Instituto de Estudios Políticos y Derecho Público "Dr. Humberto J. La Roche"
de la Facultad de Ciencias Jurídicas y Políticas de la Universidad del Zulia
Maracaibo, Venezuela
Esta publicación cientíca en formato digital es continuidad de la revista impresa
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Cues tio nes Po lí ti cas
La re vis ta Cues tio nes Po lí ti cas, es una pu bli ca ción aus pi cia da por el Ins ti tu to
de Es tu dios Po lí ti cos y De re cho Pú bli co “Dr. Hum ber to J. La Ro che” (IEPDP) de la Fa-
cul tad de Cien cias Ju rí di cas y Po lí ti cas de la Uni ver si dad del Zu lia.
En tre sus ob je ti vos fi gu ran: con tri buir con el pro gre so cien tí fi co de las Cien cias
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ción, dis cu sión y con fron ta ción de las ideas y avan ces cien tí fi cos con com pro mi so so cial.
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Re vis ta Cues tio nes Po lí ti cas. Av. Gua ji ra. Uni ver si dad del Zu lia. Nú cleo Hu ma nís ti co. Fa-
cul tad de Cien cias Ju rí di cas y Po lí ti cas. Ins ti tu to de Es tu dios Po lí ti cos y De re cho Pú bli co
“Dr. Hum ber to J. La Ro che”. Ma ra cai bo, Ve ne zue la. E- mail: cues tio nes po li ti cas@gmail.
com ~ loi chi ri nos por til lo@gmail.com. Te le fax: 58- 0261- 4127018.
Vol. 39, Nº 69 (Julio - Diciembre) 2021, 296-316
IEPDP-Facultad de Ciencias Jurídicas y Políticas - LUZ
The Franchise Agreement in
International Trade: its Advantages
and Disadvantages
DOI: https://doi.org/10.46398/cuestpol.3969.17
Mohammad Mehdipour
*
Parviz Bagheri
**
Abstract
The aim of the article is to analyze the implications of the
franchise agreement in international trade. One of the contracts
that is usually registered after the appearance and registration of
property rights, and especially after the development of trademark
rights, is the franchise agreement. A franchise agreement is a
contract entered into between the franchisor and the franchisee
as the owner of the intellectual property rights. In other words,
the franchisee often uses trademark rights and intellectual
property rights owned by the franchisor, which have a limited
duration. It is concluded that, in franchise agreement, there is a right to
enforce the franchisor’s business method, which is implemented within
the network (this method includes the use of intellectual property rights
and know-how). This contract has detailed terms and is closely related to
intellectual property rights and competition rights. The franchise must be
distinguished from the distribution contract, the concessionaire, and the
license. Under this agreement, the franchisee enters the franchise network
and agrees to use the franchisor’s method of negotiation and pay royalty-
free payments instead.
Keywords: franchise agreement; franchisor; franchisee; franchise
network; trademark.
* Assist. Prof, Department of Law, Ilam Branch, Islamic Azad University, Ilam, Iran (Corresponding
author). ORCID ID: https://orcid.org/0000-0002-4815-0935. Email: Mehdipour78@yahoo.com
** Assist. Prof. Department of Law, Ilam University, Ilam. Iran. ORCID ID: https://orcid.org/0000-
0002-3114-7609. Email: P.bagheri@ilam.ac.ir
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El contrato de franquicia en el comercio internacional:
sus ventajas y desventajas
Resumen
El objetivo del artículo es analizar las implicaciones del contrato de
franquicia en el comercio internacional. Uno de los contratos que se suele
registrar después de la aparición y registro de los derechos de propiedad,
y especialmente después del desarrollo de los derechos de marca, es el
contrato de franquicia. Un acuerdo de franquicia es un contrato celebrado
entre el franquiciador y el franquiciado como propietario de los derechos
de propiedad intelectual. En otras palabras, el franquiciado suele utilizar
derechos de marca y derechos de propiedad intelectual que pertenecen
al franquiciador, que tienen una duración limitada. Se concluye que, en
un contrato de franquicia, existe el derecho de hacer cumplir el método
comercial del franquiciador, que se implementa dentro de la red (este
método incluye el uso de derechos de propiedad intelectual y conocimientos
técnicos). Este contrato tiene términos detallados y está estrechamente
relacionado con los derechos de propiedad intelectual y los derechos de
competencia. La franquicia debe distinguirse del contrato de distribución,
el concesionario y la licencia. Según este acuerdo, el franquiciado ingresa a
la red de franquicias y se compromete a utilizar el método de negociación
del franquiciador y pagar en su lugar, pagos libres de regalías.
Palabras clave: acuerdo de franquicia; franquiciador; franquiciado; red
de franquicias; marca registrada.
Introduction
International trade law is a set of rules and regulations that govern
international trade relations, which are inherent in private law and relate
to various countries (Carr and Stone, 2013). In general, business activities
that can be done in the form of international trade relations are divided
into six categories: First, the sale and purchase of goods, the second group
the sale and purchase of services, (Carr and Stone, 2013) the third group
the insurance transportation, the fourth group the nancial activities, the
fth group the contracts related to the concession of the use of intellectual
property and the sixth group the investment and partnerships. Intellectual
property contracts either transfer ownership of these rights or, while
retaining ownership, allow the holder to use these rights for the recipient’s
license, the second group of which is known as bachelor’s contracts or
operating licenses. The franchise usually includes a bachelor’s degree, but
the bachelor’s degree in intellectual property law has been used and has been
successful. One of the goals of the transferee of intellectual property rights,
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The Franchise Agreement in International Trade: its Advantages and Disadvantages
from the conclusion of these contracts, can be the transfer of technology.
Therefore, in this article, we will rst study the relationship between
franchise and intellectual property rights, then the transfer of technology
with franchise, and nally the impact of franchise on competition law. This
paper examines the advantages and disadvantages of a franchise agreement
in international trade.
1. Speech 1: The relationship between franchise and intellectual
property rights
Intellectual property rights refer to those privileges and powers
that a person claims in respect of the results of his or her intellectual
activities in various elds of industry, commerce, science, and literature
and art. Intellectual property is divided into two categories; industrial
and commercial property and liberty and artistic property. Liberty and
artistic property create rights for the creator simply by creating the work,
but industrial and commercial property is not created by the creation of
the work, but by registration by public authorities and the issuance of a
government certicate.
2. Clause 1: Rights arising from intellectual property
a) The exclusive right to exploitation and the right of
prosecution
After creating two types of rights, intellectual property rights are granted
to the holder, rstly, the spiritual or moral right that is non-transferable
(Ginsburg, 2002), and secondly, the material right. Spiritual right is related
to the character of the creator and supports the right he has. Material rights
refer to material and economic benets that are exclusive to the holder and
are referred to as exclusive rights. Material rights can be negative rights,
and positive, negative in the sense that it allows the owner to prohibit
others from exploitation, which can be interpreted as the right to pursue
those who violate these rights. Positive Rights means that it allows him to
use it exclusively during the validity period and, for example, in the case of
the owner’s trademark, the exclusive right to insert the mark on the product
and its packaging is used. It has a token for promoting products 5. Topics in
the eld of industrial and commercial property include Patents, industrial
designs, trademarks, geographical indications, traditional knowledge,
biotechnology, brand reputation, trade secrets. Liberty and artistic property
is divided into two categories: copyright and related rights or related rights.
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b) The right to transfer and grant permission to exploit
intellectual property rights
Intellectual property has found its place in economic and legal life. The
importance of intellectual property is so great that it is commonly referred to
as the money of the modern economy, and as a nancial right with economic
value (Singer, 1982), it can be transferred under a contract according to
the transferable nancial rights. Contracts are usually concluded on the
three axes of goods, services, and capital, and intellectual property can be
considered as a commodity or capital, given its role in development. The
expectations of intellectual property contracts are usually of four types:
3. Transfer of these rights
2. Providing the possibility of use while maintaining ownership (granting
the license to exploit these rights)
3. Provide the possibility of use while maintaining ownership, provided
that it has been used before and has been successful (franchise agreement).
The establishment is represented by an authoritative connection between
the franchisor (businessperson) and franchisee. Franchisees are answerable
for spreading the franchisor’s business thought all through the market
(Calderon-Monge, 2018).
Article 141 of the Regulations of the Patent Law, Industrial Designs and
Trademarks stipulates: “The owner of a mark may grant permission to
another person to use the registered mark in any legal form” (Duy, 2002:
682). In a competitive economy based on competition, having a monopoly
backed by the law puts the rm in a special competitive position over other
competitors, and it enables him to supply, produce and distribute better
or more up-to-date goods or services that are desirable to the consumer.
If these goods or services are oered with a mark or brand, the consumer
will be able to check the quality of the product without diculty and make
the decision to buy based on the mark. That is why the use of a similar sign
and misleading the buyer is considered illegal competition and the law has
come to support it.
One of the things that creates a legal monopoly for an enterprise is
having the industrial property right over the technology or design or sign
on which the goods or services are oered. The unique situation may arise
if there is no legal protection, with the secret and unknown technology to
the public. The intellectual property owner to increase the benets and
business development and to meet the demand of consumers in accordance
with the rights recognized by law for him, it can use its right to grant a
license to operate a trading system, technical knowledge, trademark, and
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The Franchise Agreement in International Trade: its Advantages and Disadvantages
give the license to others. On the other hand, third parties are encouraged
to obtain permission to exploit the holder of this intellectual property by
assessing their nancial ability and considering the amount of demand
for the goods or services of an enterprise that enjoys intellectual property,
such as a mark or invention. A contract for the use of intellectual property
licenses may be in the form of a bachelor’s degree or a franchise agreement.
In addition to granting an operating license, the holder can transfer his
material rights to others, in which case the owner’s relationship with the
subject of intellectual property is severed and becomes the ownership of
the transferee, and there are various motives that are beyond the scope of
this study.
4. Clause 2: Franchise and technology transfer
a) The concept of technology
The use of new technologies and the introduction of new products is one
of the measures that creates a high advantage for manufacturers. People
who acquire certain technology before others can use it to oer a large share
of the market by oering new products and simply surpassing competitors.
Technology may take a new form and make it possible to do certain things
that were impossible before technology was introduced. Technology often
does not emerge as emerging technology, but has evolved and, by changing
methods, increases the quality and quantity of products and reduces costs.
Therefore, technology is known as the most expensive product, and activists
in the elds of industry and services are looking to use new technologies to
increase the quantity and quality of products and provide better services,
and thus increase revenue, and the customer’s desire to use high quality
services and products made with modern technology. Technology is the
equivalent of the word technology. Of course, technology will have a
dierent denition in each eld, but in the general denition and in the
dictionary, technology means the scientic equipment and methods that
are used in a certain eld. In the eld of production and supply of goods
and services, a dynamic set of knowledge, skills and experience that is
used to produce goods, use processes, provide services and research and
development activities is called. Therefore, technology can be a method or
a tool or a skill and a method of applying knowledge or doing something
(Ameri, 2010). Hence, technology is not just knowledge, but also an aspect
of that knowledge that is in the form of technical knowledge. In fact,
technology is dierent from science because science examines and analyzes
data. While technology uses scientic and experimental relationships.
International trade organizations have also come up with denitions of
technology that address the practical and applied nature of technology.
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From the perspective of the United Nations Conference on Trade and
Development, technology has dened the equivalent of organized methods
and knowledge, specialized skills and technical knowledge that are used in
the process of producing and improving the quality of products.
From the perspective of the United Nations Industrial Development
Organization, technology is a system of technical knowledge, skills,
expertise, and organization that is used to produce, commercialize, and use
products and services that meet economic and social needs.
b) Technology transfer with franchise
The transfer of technology itself has a separate meaning that cannot be
discussed. However, briey, technology transfer is a process and not just a
transfer of technology by its owner. Rather, part of the process is technology
transfer and, in fact, prerequisites. Because the transfer may take place, but
the technology has not been transferred. In other words, the transferee has
not been able to absorb it. Therefore, when it comes to technology transfer,
it means that the transferee can recognize the components of technology
and their role in the whole (shaping technology). In such a way that to
benet from it, it does not have to use the same technology and has the
ability to design and improve. In other words, it has localized technology
Technology transfer can take place at the enterprise level or at the
country level or from one industry to another. The transfer of technology
from one country to another in the last century has been one of the concerns
of countries that, in spite of the adoption of international conventions of
developed countries, are practically reluctant to transfer technology. Most
of these technologies have been in the hands of a limited number of rms,
and other rms tend to enter into contracts with technology owners to
gain access to technology or to use the technology to improve their market
position.
Technology transfer methods are divided into commercial and non-
commercial methods. Non-commercial methods are mainly based on
the exposure of the person to information. Non-commercial methods
can be divided into formal and informal categories. For example, reverse
engineering is one of the informal ways. Sending students or sta to study
at technology-leading centers is the formal training of sta in the industries
of developed countries, the creation of circles and scientic and technical
associations through ocial channels. Non-commercial methods are often
used to transfer technology across countries. The business method is done
by concluding a contract, which is mainly divided into legal and commercial
contracts. Legal contracts are contracts that transfer technology, and
commercial use of technology is a top priority. In contrast, trade agreements
are a priority, technology transfer may be a business issue, and a franchise
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The Franchise Agreement in International Trade: its Advantages and Disadvantages
agreement falls into this category. The business method is used both at the
corporate level and at the national level.
In one division, technology can be divided into upstream or downstream:
Upstream technology is like the technology of using nuclear energy, building
aircraft or building giant ships or advanced drilling rigs. The downstream
technology is the same as the automotive and electronics manufacturing
technology. The issue of franchising will not be advanced technology and
is often done at the level of private enterprises. Of course, when it comes
to technology transfer in the franchise, it will be more in line with the type
of industry (industrial franchise), because the granting of manufacturing
and production points will be accompanied by the granting of technology.
For example, car manufacturing or electronics industries. Section B and
H of Paragraph 1 of Article 1 of Regulation No. 2004/772 of April 2004
of the European Commission (Burns, 2004), in expressing the concept of
technology, enumerated examples of it, including:
Inventions, patent declarations, utility models, industrial designs, rights
derived from new plant species, integrated circuit construction projects,
supplementary protection rights for pharmaceutical products and other products
that are subject to supplementary protection, copyright of software Computer and
technical knowledge are part of the concept of technology (Burns, 2004: 11).
Therefore, the technology may be registered and supported in the
form of industrial property or in the form of technical and experimental
knowledge or trade secrets in secret with the holder. In franchising, the
use of trademarks and trademarks is usually associated with technical
knowledge, information, and assistance, which are examples of technology
that link franchising to technology transfer. If the word technology includes
any practical knowledge and techniques of execution, franchising will not
be franchise without technology.
5. Second speech: franchise and competition law
In addition to complying with the general conditions governing
contracts, licensing contracts for the exploitation of intellectual property
rights must also comply with competition law (Kioussi, 2008). Competition
law is a set of regulations aimed at increasing consumer welfare by
increasing economic eciency in trade and industry and combating the
legal means of creating illegal monopolies and competitions that serve the
interests of rms. Establishment arrangements depend on the standards
of legally binding opportunity set out in Article 1338 of the Civil Code (Act,
1995). Nonetheless, the execution on this premise needs to focus on the
prerequisites referenced in Article 1320 of the Civil Code, which is about the
legitimate states of an understanding. One of the reasons for issues in the
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Franchise Agreement is the presence of a standard agreement or standard
agreement dependent on opportunity of agreement contained in the Civil
Code (Triasih and Muryati, 2020)
Full competition has been a form of commercial competition. In full
competition, the best products are provided to customers at the lowest
prices. The existence of such a market is ideal, and in practice, there is no
such thing as incomplete competition. In the case of imperfect competition,
rms have some control over the price of the product. The most extreme is
the monopoly, which is only the producer or supplier of goods or services,
and it includes the highest prot, it is not possible to enter this market.
One of the factors that leads to the formation of a monopoly is the legal
factor; this means that sometimes-legal privileges are granted to some
rms that have exclusive power. One of these rights is intellectual property.
Enforcing the interests of the technology owner and encouraging rms to
invest in technology production and dissemination requires the imposition
of certain restrictions. To this end, the legislature grants such a monopoly
to the holder
.
So, at rst glance, it seems that competition rights, which
aim to control the business power of rms and monopolies in the public
interest and increase economic eciency and consumer welfare, there is a
contradiction with intellectual property rights, which is the protection of the
owner of the work against others through the granting of exclusive rights.
However, the goal of competition law is not to completely deny monopoly,
and in some cases, it is the monopoly control that is not exclusively abused.
The goods and services of enterprises are introduced by name or mark,
which is a kind of intellectual property, and in economic relations, which
are very diverse due to competition, goods, and services. The sign or name
plays an important role in distinguishing the origin, originality of goods
and services, facilitating the right choice, quality and eciency, and price
and other items, and facilitating competition. On the other hand, in order
to increase its reputation (mark or name), the company tries to improve
the quality and oer it at a low price. Obviously, because the use of the
mark also carries the responsibility for the production defect, and in order
to prevent fraud and create a healthy competitive environment, the use of
the mark must be exclusive and supported.
The intellectual property rights holder has the right to delegate the use
of the protected property to others. One of these contracts is the franchise.
In the franchise agreement, due to the need of one party to the technology
and entry into the franchise network and trade and the use of fame, the
franchisor is in a superior position and has more bargaining power. As a
result, use this situation to increase your prots and reduce your business
risk by setting challenging restrictive conditions. Introducing and reviewing
one of the most important conditions limiting competition.
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The Franchise Agreement in International Trade: its Advantages and Disadvantages
6. Clause 1: Tie-in arrangement or condition of purchase of
additional goods
Tie-in arrangement occurs when the franchisee is required to purchase
the required goods or supplies or intermediate goods from the franchisor or
the person designating him. One form of this condition, which is positive,
is known as the Tie-in arrangement. However, this condition can have
another side; in this case, the franchisee undertakes not to purchase the
requirements that specify the franchisor rms (Anderman, 2007). This
condition can be called a tie-out condition. Tie-in arrangement is one of
the restrictive practices. This condition deals with several basic principles.
First, one of the results of the principle of freedom of contract is that
everyone is free to choose the party to their transaction (Katouzian, 1980).
On the other hand, with this condition, the franchisor may not have
economic and competitive power over the goods that are determined. In this
way, it can make its competitive power unrealistic based on the competitive
power of the commercial concession that it assigns to the receiving franchise.
On the other hand, as mentioned above, in most franchise agreements, due
to the use of trademarks, it is a common practice of both parties because
in the franchise agreement, the use of the mark will also be responsible for
the production defect. In addition, in case of improper performance of the
receiver franchise and the production and delivery of low-quality products
and services, the franchisor’s reputation will be damaged.
These commitments are justied by the fact that they intend to ensure
that the goods distributed in the franchise network meet the quality
standards of the franchisor network. In fact, controlling and guaranteeing
quality depends on the use and purchase of certain franchisor requirements
from the point of view of the concessionaire, the requested technology or
technology cannot be used protably without the above goods. In this case,
it can be said that these arrangements are in favor of competition
The European Commission said in a statement on 24 December 1962
that the Tie-in arrangement was binding: The criteria relating to the quality
or requirement of the consignee to procure certain goods from specic
sources shall not be subject to paragraph 1 of Article 81 as long as they are
technically and completely necessary for the exploitation of the invention
(Burns, 2004).
Such a restriction has negative eects on the recipient’s deductible.
Especially when the franchisor or a third party designated by him refuses to
comply with the order, or has a limited amount, or delays delivery without
commercial justication. European regulations reduce such negative eects
by the fact that the decision to provide or not to provide is not only at the
discretion of the franchisee or a third party.
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In some cases, these arrangements are detrimental to competition,
and that is where the goal is to block other competitors from entering the
market. Especially in the case of tie-out terms, which may be in the form
of a vertical or horizontal agreement to eliminate competitors. Of course,
it should be noted that the discussion is about a product that is related to
the subject of the contract. Otherwise, in accordance with paragraph D of
Article 82 of the Treaty of Rome, deferment of the conclusion of a contract
is prohibited by the acceptance of the obligations of completion by business
partners who are not related to the subject of the contract by nature or
commercial custom (Bassiouni, 1999)
Answering these questions can be helpful. Is the product that the
franchisee is required to purchase from the franchisor necessary to maintain
the quality standards of the network? And in the absence of its use, will the
quality or services be low and there is a possibility that the network credit
will be damaged? In fact, does the franchisor impose such an obligation
in good faith in order to control the quality? Does the franchisor or third
party know about the specic quality of a particular quality competing with
other manufacturers? In order for the Tie-in condition to be contrary to
competition law, there must be three conditions and (at least) two separate
products. The grafter has sucient market power (to determine the price
of the graft)
In Iranian law, Article 5 prohibits competition regulations and rules
governing the control and prevention of the formation of related monopolies.
Paragraphs 8 and 9 of this articles provide examples. 1 Subject to the sale
of goods or the provision of one service to the purchase of another service
(paragraph 8) two. Forcing the other party to a transaction with a third
party in a way that relates to the supply or demand of another good or
service (paragraph 9) (Entessar, 1988).
Article 4 obliges the franchisor to guarantee the supply of the goods and
supplies required if the franchisee undertakes to purchase these products
from the franchisor or a third party. Even in paragraph 2, the franchisor
assumes this obligation if the recipient franchisee is not committed to the
purchase and paragraph 3 does not allow the parties to agree otherwise.
These principles implicitly consider the condition of purchasing necessities
to be in favor of the correct franchisor. Section 1 of Article 81 of the Rome
Convention considers co-sale as a condition contrary to competition, which
is an additional obligation imposed on the party. According to commercial
custom or nature, that obligation has nothing to do with the subject of the
contract. Regulation on collective exemption No. 4087/88 regarding the
granting of privileges in Article 3 in the list known as white constraints
and their inclusion as an authorized condition and for the establishment of
identity and reputation of the network is the subject of activity (Ahlstrand,
2000). In paragraphs 1 and 2, the sale or exclusive use of goods that have
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The Franchise Agreement in International Trade: its Advantages and Disadvantages
the desired qualitative characteristics of the concessionaire, and the sale of
goods produced by the concessionaire or the suppliers designated by him,
in cases where the nature of the goods is used. Objective and impersonal
qualitative characteristics are impractical, provided they are sold together.
Establishment arrangements are contracts among districts and utilities that
award the utility power to serve clients in the region (Cook, et al., 2021).
7. Third speech: Institutions related to franchising and eective
regulations
Clause 1: Institutions
In this section, we will be acquainted with national, regional, and
international institutions and associations that are working on and
developing regulations on franchising. The importance of this sector is
because these institutions have a large share in the formation of standard
contracts for franchising. In fact, customs and practices regarding the
franchise have been compiled and often have a code of ethics about the
franchise. Adapting to these procedures makes the franchise successful.
Here are the most important ones:
a) European Franchise Federation
The European Federation of Franchises is a non-prot regional
organization founded in 1972. Its members are national franchisees or
federations established in Europe. According to the second part of the rst
part of the ethical code developed by this institute, the objectives of the
institute are 12
1. Promoting franchising in Europe.
2. Support the industrial franchise by promoting a code of ethics.
3. Encourage the development of franchising in Europe.
4. Securing the interests of the industrial franchise in an international
organization such as the European Commission and the European
Parliament.
5. Promoting the European franchise industry and its members
worldwide.
6. Exchange of information and documents between federations and
national associations in Europe and the world.
7. Serving members of the association.
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8. Members must include a franchise chain including franchisor and
franchisees.
b) International Franchise Association (IFA)
The largest and most experienced franchise organization in the world
is the International Franchise Association. (http://www.franchise.org/
aboutifa.aspx/ last visited 2013/.)
Its members are the franchisors, the franchisees are the recipients and
producers of the requirements that must declare their adherence to the
rules of procedure of this association before joining, and if they violate it,
the executive committee will determine the punishment in case of violation,
which can be suspension of membership or deterioration of membership.
c) World Franchise Council’s home on the World (WFC)
It is a non-prot, non-political organization for national franchisees,
organized on April 26, 2005. In February 1994, during the annual meeting
of the International Franchise Association in Las Vegas, a group of National
Franchise Associations decided to form the Council with the initiative of
the International Franchise Association and the European Federation of
the United Franchise. Following the meeting, a team led by the British
Franchise Association, with representatives from Canada, Brazil, and
Mexico, prepared a more detailed draft, which was nally accepted on June
15, 1995 in Lisbon. The World Council of Franchises operates globally and
has a distinct role from regional and national federations. The Council’s
mission is to develop and promote the franchise and to promote public
understanding of the best fair and ethical practices of the franchise
worldwide. In 2003, he adopted a set of ethical principles. In fact, these
principles are a set of the best recommendations for the franchise procedure,
with two internal and international descriptions that are collected from the
common elements of each member’s code about the franchise.
d) Asia-Pacic Franchise Confederation (APFC)
It is a non-political and friendly institution of the National Associations
of Franchise in Asia and the Pacic. On September 24, 1998, it was formed
between 15 national franchise associations, including Australia, Malaysia,
China, India, Korea, and Japan, and was registered on March 30, 2005, in
Malaysia. With the goal of being able to share the experiences, information,
and technical knowledge of the franchise. Establish better network
communication between members, encourage further development of
national associations established in Asia and the Pacic to strengthen the
regional network industry and present regional information in the franchise
and the common views of the national franchise associations in the region
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for international institutions Like the World Council of Franchise, it is
another goal of the confederation. Membership is free for countries in the
region. Meetings are held once a year. The Secretary-General is transferred
from one country to other every four years. The ocial language association
of this association is English.
e) International Institute for the Unication of Private Law
(UNIDROIT)
The Intergovernmental Organization was rst established on October
3, 1924, at the suggestion of the Italian government, as an institution
aliated with the League of Nations. Then, with the destruction of the
latter institution in 1940, it was re-established based on an independent
multilateral agreement with the accession of 58 countries. The purpose
of this institute is to study the needs and methods of modernization and
harmonization of private rights, especially commercial law between
countries, which is through the formulation of documents, principles and
rules of uniformity (Iran since 1343 according to the law of Iran’s accession
to the institute). Has been a member of this institute). As mentioned, the
institute does not operate exclusively on franchising. However, one of the
issues that the institute has studied and researched in this regard and then
prepared a sample law and principles is the franchise. At the suggestion of
Canada, he began studying, and in 1993, the Institute’s Advisory Council
decided to set up a franchise study group, which is still active.
f) World Intellectual Property Organization (WIPO)
The rst and largest international community action to protect industrial
property was the ratication of the Paris Convention (March 20, 1883), which
led to the formation of the Paris International Union for the Protection of
Industrial Property (Seckelmann, 2011). It provided support for industrial
creation to citizens of member states of the alliance, and an international
oce was set up to manage the implementation of this convention. The
oce was merged in 1893 with the oce of the Berne Union, established
under the Berne Convention of 1886, and a single international oce was
established as the International Oce for the Protection of Intellectual
Property (Ricketson and Ginsburg, 2006). The World Intellectual Property
Organization was established under the Stockholm Convention of 14 July
1967, which entered into force on 26 April 1970 (Wirtén, 2010). In addition,
it was the responsibility of the United Nations Oce for the Coordination of
Humanitarian Aairs.
Due to the growth of franchise agreements, the Oce of the World
Intellectual Property Organization in 1994 developed guidelines using the
theories and advice of several prominent jurists to introduce the franchise
and its types, comparing it with other contracts and obligations of the
parties. The following sections are referenced.
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8. Clause 2: Regulations aecting the franchise
The provisions of the regulations adopted by the International and
Domestic Authorities for the purpose of directing and regulating the
franchise have been adopted. Domestic regulations are mandatory in every
country and may be a model for inspiring other countries to pass legislation.
International regulations may have a binding aspect or merely a moral one,
such as the code of ethics developed by some institutions. These regulations
may specically address the franchise or the general rules that aect the
franchise. We will only introduce specic international regulations.
A) International Institute for the Unication of Private Law Guide to
International Master Franchise Arrangements. The institute has compiled
the most important legal documents on franchising, which includes two
documents: Guide to Contracts the main international franchise, developed
in Rome in 1988 and revised in 2007. This document contains a high level
of information on various issues of the process of concluding, implementing
and enforcing franchise agreements and is not limited to mere legal issues.
The second and most important document on the subject of sample law is
the disclosure of information in the franchise. The franchise issue, along
with an explanatory report, is clearly used by domestic lawmakers as a
soft law and commercial custom
.
This sample law was proposed in 1985
by Canada. Preparations for the law began in January 1999. With the draft
prepared in December of that year, it was accepted by the Franchise Studies
Group. In December 2000, the Working Group completed its work, and
an explanatory report was prepared and approved by the Committee of
Government Experts, which was nalized in April 2002. In September
2002, a draft sample law and explanatory report were sent to the Institute
Council.
a. European Code of Ethics for Franchising (ECE)
The code was developed in 1972 by the European Federation of
Franchises and was revised on December 5, 2003 (The European Franchise
Federation (EFF), 2016).
Member States may accept and interpret this code in their home
country, and the proposed interpretation shall be added by the accepted
Members as an amendment to the Code without modication. This code
has ve sections: In the rst part, he explains the introduction, goals and
conditions of membership. In the second part, after providing denitions
to the guiding principles, which oversees the obligations of the parties to
the franchise agreement and how to treat each other, which emphasizes
fair behavior and goodwill and resolving disputes with goodwill and
negotiation. The third section monitors the recruitment, advertising,
and disclosure of information. The fourth section deals with the franchise
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agreement and the terms and conditions it must have. The fth section
deals with the applicability of this code to the main franchise agreements,
which stipulate that the franchisor and the franchisee do not apply to the
main recipient.
b. European Commission collective exemption regulations
The rst regulation was No. 240/96, which, due to non-compliance
with the European Commission’s competitive goals after several years of
study, nally adopted Operation Directive 772/2004 in 2004, a guideline
for the implementation of which was subsequently adopted (Cini, 1997).
These regulations govern the implementation of Articles 81 and 83
of the Rome Statute (Cassese et al., 2002), and the 100 and 102 Lisbon
Conventions on collusion and the abuse of monopoly position (Craig,
2010), which may not apply to certain vertical and horizontal relations
under certain conditions. If these conditions are met, exemptions, limited
in space and time, apply, which can also be covered by the franchise. The
most important of these conditions is the lack of control over a part of the
market, more than the quorum set in the regulations.
c. Principles of European Law on Commercial Agency,
Franchise and Distribution Contracts
These principles are the latest legal text on franchising, distribution
of goods and trade representation agreements prepared by the European
Civil Rights Study Group (Von Bar, 2002) at the request of the European
Commission in 2006 (Nugent and Rhinard, 2015) These principles are not
binding and will only be binding on them if the parties to the agreement
agree. However, the purpose of these rules is to harmonize the laws
of the EU countries in the eld of these agreements. It is the result of a
comparative study of the working group on the rules and regulations of EU
member states and customs, and contains common progressive principles
on franchise agreements and has been made available to legislators as a
scientic model.
d. Disadvantages of franchise for franchisee
1. The high cost of starting a franchisee is an inconvenient situation for
the franchisor. The franchisee must pay the franchisor fees such as franchise
fees, license fees, a percentage of advertising revenue, as well as the cost of
training human resources, whether monthly or weekly. The royalty paid
to the franchisor may be an amount of the transaction volume. Therefore,
franchisees who have a lot of activity have to pay more points by increasing
their income, and this is more in favor of the franchisor. Because more
eort is required, the receiver franchise goes to the franchisor’s bag.
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2. The restrictions imposed by the franchisor on the franchisee have
been defective and restrict the freedom of the franchisee. Among other
things, he is required to follow the instructions of the franchisor and even
in the case of decorations and consumables, price determination, and so on.
3. The franchisor must operate within the framework set by the franchisor
and does not have the freedom to operate a personal business. The franchise,
on the other hand, is usually limited to ve years. A successful franchisee
who has become protable is sometimes forced to accept the franchisor’s
demand for more royalties in order to maintain it. Of course, the franchisor
can be given the right and option to extend the contract.
9. Disadvantages of franchising for franchisor
1. Continuous communication with customers plays an important role
in recognizing the ow of market movement and innovation and quality
improvement When a rm franchises its business to implement a business
approach, it may lose touch with end customers who are the best source
of competitive ideas, and customer feedback on the needs of deciencies
and defects of change should be conveyed to the franchisees and not to the
franchisor.
2. In the franchise network, the franchisee of the recipients is engaged
in the activity, supply, distribution and production of goods and services
with the name and symbol that represents the network. Therefore, the
improper performance of one of the franchisee has a negative eect on the
franchisor and other franchisee due to the common interests and damages
the network. Therefore, franchising with franchising increases the risk of
system failure. In addition, disclosure of secrets by the franchisee is a risk
to the business.
3. There is a special responsibility in consumer protection laws for the
producer of goods, which may be due to the application of the franchisee’s
franchisee. In this way, because the franchisee oers the franchisor with
the name and sign of the franchisor. Therefore, in case of damage caused
by franchisor defects, it may be held accountable.18
10. The benets of franchising for the franchisor
Assigning a franchise has several benets for the franchisor. Here are
some of the most important ones:
1. A business or industrial unit that seeks to expand its eld of activity
beyond its internal borders. In this way, it seeks to gain more credit and
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prot. First, it must overcome barriers to entering the foreign market.
Secondly, to have high liquidity for investment and labor supply. Using
the franchise agreement avoids the above problems; this is because the
franchisor does not enter the foreign market directly and faces relatively
few obstacles. It may be possible to benet from the facilities and incentives
due to the investment and cooperation with the domestic industrial unit.
Therefore, the development of trade with capital and the activity of the
franchisee makes it possible to penetrate markets that could not be accessed
without losing control of the system.
2. Franchisors provide goods and raw materials from a single franchisor,
which in itself is of great benet to the franchisor. In fact, uniformity in the
quality and shape of the network product and maintaining the name and
reputation makes. The franchisor requires the franchisee to purchase raw
materials and supplies under certain conditions. In addition to personal
activity, it also receives periodic and initial royalties from the franchisee,
which is another source of income for the franchisor.
3. Creating an independent business has risks, including that the system
is not responsive and does not function as expected. In fact, it is not a
guarantee of success. In franchising, the franchisor develops its business
with the franchisee’s capital. The franchisee also starts with the backing of
the franchisor. The result is not a partnership to share the risk, but the risk
of business activity is borne by the franchisee, although starting a business
with a franchisee greatly reduces the risk. The establishment understanding
execution in agreement law viewpoint, and components hindering and
supporting the establishment arrangement in the agreement law viewpoint
were dissected (Maulidiana, 2017).
11. Advantages of franchising for franchisee
1. The franchisor is established by spending less capital and labor
compared to creating an independent economic unit and in a short time
to a commercial system. With the least risk of having a mark or name and
getting your test back, this will allow for a quick return on investment. In
addition, a brand that is valued and respected by the customer and is a
primary support and continuous support for this system. The franchisee
puts aside the freedom holder who owns an independent business to
become a part of a group that will run a business together, and there is no
need to worry about eective ways to do business. Because a pre-studied
and tested system is provided to the franchisee by the donor.
2. One of the advantages of entering the franchise network is the
reputation, receiving assistance, counseling, and training of employees,
and it is possible for him to oer a product or service that is known and
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trusted from the very beginning. The stipulation that the franchise is a
well-established and successful system creates security for the franchisee
in the market and reduces the risk. In addition, the franchisee will benet
from a proven successful business system that is the result of years of eort
and continuous development by the franchisor and is a job security for the
franchisee.
3. The franchisee benets from a brand and a good image of a brand
in the mind of the customer. This is a very signicant advantage, because
gaining popularity in the eyes of customers is a big challenge for a start-up
business. A name or mark for good reputation requires time and money,
but using a good, reputation mark has commercial benets. In addition,
the franchisee will have a loyal customer named after starting the activity of
the network by starting the activity of the network anywhere, and in other
places, the attracted customers will become famous and will go to the newly
established enterprise.
4. When the business goes out of its way and becomes part of a larger
collection.
In this way, marketing costs will be shared among the businesses
covered, this multiplicity of branches has been a form of marketing, and as
a result, business will take its place in the mind of the customer.
Conclusion
Fraud legis, such as the voluntary change of the elements of dependence
and the specic application of the general theory of abuse of rights, are
among the obstacles to the mandatory implementation of foreign law in
private international law. It is sucient that one of the claimants, in order
to escape the competent law, fraudulently uses the rule of conict resolution
in order to create fraud in private international law. In most cases, fraud
legis is accompanied by the fraudulent selection of a jurisdiction that uses
it to enforce a more lucrative substantive law for one of the parties of
dispute and is subject to disregard for the applicable law. In this regard,
according to Lapradel’s theory, one of the French jurists, fraud against the
law is a change in the elements of dependence, in order to create an element
of unrealistic and imaginary dependence. For example, in the case of Ms
Buerman, she was sentenced by a French court and remained a Frenchman
in order to alter the fraudulent nature of her French citizenship along
with her German citizenship. In cases where an element of dependence is
related to the will of the parties, fraud legis may take place. These elements
of dependence that can make it possible for individuals to cheat the law
are accommodation and citizenship. The mechanism of fraud legis can
raise other elements of dependence. For example, changing the place of
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The Franchise Agreement in International Trade: its Advantages and Disadvantages
conclusion of a contract when the law of the place where the contract takes
place is applicable will lead to the realization of fraud legis. But this legal
theory does not agree on changing all the elements of dependence to make
it possible to escape the law. According to Pierre Meyer, another French
jurist, fraud legis arises as a result of behaviors that change the elements of
dependence on the emerging age, and in order for fraud legis to be realized
in the strict sense of the word, it is necessary to do it with the independent
will of the people and according to their desire and consent; this is without
the situation being able to maintain real relations with countries whose
laws have been falsely ignored.
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Esta revista fue editada en formato digital y publicada
en julio de 2021, por el Fondo Editorial Serbiluz,
Universidad del Zulia. Maracaibo-Venezuela
Vol.39 Nº 69
