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Vol 10 (2012) - Issue 1

The legal regime for franchising in China: Civil or administrative?

Jie Zhou, Partner, Hylands Law Firm, Beijing, China

The franchising sector in China has witnessed spectacular growth, which due to the relative immaturity of the sector, has given rise to an increasing number of contractual disputes. This article considers whether the legal regime governing commercial franchises and franchising contractual disputes is administrative or civil in nature. Whereas commercial franchises are largely governed by administrative measures, the High People's Court of Bejing has set out some rules from a civil law perspective in its guidelines for disputes relating to commercial franchises. These are likely to serve as a model for other courts, though leave significant room for judicial discretion.

Recent changes to the FTC Business Opportunity Rule: A trap for the unwary

Beata Krakus, Associate, Greensfelder, Hemker & Gale, P.C., Chicago, USA

This article provides a detailed overview of the provisions of the new federal "FTC Business Opportunity Rule", which came into effect on March 1, 2012 and in principle applies to franchises and similar systems. Most foreign franchise systems interested in expanding into the U.S. market will likely fall within the relatively broad scope of federal and state franchise laws and will therefore be exempt from application of the federal and state business opportunity laws. However, especially for those foreign businesses that are looking to avoid being classified as a franchise and the disclosure obligations that accompany that classification, the business opportunity laws are very important. While the new rule remains narrower in scope than many state business opportunity rules, it significantly broadens the scope of federal law and provides one more layer of legislation that lawyers and their clients have to contend with when analyzing the regulatory network a business will be subject to when entering the U.S. market.

Recent trends in franchise relationship laws

John Sotos, Partner, Sotos LLP, Toronto, Canada

The global franchise regulatory landscape is dominated by legislation setting out franchisors' pre-contractual disclosure and registration obligations. As such legislation offers no remedies for franchisees beyond contract formation, some jurisdictions, including priority markets for international franchisors, have enacted relationship legislation laws regulating the parties' continuing business relationship in addition to or as an alternative to disclosure and registration laws. This article provides a unique overview and analysis of franchise relationship laws around the world and of the aspects of the franchise relationship these laws typically address. These laws generally do not impose requirements that are so burdensome they would deter a franchisor from entering into franchise agreements, but franchisors must take them into account when drafting their agreements.