor's services and products.
Vietnamese law regulating international franchise contract
Vietnamese franchise contracts are primarily governed by two key legal frameworks: the Civil Code, which serves as the overarching law for commercial, labor, and family relationships, and the Commercial Law, specifically addressing franchise agreements in Section 8 Detailed regulations for these contracts are further outlined in Decree 35/2006/ND-CP.
Vietnamese law lacks a specific definition for international franchise contracts, and the legal framework does not explicitly address international franchising Nevertheless, it is possible to apply the concept of franchise contracts involving foreign elements under Vietnamese law to the context of international franchises.
To recognize a franchise contract with foreign elements, it is essential to establish two criteria: it must qualify as a commercial contract and include foreign elements The regulations outlined in Part VII of civil law govern civil relationships involving foreign elements Specifically, Article 758 of civil law provides guidance on these matters.
Civil relations with foreign elements refer to interactions where at least one party is a foreign entity, organization, or individual, including overseas Vietnamese These relations may also involve Vietnamese citizens or organizations, but are governed by foreign laws, originate outside the country, or involve assets located abroad.
Franchise contracts involving foreign elements can be evaluated based on three key criteria: the involvement of a foreign party, the occurrence of legal events such as establishment, termination, or alteration of the contract overseas, and the location of property related to the contract in a foreign country According to Mr Nguyen Ba Binh from Hanoi University of Law, these contracts can either involve a foreign subject or foreign legal events Specifically, foreign subjects may include franchisors or franchisees who are foreign nationals, while legal events may take place outside the home country However, the assets involved in these contracts—specifically commercial rights—are intangible and cannot be physically located in a foreign country Therefore, franchise contracts with foreign elements are characterized primarily as commercial contracts that either involve a foreign party or are executed, modified, or concluded outside the home jurisdiction.
2.2.1 The subjects in the contract
The issue about the subjects of franchise contract applied to foreign ones is similar to the domestic ones because in decree 35/2006/ND-CP, article 2.1 defines
This Decree governs both Vietnamese and foreign traders engaged in franchising, stipulating that foreign entities must fulfill the same requirements for franchisors and franchisees as outlined for Vietnamese entities in Decree 35/2006/ND-CP.
Article 5 Conditions for the franchisor
A trader shall be permitted to grant commercial rights when fully satisfying the following conditions:
1 The business system intended for franchise has been in operation for at least one year
A Vietnamese trader acting as the primary franchisee of a foreign franchisor is required to operate under the franchising model in Vietnam for a minimum of one year before engaging in sub-franchising activities.
2 Such trader has registered franchising with the competent agency defined in Article 18 of this Decree
In the article "International Franchise Contracts Under Vietnamese Law," published in the Legal Magazine of Hanoi University Law, Nguyen Ba Binh examines the legal framework governing international franchise agreements in Vietnam The analysis highlights key regulations and compliance requirements that businesses must adhere to when engaging in franchising within the Vietnamese market This comprehensive overview provides valuable insights for both local and foreign investors looking to navigate the complexities of franchise contracts in Vietnam.
3 The in-business goods and/or services covered by commercial rights do not violate the provisions of Article 7 of this Decree
Article 6 Conditions for the franchisee
A trader shall be permitted to receive commercial rights when having the registration of business lines subject to commercial rights”
Franchisors and franchisees operate under distinct legislative frameworks, with franchisors facing numerous stringent requirements, while franchisees' obligations are more straightforward Franchisors must comply with specific conditions related to trading areas, such as maintaining a minimum of one year in operation and registering liability, as well as adhering to regulations concerning goods and services, particularly avoiding violations of Article 7 of Decree 35 Additionally, both franchisors and franchisees share similar rights and responsibilities, reflecting global franchise norms Vietnamese law, particularly Article 8 of Decree 35/2006/ND-CP, outlines detailed liabilities for franchisors in terms of providing disclosure information.
Article 8 The franchisor's responsibility to supply information:
1 The franchisor shall have to supply copies of the franchise contract form and the written introduction of its franchising to the intended franchisee at least 15 working days before signing the franchise contract, unless otherwise agreed by the parties Compulsory contents of the written introduction of franchising shall be specified and promulgated by the Ministry of Trade
2 The franchisor shall have to promptly notify all franchisees of all important changes in the franchising system, which may affect the latter's business activities by mode of franchising
3 Where the franchised commercial right is a common one, the secondary franchisor shall, apart from supplying information according to the provisions of Clause 1 of this Article, have to notify in writing the intended franchisee of the following contents: a) Information on the franchisor that has granted commercial rights to it; b) Contents of the common franchise contract; c) Method of handling secondary franchise contracts in case of termination of the common franchise contract
The term highlights the specific informing liabilities of franchisors, particularly in the context of master franchising Notably, the third clause of this article mandates that secondary franchisors provide all information received from primary franchisors and outline the procedures for managing sub-franchise contracts upon termination of the main franchise agreement This requirement ensures that secondary franchisors, who directly sell commercial rights to franchisees, include comprehensive disclosure about handling secondary franchise contracts Consequently, this provision mitigates risks for franchisees in master franchising and underscores a positive aspect of Vietnamese franchise law.
2.2.2 The form of the contract
Decree 35 governs the regulations for both Vietnamese and foreign entrepreneurs, establishing guidelines that apply to both international and domestic franchise contracts According to Article 285 of the commercial law, it is mandated that "commercial franchise contracts must be made in writing or in other forms of equivalent legal validity."
Besides, article 12 of decree 35 regulates the language of franchise contracts
“Franchise contracts must be made in Vietnamese For franchises granted by
International franchise contracts in Vietnam must be in written form, with Vietnamese being mandatory for franchises operating within the country This requirement ensures clarity and serves as crucial evidence in resolving disputes, as highlighted in section 2.1.2.3 Clear documentation is essential to prevent misunderstandings and protect reputations An example of the importance of this regulation can be seen in a trademark dispute that arose in February 2012.
In the case of "cháo cây thị," the plaintiff, Navi Joint Stock Company, lost the lawsuit due to the inability to present written contracts as evidence in court, as the agreement with the defendant, Song Kim Limited Liability Company, was solely based on an oral arrangement.
Article 11 of decree 35/2006/ND-CP regulates that
Where the parties choose to apply Vietnamese law, a franchise contract may have the following principal contents:
1 Content of franchised commercial right
2 Rights and obligations of the franchisor
3 Rights and obligations of the franchisee
4 Price, periodical franchise fee and mode of payment
5 Valid term of the contract
6 Renewal and termination of the contract, and settlement of disputes
Legislation governing international franchise contract in UK–in
comparison with that in Vietnam
Franchise contracts in the UK, similar to those in Vietnam, are not specifically governed by franchise law, allowing for a favorable environment for foreign investments The UK promotes ease of trade with minimal restrictions on foreign assets and companies, making it an attractive destination for international franchise businesses Notably, the UK is a member of the British Franchise Association (BFA), which regulates franchises through a franchising code of ethics This article will explore the UK laws governing international franchise contracts and compare them to Vietnam's legislation on franchise contracts involving foreign elements.
2.3.1 The subjects in the contract
The franchising code of ethics in Vietnam, similar to its commercial law, outlines the conditions for parties entering a franchise relationship, detailing their rights and responsibilities Key subjects to consider include the qualifications for franchise participants and the obligations that arise within the franchise agreement.
- The first subject is the franchisors Article 2.2 indicates the obligations of them:
have operated a business concept with success, for a reasonable time and in at least one pilot unit before starting its franchise network
be the owner, or have legal rights to the use of its network's trade name, trade mark or other distinguishing identification
provide the individual franchisee with initial training and continuing commercial and/or technical assistance during the entire life of the agreement
Franchisees must receive a copy of the Code of Ethics and complete written disclosure of information prior to signing the contract, as outlined in Article 3.3 of the code Franchisors are required to operate their businesses within a reasonable timeframe, possess commercial rights, and assist franchisees in managing their stores While these conditions are adaptable to various countries within the organization, a unified legislative framework is essential to eliminate legal barriers and promote trade, particularly in the context of international franchises In the UK, the ambiguity surrounding these terms complicates the resolution of disputes related to franchisor obligations Conversely, Vietnamese law offers more specific guidelines regarding franchisor responsibilities, such as a minimum of one year of operation and a requirement for disclosure information to be provided at least 15 days before contract signing Notably, while Vietnamese franchisors need only operate their business for a year, UK franchisors must establish at least one pilot unit before launching their franchise network, which serves as a valuable model for potential franchisees.
Building a pilot unit benefits both the involved parties and the states, as it enhances system management and promotes trade consistency For further details, refer to Appendix 2, Article 3.3 of the Code of Ethics.
- The franchisees: Article 2.3 of Code of Ethics refers to the obligations of franchisees below:
devote its best endeavours to the growth of the franchise business and to the maintenance of the common identity and reputation of the franchise network
Franchisees must provide the Franchisor with verifiable operating data to assess performance and financial statements essential for effective management Additionally, the Franchisor and its agents should have reasonable access to the franchisee's premises and records upon request.
not disclose to third parties the know-how provided by the franchisor, neither during nor after termination of the agreement
The code lacks specific references to the conditions required for franchisees, whereas Vietnamese law clearly outlines these requirements in Article 6 of Decree 35/2006/ND-CP, which mandates that franchisees must register their trading area This omission may be considered a drawback.
UK franchise law emphasizes the importance of selecting qualified franchisees, a principle echoed in Vietnamese law which mandates registration in franchise sectors However, this requirement may be unnecessary for two reasons Firstly, franchisors tend to avoid partnering with parties lacking expertise in the franchise domain to protect their brand reputation According to Article 4 of the Code of Ethics, franchisors should only accept franchisees who, after thorough investigation, demonstrate the necessary skills, education, personal qualities, and financial resources to successfully operate the franchised business This underscores the importance of assessing potential franchisees' capabilities in the relevant franchise areas.
Franchisees invest their capital into franchising stores, and understandably, they seek assurance of profitability before committing their funds Typically, franchisees possess relevant experience or expertise in the franchise industry to ensure effective business operations Moreover, the registration process for franchising does not guarantee that individuals have the necessary qualifications or knowledge in the commercial field Consequently, I believe that Article 6 of Decree 35/2006/ND-CP may be unnecessary.
2.3.2 The form of the contract
Article 5.2 of code of Ethics shows:
The franchise agreement must prioritize the interests of network members in safeguarding the franchisor's intellectual property and preserving the unified identity and reputation of the franchise Additionally, all agreements and contractual documents related to the franchise relationship should be drafted in the official language of the franchisee's country, with translations provided by a sworn translator Signed agreements must be promptly delivered to each individual franchisee.
Unlike Article 285, which allows franchise contracts in Vietnam to be in written form or other similar formats, the current article mandates that franchise contracts must exclusively be in written form This requirement is advantageous as the term "similar forms" is vague and could lead to misuse, allowing some parties to engage in franchising without proper documentation The necessity of a written agreement underscores the importance of clarity in franchise relationships, ensuring that all parties have a definitive record of their agreement Additionally, the stipulation that contracts must be written in the official language of the franchisee's country aligns with Article 15 of Decree 35/2006/ND-CP, which requires franchise contracts to be in Vietnamese for franchises operating in Vietnam.
2.3.3 The content of the contract
Article 5.4 of Code of Ethics indicates some compulsory terms in the franchise agreement composes: rights and obligations of the parties, the goods and/or services to be provided to the individual franchise, term of payment, the duration of the agreement which should be long enough to allow individual franchisees to amortize their initial investments to the franchise, the basis for any renewal of the agreement, provisions for termination of the agreement… 36
The Code of Ethics provides specific regulations regarding the content of franchise contracts, which is a positive aspect of franchise regulation When comparing this with Article 11 of Decree 35/ND-CP of Vietnamese law, several notable similarities emerge Specifically, Article 5.4 of the Code of Ethics aligns closely with the requirements outlined in Article 11 of Decree 35/2006/ND-CP, highlighting the importance of standardized practices in franchise agreements.
Both CP and the code of Ethics necessitate that franchise contracts outline the rights and liabilities of the parties involved, the franchise fee, the scope of commercial rights, and the conditions for termination or modification of the contract However, the key distinction lies in the specificity of the required terms; the code of Ethics provides a clearer framework for the mandatory content of franchise contracts compared to decree 35/2006/ND-CP.
Article 5.4 of the Code of Ethics emphasizes that franchise contracts must provide a sufficient duration for franchisees to amortize their initial investments, although determining the exact timeframe can be challenging This provision helps safeguard franchisees' rights, particularly in situations where franchisors may reap excessive profits, potentially influencing the validity of franchise contracts in legal contexts Additionally, Article 5.4 includes essential stipulations not covered by Article 11 of Decree 35/2006/ND-CP, such as the procedures for franchisees selling or transferring their stores, franchisors' rights to modify trading methods within the system, and the reclamation of commercial rights upon contract termination.
The inclusion of ethical terms in franchise contracts is crucial for predicting potential risks and preventing disputes between parties However, under Vietnamese law, specifically Article 11 of Decree 35/2006/ND-CP, the requirements for these terms are overly vague While it mentions the necessity of a "valid term," it fails to specify what constitutes a valid term, rendering the provision largely symbolic and ineffective in regulating franchise agreements.
Recommendations
The interpretation of Vietnamese legislation on international franchise contracts and some experiences from UK franchise law above, I have some recommendations to improve our legal system in franchise below:
2.4.1 Something needs to be changed
In Vietnam, the current conditions for franchisors are inadequate to ensure the quality of the franchise system To improve this, it is essential to include provisions in the Code of Ethics that require franchisors to operate at least one pilot unit, allowing potential franchisees to evaluate and choose to purchase commercial rights effectively Additionally, the requirement for franchisees to register their trading areas should be eliminated, as it does not guarantee their experience or expertise in the franchised sector Instead, regulations should stipulate that franchisees must have a minimum of one year of experience in the relevant field, and franchisors should possess certification in their area of expertise While franchisors can assess the qualifications of franchisees before selling commercial rights, establishing these requirements is crucial for setting clear standards in the selection process.
Secondly, about the form of the contract, as I evaluated above, the word
The term "similar forms" in commercial law is overly vague and can be exploited to infringe upon the rights of parties involved Franchising, as a unique business model, entails greater risks for entrepreneurs, making it essential to establish clear legal protections Contracts serve as definitive evidence for resolving legal issues during the agreement period and should be articulated in a precise written format Consequently, it is advisable to remove the phrase "in other form of equivalent legal validity" from Article 285 of commercial law to enhance clarity and protect the rights of all parties.
Thirdly, about the content of the contract, article 11 of decree 35/2006/ND-
The current regulations under CP are overly vague and lack detailed guidance on contract content, particularly concerning essential elements like pricing, periodic franchise fees, and payment methods It is crucial to specify the maximum interest rate applicable to overdue payments Additionally, the provision regarding the "valid term of the contract" needs further examination, as it overlooks significant issues such as contract invalidity and unilateral termination, which could lead to disputes in court To mitigate potential conflicts, these aspects should be explicitly addressed in the contract Furthermore, attention should be given to Article 13 of Decree 35/2006/ND-CP for further clarification on the valid term.
Article 13 Valid term of the franchising contract
1 The valid term of a franchising contract shall be agreed upon by the involved parties
2 A franchising contract may be terminated ahead of the agreed time in the cases specified in Article 16 of this Decree
The regulation allows parties to freely agree on the duration of franchise contracts; however, this can lead to potential exploitation by franchisors who may pressure inexperienced franchisees into signing short-term agreements Given the significant financial investment required for franchisors to establish their commercial rights, it is crucial for franchisees to have a sufficiently long contract duration to recoup their initial investments Therefore, it is essential to incorporate a stipulation for a "valid term of franchise contract" that ensures an adequate timeframe for franchisees, drawing from lessons learned in UK franchise law.
The rights and liabilities of franchisors and franchisees are crucial in franchise law, yet current regulations, such as Article 8.1 of decree 35/2006/ND-CP, only require franchisors to provide basic documentation 15 working days prior to signing the contract This lack of emphasis on the content of the disclosure is problematic, as it fails to ensure that the information is accurate and transparent, leaving potential franchisees without a comprehensive understanding of the franchise system To enhance protection for franchisees, it is essential that disclosures are truthful and reflect the reality of the franchise, enabling informed investment decisions Moreover, franchisors must ensure their advertising is also truthful to prevent misleading potential franchisees, thereby safeguarding their interests in alignment with the principles of franchise law.
Providing franchise contract drafts within 15 days is reasonable; however, the disclosure information should be shared well in advance of signing Given the significant financial investment involved, potential franchisees require ample time to comprehend and evaluate their options Therefore, I recommend extending this period to one month This adjustment will not diminish the benefits for franchisors but will allow franchisees to make more informed and thoughtful decisions.
Franchisees should have a balanced level of autonomy within the franchised system to prevent over-dependence on franchisors While the nature of franchising involves some reliance, it is essential to establish limitations that empower franchisees in areas such as recruitment, financial management, and daily operations This autonomy fosters freedom in commerce and encourages innovation in trading practices Without these limitations, franchisors may exploit their authority, potentially pressuring franchisees or unilaterally terminating contracts Therefore, a clear delineation of rights and responsibilities is crucial for a healthy franchising relationship, ensuring that franchisors can maintain brand consistency while allowing franchisees the freedom to operate effectively.
The Vietnamese law is short of some necessary provisions for international franchise contracts, some of which is recommended as follow:
International franchise contracts lack a definitive definition, which complicates the process of establishing clear guidelines for their creation Understanding the definition is crucial, as it delineates the contract's scope and clarifies the rights and responsibilities of the involved parties In the context of Vietnam, international franchise contracts are characterized by their foreign elements, encompassing both commercial aspects and the involvement of at least one foreign party or legal event To accurately define these contracts, it is essential to highlight their core components, including the subjects, objects, and trading methods, with particular emphasis on the foreign elements that distinguish them from domestic contracts In essence, an international franchise contract can be described as a commercial agreement featuring foreign elements in its parties or legal context, wherein franchisors grant franchisees the rights to utilize their commercial assets in exchange for fees.
In Vietnam, the term "commercial rights" in franchise contracts is outlined in Article 3.6 of Decree 35/2006/ND-CP, which primarily addresses the rights of franchisees to utilize the franchisor's trademark, trade name, business slogan, and advertising logo However, it is crucial to recognize that these elements represent only a portion of the broader commercial rights associated with franchising True commercial rights encompass the entire franchising model, including product quality and store aesthetics The current definition fails to capture the holistic nature of commercial rights, as it merely lists specific intellectual property components Therefore, it is essential to redefine this term to reflect the integrated nature of these elements within a cohesive franchise system.
Vietnamese franchise law currently lacks specific regulations governing the relationship between franchisors and master franchisees, which is crucial in international franchising Master franchisees play a vital role in managing sub-franchisees and should meet higher requirements, including relevant experience and training from the franchisors Additionally, the law should clearly outline the obligations of master franchisees, such as accurate reporting of franchise conditions and financial responsibilities The duration of master franchise agreements and the process for termination are also significant aspects that need regulation It is essential that the duration be lengthy and that any contract termination is communicated to sub-franchisees promptly, with the appointment of a new master franchisee if necessary Furthermore, Vietnamese law does not address whether master franchisees can trade commercial rights like sub-franchisees While parties may agree to this, it is advisable that legislation prohibits such trading to prevent conflicts of interest and ensure the integrity of the franchise system, as master franchisees have extensive responsibilities that should prioritize system quality over competitive trading.
Analyzing UK franchise law reveals key legal terms that could enhance Vietnamese franchise legislation One significant aspect is the mandatory non-competition clause in franchise contracts, which prevents franchisees within the same system from competing against each other, thereby protecting the integrity of the franchise and preventing potential collapse due to internal competition Additionally, incorporating a contract renewal term that allows franchisees sufficient time to recoup their investments is crucial This provision not only safeguards the interests of franchisees but also ensures that franchisors provide an appropriate duration for utilizing commercial rights, fostering a more equitable relationship between both parties.
In conclusion, the recommendations for Vietnamese franchise law stem from an in-depth analysis of international franchise contract legislation It is evident that our country lacks several effective provisions for regulating both international and domestic franchises Therefore, it is essential to amend existing regulations and introduce new ones to enhance our legal framework.
The thesis explores the fundamental aspects of international franchising, focusing on the legal framework governing international franchise contracts It systematically examines common global legal issues and delves into the specific legal systems of Vietnam and the UK, providing a comparative analysis The study concludes with valuable insights and lessons for improving legislation related to international franchise contracts.
International franchising, though emerging later than other forms of international trade, has achieved significant success due to the mutual benefits it offers to both franchisors and franchisees Franchisors can expand their brand reputation globally, while franchisees can generate profits without the lengthy process of establishing their own trademarks Key characteristics of international franchising include cross-border operations, the importance of similarity in branding, the rights of franchisors, limited contract durations, and the essential trust between parties throughout and after the contract period Among these, similarity stands out as a crucial factor that shapes the franchise system's identity and influences customer perceptions Additionally, it is vital to consider domestic laws that impact international franchising, particularly competition and intellectual property laws, along with other relevant regulations such as contract, labor, corporate, and tax laws Chapter 1 of this thesis delves into the history, definition, features, classifications, and legal considerations surrounding international franchising.
The international franchise contract serves as the essential foundation of the franchising relationship This thesis examines the common legislation governing such contracts, highlighting the differences and similarities between Vietnamese law and UK law on international franchises UK law is noted for its simplicity and effectiveness, offering valuable lessons for improvement Key aspects such as the subjects, content, forms, and conditions for termination and suspension warrant thorough investigation in the context of these contracts Furthermore, the recommendation for enhancing Vietnamese law on international franchise contracts is crucial, as the current legal framework lacks significant elements and primarily focuses on domestic franchises, with international aspects inadequately addressed.