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Vol 9 (2011) - Issue 5

Australia - Franchise audits by the ACCC

Sean O’Donnell, Partner, Thomson Lawyers, Sydney, Australia

The Australian Competition and Consumer Commission has been given significant new powers as a result of amendments to the Trade Practices Act (TPA), now renamed the Competition and Consumer Act (CCA). The ACCC was given a new investigative power to issue franchisors with what broadly can be described as an “audit notice” to compel production of certain documents. Franchisors, including those based overseas, must ensure they retain all documentation and information that they are required to provide to franchisees (and prospective franchisees) under the Franchising Code of Conduct, and should seek legal advice if the audit notice is unclear or if they have a problematic compliance history.

China – Commercial franchise contractual disputes

John V. Grobowski, Partner, Yiqiang  Li, Partner and Wendy Yan, Partner, Faegre & Benson LLP, Shanghai

The rapid growth of franchise businesses in China has coincided with a rise in the number of franchising-related legal disputes. Up to now local courts had significant discretion in franchising dispute cases. The Beijing High People's Court became the first court in China to try to outline trial standards by releasing guiding opinions relating to franchise disputes. The guiding opinions cover the definition of a franchise, the validity and the termination or cancellation of franchising contracts. While the opinions do not have nationwide effect, many commentators believe they will play an important role in unifying trial standards and improving trial practice related to franchising dispute cases throughout China.

China – Initiative to update and modernise franchise regulation

Babette Märzheuser-Wood, Partner and Vicky Reinhardt, Associate, Field Fisher Waterhouse LLP, London

The franchising sector in China is governed by the Regulation on the Administration of Commercial Franchising and further administrative rules on disclosure and filing. It is likely that two new administrative rules affecting disclosure and registration will come into effect by the end of 2011. These rules should provide greater certainty and flexibility for the franchising community, but further improvement is required to make it easier for foreign franchisors to operate in this dynamic and fast growing market.

Franchising under Regulation 330/2010 on Vertical Restraints

Professor Aldo Frignani, Frignani & Associati Studio Legale, Turin

This article provides a detailed and expert analysis of the European Commission block exemption regulation on vertical restraints. It considers the new provisions introduced by the regulation and the accompanying guidelines, in particular those which directly impact on franchising, in relation to know how, resale price maintenance and online sales. The author concludes that franchising contracts should take advantage of the modest improvements the new framework offers, but criticizes the excessive use of guidelines and the resulting lack of certainty.

Recent developments in franchising in India

Mark Abell, Partner and Lisa Sen, Consultant, Field Fisher Waterhouse LLP, London

Franchising has become a very popular method for international brands to expand into India especially in the retail, food and beverages, and hospitality sectors. India is a country where there is constant change in most areas of law and franchisors need to keep themselves up to date if they wish to expand into India. This article discusses recent developments in the area of payments of royalties, parallel development, competition law, data protection, food and drug law, and restrictions on shareholding.

Using the EB-5 visa as a source for franchisee candidates in a tight credit market

David W. Oppenheim, Partner and Breton H. Permesly, Associate, Kaufmann Gildin Robbins & Oppenheim LLP

The difficult credit markets in the United States and around the world are making it increasingly difficult for franchisors to find qualified and well-capitalized franchisee candidates. Some franchisors are targeting well-capitalized foreign citizens who qualify for a specific category of visa which allows foreign nationals to gain fast track entry into the United States provided certain monetary and job creation requirements are satisfied. This report sets out in detail the substantive and procedural requirements in relation to obtaining the visa. The authors conclude that franchise systems whose initial investment and unit staffing requirements satisfy the investment and job-creation thresholds may be well served by starting or expanding efforts to locate qualified foreign investors.