Franchising guidelines revamped

Author: | Published: 2 Sep 2011
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Chun-yih Cheng

The Guidelines Governing Disclosure of Information by Franchisors were first promulgated by Taiwan's Fair Trade Commission in 1999. The last amendments were made in 2009. The franchising business has developed rapidly, expanding to various industries; however, disputes between franchisors and franchisees have erupted. The Fair Trade Commission recently has revamped and renamed the guidelines as the Guidelines Governing the Business Operation of Franchisors.

The main points of the amendments are as follows:

(i) Expanded disclosure of material information: If the franchisor has disclosed in writing material information to the prospective franchisee 10 days before contracting (or within a reasonable period as determined on a case-by-case basis), it may be considered as not concealing material information and thus not in violation of Article 24 of the Fair Trade Act. Examples of material information are outlined in the Guidelines. Unlike the previous guidelines, under which material information are limited to those listed, the outlined material information is not exhaustive and serves as a minimum requirement.

(ii) Review period and delivery of original contract: Five days before signing the contract (or within a reasonable period as determined on a case-by-case basis), the prospective franchisee should be provided an opportunity to review the proposed contract. In addition, the contract should be executed in duplicate, and the franchisee should be delivered one original. The franchisor's failing to comply with the above requirements may be considered to be a violation of Article 24 of the Fair Trade Act if the trading order will be prejudiced.

(iii) No activity of restricting competition or impairing fair competition: After the signing of the contract, the franchisor may not engage in activities of differential treatment or unjustified limitation on the franchisee's business operation such as tying sales, limitation on trading counterpart, minimum purchase, and so on.

In the past, the focus of the guidelines was only on the disclosure of certain specified material information and the review period of franchising contract. The Guidelines not only emphasises the importance of pre-contracting disclosure of material information and the review period, but also expands the scope of disclosure and prohibits certain post-contracting activities of the franchisor.

Chun-yih Cheng