First, and most significantly, the amendment to the Indiana Franchise Law requires franchisors registered in Indiana to file an amended disclosure document within 30 days of any “material change” as defined in the statute, which includes:

• Termination, closing, or failure to renew either: (1) 10% of all franchises regardless of location, or (2) 10% of franchises located in Indiana;
• Change in control, corporate name, state of incorporation, or reorganization of the franchisor;
• The introduction of new product, service, model, or line involving an additional investment by franchisees that exceeds 20% of the average investment previously made by franchisees;
• Any change in the franchise fees charged by the franchisor; and
• Significant changes in the franchisee’s obligations to purchase items from the franchisor, limitations on goods or services that a franchisee may offer, obligations to be performed by a franchisor or franchisee, or changes to the franchise contract or agreement or any amendments.

In addition, the Indiana Securities Commissioner may designate other changes as “material” in the future.

Fortunately, filing in Indiana is relatively painless. Indiana uses an electronic filing portal, and registrations—and now, amendments—are typically effective immediately upon filing. Unlike other registration states, Indiana does not (yet) impose a filing fee for amendments. As such, the additional requirement to file an amendment does not present a significant new burden on franchisors; after all, the requirement to file material amendments already exists in other registration states. Still, franchisors must be attentive to these new Indiana-specific disclosure requirements, which involve circumstances that would not necessarily trigger a filing requirement elsewhere.

Next, the amendment allows franchisors to request that their registration expire earlier than one year from the registration date. Under the previous law, a registration made effective in October, for example, would automatically expire in the following October, potentially out of synch with other state registrations and effectiveness under the Federal Trade Commission’s Franchise Rule. Now, franchisors may designate an earlier expiration date for their Indiana registration so as to coordinate with other state registrations and federal law.

The final two notable changes to the Indiana Franchise Law are more form than substance. First, the amendment clarifies that qualification for the “isolated sale exemption”—an exemption for franchisors who sell no more than one franchise in any two-year period—only takes into account franchises sold in Indiana. The purpose of this change was purely to clear up ambiguity, as the Indiana Securities Division had already been interpreting and enforcing this exemption consistent with the way it is now written. Second, the amendment provides that filing fees are non-refundable if a registration is denied or withdrawn. Previously, the Indiana Securities Commissioner was permitted to retain only $150 in filing fees, while the rest would be refunded. A Compliance Alert circulated by the Indiana Secretary of State pointed out that refunds were seldom requested in the past anyway, and that this new policy is consistent with policies of other industries regulated by the Securities Division.

Cambodia has a rapidly growing economy with a sustained impressive growth rate of 7.7% between 1995 and 2018 (World Bank, Cambodia Overview). During that time, Cambodia has transitioned from being classified by the World Bank as a low-income country to a lower middle-income country. In addition, a sizable middle class had developed, particularly in Phnom Penh. Along with economic growth, an expanding middle class, and a welcoming investment framework, Cambodia has witnessed the entrance of a number of international franchises, including Burger King, Carl’s Jr., Circle K, Cold Stone Creamery, Domino’s Pizza, Krispy Kreme, L’Occitane, Levi’s, Lotteria, Pandora, and Starbucks, among others.

Regulation

Cambodia has not enacted any comprehensive franchise laws; therefore, franchising is largely governed by laws of general application that implicate franchise issues. While the Ministry of Commerce is in the midst of developing a Law on Commercial Contracts, which purportedly contains a section on franchise agreements, there is no clear timeline for the enactment of this law. In the meantime, franchising is primarily governed by the following laws:

• The Civil Code
• The Law Concerning Marks, Trade Names and Acts of Unfair Competition (Trademark Law)
• The Notification on the Recordal of License Contracts and Franchise Contracts, dated March 12, 2015 (Franchise Contract Notification)

For franchise agreements prepared in a foreign jurisdiction, franchisors should carefully localize the following provisions to ensure they are enforceable in Cambodia:

• Dispute resolution clauses
• Intellectual property provisions
• Guarantee provisions
• Non-complete obligations
• Real estate provisions
• Tax related clauses

In particular, under Article 19 of the Trademark Law, any license agreement for trademarks, including a franchise agreement that contains a trademark license, must impose on the licensor an obligation to effectively control the quality of the goods or services in connection with the mark, otherwise, the contract will not be valid.

In theory, the Trademark Law requires all trademark license agreements to be registered with the Department of Intellectual Property Rights (DIPR). However, in practice, it is only necessary to register a trademark license agreement, or a franchise agreement that contains a trademark license, if the licensor wants to allow the licensee the right to enforce the agreement against third parties (e.g., persons in Cambodia infringing the licensor’s trademarks).

Disclosure and Misrepresentation

While Cambodian law does not require pre-contract disclosure, all information provided in a franchise agreement must be accurate. Under the Civil Code, if a party enters into a contract on the basis of another party’s misrepresentation, that party is entitled to rescind the contract and seek damages from the party who made the misrepresentation. In addition, under the same legislation, a personal guarantee is invalid if the guarantor was not fully informed of all material information regarding the guaranteed obligation at the time that the guarantee was signed.

Intellectual Property

Franchisors typically grant franchisees the right to use trademarks, systems, logos, advertisements, and know-how in connection with the franchised business. Registration issues related to the grant of rights in trademarks, patents and industrial designs, and copyrights, registration issues are discussed below.

Trademarks

Trademark owners are encouraged to register their trademarks with the DIPR to receive protection under Cambodian law. To maintain registration and to avoid cancellation, the owner of the trademark must file an Affidavit of Use/Non-Use for the mark within one year following the fifth anniversary of the date of registration, or within one year following the fifth year from the renewal date (if the registration has already been renewed). A trademark is registered for a term of 10 years from the date of filing the application and can be renewed every 10 years. If the trademark registration is not renewed, trademark protection will lapse. In 2015, Cambodia became a member of the Madrid Protocol, thus trademark rights holders can initiate a trademark registration application at their national or regional intellectual property office, if that country is also a party to the system.

Patent and Industrial Designs

Patent and industrial design licenses must be registered with the Ministry of Industrial and Handicrafts. In addition, Cambodia has entered into international agreements with China, the European Union, and Singapore on validating patents first registered in those countries.

Copyrights

Foreign copyrights are generally not protected in Cambodia unless the work is (i) created by a person who is resident in Cambodia, (ii) created by a person who is a legal person with a registered office in Cambodia, or (iii) first published abroad and is registered in Cambodia within 30 days of the first communication to the public. Therefore, franchisors should understand that manuals and other similar materials may not be protected in Cambodia through copyrights, and other means of protection (i.e., by way of trade secrets) should be sought.

Competition Law

Cambodia does not currently have any specific competition legislation. Although the Ministry of Commerce is currently working on a draft Competition Law, there is no timeline for its enactment.  Even though there is no competition law in Cambodia, it is common for foreign companies to insert non-competition provisions in their franchise agreements to restrict franchisees from engaging in any activities that compete with the franchisor.

Choice of Law and Dispute Resolution

Choosing a foreign country’s law as the governing law for a franchise agreement does not contravene Cambodian law. In practice, however, local courts may be unwilling to apply foreign law to disputes before them. In addition, certain issues (i.e., advertisement approval requirements, real estate and zoning) can only be governed by Cambodian law.

Foreign franchisors should carefully consider the dispute resolution mechanism in their franchise agreements. Foreign court judgments are not enforceable in Cambodia, unless, among other requirements, there is a guarantee of reciprocity between Cambodia and the foreign country in which the court is based. To date, Cambodia has only entered into such an agreement with Vietnam, meaning that virtually all foreign court judgments will not be enforceable in Cambodia.

Cambodia is, however, a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and foreign arbitration awards are, therefore, enforceable in Cambodia. Cambodia also has its own domestic arbitration institution called the National Commercial Arbitration Center. Accordingly, arbitration is the preferred method of dispute resolution in Cambodia.

Jay Cohen is a partner at Tilleke & Gibbins and the director of the firm’s Cambodia office; and Mealtey Oeurn is an advisor in the firm’s Phnom Penh office, focusing on corporate and commercial/franchising matters. Together, they routinely advise multinational companies and franchisors seeking to enter the rapidly growing Cambodian market. Bob Smith is a partner in the Washington, DC office of Quarles & Brady LLP. He has represented franchisors for almost 40 years in a variety of transactions, including franchise deals in more than 80 countries.

For more information please contact

• Robert Smith (+1 202 372-9516 or Robert.smith@quarles.com)
• Jay Cohen (+855 23 964 210 or jay.c@tilleke.com),
• Mealtey Oeurn (+855 23 964 210 or mealtey.o@tilleke.com)

The Federal Republic of Germany has the strongest economy in Europe and is one of the leading economies in the world. With a population of 81 million, it also is the most populous country in Europe. Germany is a mature and successful franchise market with more than 950 franchised systems operating in the country. It has been ranked 24th out of 185 countries in the World Bank Group’s Ease of Doing Business Rankings.

German Law Governing the Offer and Sale of Franchises

There are no specific franchise laws or government agencies that regulate the offer and sale of franchises in Germany. The general provisions of contract law (the Civil Code), consumer law, commercial law (the Commercial Code), competition law, and unfair trade law are applicable to franchise contracts. In particular, the provisions of the Civil Code regarding standard terms and conditions can be applied where the franchisor presents its standard franchise agreements with the franchisee on a take-it-or-leave-it basis (Civil Code, Section 305). According to Civil Code Section 307, all standard provisions need to be reasonable and must not unreasonably disadvantage the other party contrary to the requirements of good faith. Otherwise, they are null and void. In addition, according to German consumer credit law, a franchisee that is an individual, and not a business entity, is entitled to withdraw from the franchise contract within 14 days of signing if he establishes an independent business enterprise, the contract contains an obligation to repeatedly take supplies of goods. and the total value of the franchisee’s investment does not exceed €75,000.

If the franchisee is a business entity, it is possible under German law to obtain a personal guarantee from the individual who is behind the franchisee, in order to ensure that the franchisee fulfills its obligations under the franchise agreement. However, given that German law differentiates between several forms of personal securities—with a guarantee being only one of them—and German case law has ruled that a guarantee can be unreasonable in terms of Civil Code Section 307, it is important to implement a personal guarantee which complies with the requirements of German case law. (This is not a problem if the guarantor is a business entity.) Further, it should be noted that a personal guarantee can also be subject to a 14-day withdrawal right of the individual, because the personal guarantee, more or less, has the same effect as if the individual himself would have become the franchisee. Therefore, the franchise agreement should provide that the non-withdrawal of the personal guarantee is a condition precedent to the franchise agreement remaining in force.

Presale Disclosure

Under German law, presale disclosure in connection with franchise agreements is not regulated by a special statute or monitored by a specific agency. The general provisions regarding contractual negotiations apply, in particular the principle of culpa in contrahendo. This principle provides that, before the execution of a franchise agreement, the franchisor must ensure that all relevant facts have been clearly presented to the potential franchisee. The scope and content of the duty depend on each individual case, taking the experience and knowledge of the franchisee into account. German courts have stressed that, as a general rule, a franchisee should obtain information on its own initiative about the general market conditions and their impact on the prospective franchised business. However, if there are particular circumstances about which only the franchisor is aware, and which would be important to the potential franchisee’s decision as to whether to enter into the franchise contract, the franchisor must disclose that information. German case law has ruled that a franchisor must refrain from providing misleading information about the franchise system and must disclose all relevant information about it in order to avoid subsequent damage claims.

German case law has determined that at least the following items should be disclosed:

• Information about the franchise concept, including the date the franchise system began, the actual number of franchises; and the franchisees who have left the system;
• The identity of the personnel who have authority to act on behalf of the franchisor;
• Specifics of the franchise offer, including the location, performance, and experience of the existing business, the required investment, and the number of employees required for the franchisee’s business;
• Information that enables the franchisee to conduct its own location analysis and calculate the profitability of the franchised business;
• Information about situations where compulsory statutory pension insurance for the franchisee applies;
• The franchise agreement and the franchise manual (including all standard appendices);
• The franchisor’s memberships in franchise associations;
• Information on other distribution channels for the franchised product or service;
• Pending lawsuits with the potential to impact the franchisee’s business; and
• A description of the initial and ongoing support provided by the franchisor

In addition, the German Franchise Association (GFA) has issued non-binding guidelines regarding presale disclosure obligations. The presale information should be disclosed within a reasonable period prior to signing the franchise agreement. This applies also to any (preliminary) binding agreement between the parties; however, disclosure is not required in connection with a letter of intent between the franchisor and a potential franchisee since the term of those agreements is shorter, there are minor economic consequences from those agreements, and usually no requirement to enter into a franchise agreement.

Commencing Franchising in Germany

There are several advantages to franchising in Germany:

• No specific government consents or official authorizations with respect to the offer and sale of a franchise are required
• German statutory law does not provide for special requirements that a franchisor must meet prior to offering franchises. Nevertheless, the GFA lists numerous guiding principles in its code of ethics. These include:

• The franchisor must have successfully run a business concept for an appropriate period of time with at least one pilot project before starting franchising;
• The franchisor must be the owner or legitimate user of the company name, trademark, or any other special labeling of its network; and
• The franchisor must carry out the initial training of the individual franchisee and must ensure ongoing commercial and/or technical support to the franchisee during the entire term of the contract
• Observance of the GFA principles is obligatory in order to become and remain a member of the GFA and to demonstrate fair business practices. While the GFA is a non-government body and membership is not compulsory, membership in the GFA is regarded as an indication of quality for a franchise system.

• Under German law there is no difference between franchisors from EU and non-EU member states with regard to foreign citizens or non-national entities in the ownership/control of businesses or holding any interest in real estate

Termination of Franchise Agreements

Franchise agreements can be entered into for a definite or an indefinite term. In both cases, the parties can mutually agree to terminate the franchise agreement. A franchise agreement with a definite term can end as a result of the lapse of time or by termination for good cause. Under German law, a termination for good cause requires a major default of a party’s contractual duties under the franchise agreement. Franchise agreements with an indefinite term can be terminated either for good cause or without cause. If the franchise agreement is terminated without good cause, contractual or statutory periods of notice must be taken into consideration.

Under German law, the termination of franchise agreements is closely connected to the question whether the franchisee is entitled to indemnity. In Germany, a commercial agent is entitled to an indemnity at the end of the agreement, pursuant to section 89b of the Commercial Code, if it has generated new customers for the principal’s business, or has significantly increased the business with existing customers and the principal continues to derive substantial benefits from business with said customers. This right to claim indemnity cannot be waived in advance. German law provides some exemptions—for example, if the contract is terminated for cause owing to culpable conduct of the commercial agent. Since the franchisor or a replacement franchisee can continue to sell to the former franchisee’s customers, a franchisee also may be entitled to indemnity. Section 89b of the Commercial Code applies analogously in the case of termination of a franchise agreement if two conditions are met:

• The franchisee needs to be included in the franchisor’s sales organization to the extent that it has duties that are financially comparable to those of a commercial agent; and
• The franchisee needs to be contractually obliged to (directly or indirectly) transfer its customers to the franchisor no later than at the termination of the agreement

In order to mitigate the risk of an indemnity payment, franchisors should make sure that the franchise agreement does not stipulate an obligation to transfer the franchisee’s customer base to the franchisor—either directly or indirectly.

Dr. Tom Billing is a partner in the Berlin Office of Noerr LLP. As a lawyer, he has advised on the structure of a number of well-known national and international distribution systems and the expansion of those systems nationally and internationally. He is the author of several published texts in relation to franchising and contract law. Robert Smith is a partner in the Washington, DC office of Quarles & Brady LLP.  He has represented franchisors for almost 40 years in a variety of transactions, including franchise deals in more than 80 countries.

For more information please contact:

• Tom Billing: 49 30 2094 2178 / tom.billing@noerr.com
• Robert Smith: 202 372-9516 / Robert.smith@quarles.com

Hidden between some of the most prominent powerhouses in Asia—China, Thailand, and Vietnam—Laos has often been overlooked by foreign investors seeking to capitalize on investment opportunities in the region. However, thanks to an increased commitment from the government to ease restrictions on foreign direct investment (FDI) and efforts to create a more well-rounded economy that is less dependent on natural resources, Laos has witnessed a surge of new franchise operations over the past few years. From food and beverage operators to car rental providers and clothing retailers, these new franchises represent a variety of different industries and help to diversify the Lao economy. To date, some of the most well-known brands present in Laos include Avis, Café Amazon, Mini Big C, Pizza Company, and Texas Chicken (the overseas version of Church’s Chicken).

Regulation

While there are no specific franchising regulations in Laos, there are a number of other pieces of legislation that govern franchises in the country.

The Decision on Wholesale and Retail Businesses 2015 No. 1005/MOIC.ITD, dated May 22, 2015, defines the term “franchise” and stipulates that general wholesale/retail activities can be carried out under this definition. While there are no prohibitions on foreigners who wish to invest in a franchised business, there are specific requirements and restrictions on FDI. For example, the minimum registered capital imposed on foreign investors will depend on the share equity held in the company carrying out the franchised business. Depending on the business activities of the franchise, additional restrictions on the ratio of shares between foreigners and Lao nationals may apply.

Because there is no law on franchising, there are no specific provisions that must be included in franchise agreements in Laos. However, all franchise agreements are governed by the common rules of the Law on Contract and Tort No. 01/NA, dated December 8, 2008 (Contract and Tort Law), and the Law on Notary No. 11/NA, dated November 26, 2009 (the Notary Law). Specifically, the Law on Notary provides that a contract must be certified by the Notary Office of the Ministry of Justice or one of its related departments (for certification purposes, a Lao version of the contract will be requested). This certification is important because it proves that a contract is valid and, thus, enforceable against a third party.

There are no statutory pre-contract disclosure requirements in Laos.

Good Faith

While the Contract and Tort Law provides for a duty of good faith in the performance of contracts, it fails to provide a definition of what “good faith” requires under Lao law. This legislation also remains silent on the duty of good faith during negotiations of franchise agreements. Generally, good faith should be construed as performing a contract with the intention to defraud the other party, or to act with malice; however, the study of precedents in Laos remains challenging, making it difficult to assume an interpretation of the term that may be given by the Lao People’s Court.

Intellectual Property

There is no requirement to register a trademark under Lao law; however, brand owners are strongly advised to do so if they have plans to use and distribute products or services bearing the trademark in the Lao market. Laos uses the first-to-file system for trademark registrations, meaning that the first person to file a trademark will own the exclusive rights over that mark. According to the Law on Intellectual Property No. 38/NA, dated November 15, 2017 (the IP Law), registration of a trademark gives the registered owner the ability to act against infringers and to enforce their rights. For instance, a trademark owner in Laos has the right to enlist the assistance of the authorities to conduct seizures of counterfeit or imitation goods, provided that the mark owner has provided certified evidence that the goods are indeed fake.

According to the IP Law, copyrights do not need to be registered in order to be protected; those rights are granted immediately, without registration requirements, when a work is created. However, the owner of the work is advised to issue an official notification to claim copyright ownership, which can be used as strong evidence in the case of a violation or dispute.

Similarly, trade secrets are expressly mentioned under the IP Law, and also do not require registration in order to be protected. Trade secrets will remain protected as long as the information (1) remains confidential; (2) has trade value; and (3) is not easily accessible.

Competition Law

The Law on Business Competition, No. 60/NA, dated July 14, 2015 (the Business Competition Law), sanctions the act of imposing different prices or terms of purchase/sale for the same goods or services. Accordingly, a franchisor cannot treat any of its franchisees differently than others. Similarly, the Business Competition Law prohibits the imposition of terms and conditions through a sale/purchase agreement, and the act of forcing the performance of obligations which are not required by contract. This provision aims to protect franchisees from franchisors who may attempt to abuse their power during negotiations or during the performance of the contract. Finally, the Business Competition Law expressly prohibits price fixing. As such, franchisors are not permitted to impose a price related to their goods/services upon franchisees, except in very particular circumstances.

Non-compete clauses that amount to an absolute or excessive restraint of trade are not permitted. What is usually permissible, however, is a reasonable restraint that is narrow in scope and specific to the circumstances. Despite the absence of case law defining a reasonable scope for a non-compete provision, provisions with a very narrow scope relating to specific circumstances would likely be enforceable. For these reasons, post-contractual non-compete clauses should be drafted carefully, identifying a reasonable and clearly defined scope.

Taxation

Under the Law on Tax No. 70/NA, dated December 15, 2015, a 10 percent withholding tax applies to payments made with respect to dividends and a 5 percent withholding tax applies to intellectual property royalty fees.

Taxation rates may differ from those prescribed in the law (and outlined above), if the recipient of the payment is from a country that has signed a double taxation agreement with Laos. Currently, this applies to Brunei, China, Luxembourg, Malaysia, Myanmar, North Korea, Russia, Singapore, South Korea, Thailand, and Vietnam.

Dispute Resolution

In Laos, there is no dispute resolution body with specific responsibility for handling franchise disputes. Generally, franchise operators in Laos prefer to remedy disputes by filing complaints with the relevant administrative bodies (determined by the nature of the dispute), instead of filing complaints with the Lao People’s Court. Mediation is often considered a prerequisite to filing a complaint with the Lao People’s Court.

Laos is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Accordingly, foreign arbitral awards are recognized and enforceable in Laos. However, local regulations provide a number of conditions that must be met prior to the recognition and enforcement of a foreign arbitral award. Among other things, these conditions include requirements that the foreign arbitral award does not affect the sovereignty or contradict the laws of Laos, and does not affect the “peace and orderliness” of Lao society.

Dino Santaniello is the head of Tilleke & Gibbins’ office in Laos. He regularly advises and represents global franchisors, across a range of industries, as they prepare to enter and capitalize on the expanding Lao market. Bob Smith is a partner in the Washington, DC office of Quarles & Brady LLP. He has represented franchisors for almost 40 years in a variety of transactions, including franchise deals in more than 80 countries.

The franchise market in Kazakhstan started to develop in the mid-1990s. The Kazakhstan Franchising Agency (KFA) estimates that the number of foreign brands currently franchising in Kazakhstan is close to 500 (and will grow to 550 by 2020), with an estimated 3,000 franchised outlets employing over 30,000 people and estimated annual sales of US $2.5 billion.  According to the KFA, there are about 30 domestic (local) franchises with over 200 franchised outlets.

Regulation

The Civil Code contains provisions dealing with package business licenses (franchises). In 2002, the Franchise Law, regulating the franchise relationship, was passed in Kazakhstan. The legislation establishes the principle of freedom of contract and that the terms of an agreement are determined at the parties’ discretion, except for situations where the law prescribes the content of a specific term.

If one of the parties to a franchise agreement is a foreign resident, the parties may elect a foreign law as the applicable law. However, the imperative rules of Kazakhstan legislation are applicable, regardless of the governing law chosen.

Thus, a franchise agreement must identify the intellectual property objects that comprise the subject of the franchise. The agreement also must specify how a franchisee may use the intellectual property objects, the period for which the right of use is transferred and the territory is covered by the franchise agreement. A franchise agreement also should contain conditions regarding the quality of goods and services and the ability of the franchisor to inspect the quality of goods produced and/ or services rendered by the franchisee.

Presale Disclosure and Misrepresentation

Kazakhstan law requires presale disclosure to a prospective franchisee, but does not contain any requirement as to the amount and type of information to be disclosed. There is a general obligation that a franchisor must disclose information to a prospective franchisee on the rights to be granted pursuant to the franchise agreement. The parties should determine independently the extent of the disclosure. A franchisee has a corresponding obligation to not disclose the information received and to be liable for losses caused to its franchisor as a result of a breach of this non-disclosure obligation.

Kazakhstan law does not impose any civil liability for losses caused as a result of the failure of a franchisor to provide presale disclosure or to otherwise properly satisfy its pre-contractual obligations. However, liability may exist where the contract execution was facilitated by fraud or willful misrepresentation. In that case, a court may invalidate the agreement.

If a contract is invalidated, each party must reimburse the other party for all things received by it under the transaction and, if the return in kind is not possible, pay the value of the property to be returned, the cost of the use of property, or completed work or services. In addition, a court may award damages from the party whose actions invalidated the transaction in favor of the other party.

Intellectual Property

Trademarks and industrial property objects (inventions, useful models, patent designs) must be registered in order to be protected in Kazakhstan. Copyrighted objects are protected from the moment of their creation (their expression in physical form), and registration is at the discretion of the authors. Commercial secrets, which are often the subject of franchise agreements, are protected if the following conditions are met: (a) information that constitutes the commercial secret has actual or potential commercial value by virtue of it being unknown to third parties; (b) there is no free access to it on legal grounds; and (c) the holder of the information takes measures to secure its confidentiality.

If a franchise agreement includes registrable intellectual property objects, the agreement is subject to registration with the local Trademark and Patent Office. Registration in practice takes 10 business days and requires two Russian language originals of the agreement and payment of the official fee. Kazakhstan law does not regulate which party is responsible for the registration, it is left to the parties.  In practice, the franchisor most often assumes this duty.

Competition Law

Kazakhstan’s competition law excludes agreements for the use of intellectual property objects (including franchise agreements) from the legislation provided the agreement has not led or cannot lead to the restriction or elimination of competition.

According to the Civil Code, a franchise agreement may contain restrictive conditions, for example, the obligation of the franchisor not to issue similar licenses to third parties and/ or to refrain from similar activities in the territory covered by the franchise agreement. A franchise agreement also may contain a noncompete obligation on the franchisee’s part.

Price fixing and setting maximum or minimum prices by a franchisor, the sale of goods and rendering of services to a certain category of customers or customers having a location in a territory specified in the agreement by the franchisee are not permitted and will render those parts of the franchise agreement void.

Data Protection

Under the Personal Data Law introduced in 2016, personal data can be collected, processed and transferred abroad only with consent of the subject of personal data. Under this rule, databases containing personal data (for example, personal data of local customers, employees etc.) must be stored in Kazakhstan.

Dispute Resolution

Parties to a franchise agreement may choose the dispute resolution method to be used.  There is no established practice for using a particular dispute resolution method. Kazakhstan, however, is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

For more information please contact Aliya Seitova (+7 727 258 2380 or aliya.seitova@dentons.com) or Robert Smith (+1 202 372-9516 or robert.smith@quarles.com).  Aliya Seitova is an associate, trademark and patent attorney in Dentons’ Almaty office.  She has experience of representing clients before the local Trademark and Patent Office, and actively works on assignment and licensing/ franchising of companies’ copyright, trademark and patent rights.  Bob Smith is a partner in the Washington, DC office of Quarles & Brady LLP.  He has represented franchisors for almost 40 years in a variety of transactions, including franchise deals in more than 80 countries.

Introduction

New Zealand is an exciting and fast developing market for franchising. The population of New Zealand is about 4.6 million and there are over 630 franchise systems—one for every 7,400 people—which is very high in comparison with other countries. Why? As a whole, New Zealanders love brands and businesses that succeed, and franchising offers people a chance to leave the security of employment and purchase a franchised business which should succeed provided the system is followed.

In 2017, a survey of New Zealand franchising was conducted by Massey University (Auckland) and Griffith University (Queensland, Australia). Highlights from that survey are as follows:

• The number of business-format franchise systems operating in New Zealand has increased, with 631 business-format franchise systems operating in 2017, compared with 446 in 2012.
• It is estimated that franchised businesses contribute around NZ $27.6 billion to the New Zealand economy.
• The number of units operating with business-format franchise systems has also increased, with an estimated 37,000 units, compared with 23,600 in 2012.
• There are an estimated 124,200 employees of New Zealand business-format franchise systems, up from 80,400 in 2012, with approximately 60 percent of the employees estimated to be in permanent full-time employment.
• Franchising covers a wide range of industry categories and sub-sectors. Predominant sectors included “retail trade” (23 percent), “other services” (20 percent), “accommodation and food retail” (18 percent), and “administration and support services” (8 percent).
• The median total start-up cost for a franchise was NZ $308,500 for retail and NZ $87,550 for non-retail.
• The median initial franchise fee was NZ $35,000.
• Fifty percent of franchise systems have been operating since before 2000.
• The overall level of disputes per franchised unit was low (1.9 percent). Only 22 percent of franchisors experienced a substantial dispute with a franchisee within the last 12 months.

Franchise Regulation

There are no franchise-specific laws in New Zealand; however, there are existing laws which protect franchisees. The primary laws are Fair Trading Act 1986, Commerce Act 1986, and Contract and Commercial Law Act 2017. These statutes focus on misrepresentations and restrictive trade practices, including anti-competitive behavior.

Cartels Legislation

The Commerce (Cartels and Other Matters) Amendment Act 2017 became law in New Zealand in August 2017. This new Act amended the Commerce Act 1986 and key changes include:

1. Cartel Conduct Prohibitions

Broadly speaking, there are three new “cartel conduct” prohibitions that are unlawful unless an exemption applies: (a) a prohibition on competitors fixing prices; (b) a prohibition on competitors jointly restricting output; and (c) a prohibition on competitors colluding to allocate markets.

These new prohibitions clarified the law in New Zealand and will have a far-reaching impact on business. However, some types of anti-competitive arrangements (summarized below) are exempt from the cartel prohibitions.

2. Collaborative Activity Exemptions

This exemption applies to cartel conduct by competitors in a “collaborative activity” where the cartel provision is reasonably necessary for the purpose of the collaborative activity. Competitors can seek clearance for proposed collaborative activities that contain a cartel provision to ensure that the proposed activities will not breach the Commerce Act.

The collaborative activities exemption is an important exemption for franchisors, since some provisions in franchise agreements may be regarded as cartel provisions (such as territory allocation and noncompetes). Accordingly, a franchisor entering New Zealand will want to obtain legal advice that this exemption applies to any cartel provisions in the proposed franchise agreement.

3. Vertical Supply Contract Exemption

This exemption recognizes that there may be circumstances where a supplier and a customer may be in competition with each other and, as a result, provisions in their supply agreement risk being cartel provisions. This exemption allows cartel provisions that are included in vertical supply contracts where certain requirements are met.

4. Joint Buying and Promotion Agreements Exemption

This exemption may apply when competing buyers arrange to purchase goods or services together on terms that, individually, the competitors could not negotiate on their own. This exemption applies only to price fixing and not to other forms of cartel conduct.

Because the amendments to the Commerce Act impact key provisions typically found in franchise agreements, it is very important to explain the basis for a number of common franchise agreement provisions. These include approved products, approved services, geographic scope and term of the noncompete, and the location of a franchised operation.

Franchise Association of New Zealand

There is no mandatory disclosure regime in New Zealand, but there is the Franchise Association of New Zealand (FANZ), which was formed in 1996. A foreign franchisor is not required to become a member of the FANZ in order to franchise in New Zealand.

The Rules of the FANZ define a “franchise as:

“Franchise” means the method of conducting business under which the right to engage in the offering, selling or distributing of goods or services within New Zealand includes or is subject to at least the following features:

• the grant by a Franchisor to a Franchisee of the right to the use of a mark, in such a manner that the business carried on by the Franchisee is or is capable of being identified by the public as being substantially associated with a mark identifying, commonly connected with or controlled by the Franchisor; and
• the requirement that the Franchisee conducts the business or that part of the business subject to the Franchise Agreement, in accordance with the marketing, business or technical plan or system specified by the Franchisor; and
• the provision by the Franchisor of ongoing marketing, business or technical assistance during the term of the Franchise Agreement.”

The Rules also define a Franchise Agreement as “a contract, agreement or arrangement, whether express or implied, whether written or oral, between two or more persons by which one party to the agreement (‘the Franchisor’) grants, authorises or permits the other party to the agreement (‘the Franchisee’) the right to operate a Franchise. Any contract, agreement or arrangement which purports to be a Franchise Agreement shall be deemed to be a Franchise Agreement for the purposes of this definition, notwithstanding that it may lack any or all of the requirements or attributes referred to in the definition of ‘Franchise’.”

FANZ – Code of Practice and Code of Ethics

The FANZ publishes the Code of Practice and the Code of Ethics and all members of it must comply with both Codes. The Code of Practice has four main aims which are as follows:

1. To encourage best practice throughout franchising.
2. To provide reassurance to those entering franchising that any member displaying the logo of the FANZ is serious and has undertaken to practice in a fair and reasonable manner.
3. To provide the basis of self-regulation for franchising.
4. To demonstrate to everyone the positive will within franchising to regulate itself.

The Code applies to all members including franchisors, franchisees or affiliates such as accountants, lawyers, and consultants, and all prospective new members of the FANZ must agree to be bound by the Code before they can be considered for membership.

What Does the Code Cover?

1. Compliance – All members must certify that they will comply with the Code and members must renew their certificate of compliance on an annual basis.
2. Disclosure – A disclosure document must be provided to all prospective franchisees at least 14 days prior to signing a franchise agreement. This disclosure document must be updated at least annually and it must provide information including a company profile, details of the officers of the company, an outline of the franchise, full disclosure of any payment or commission made by a franchisor to any adviser or consultant in connection with a sale, listing of all components making up the franchise purchase, references and projections of turnover, and possible profitability of the business.
3. Certification – The Code requires franchisors to give franchisees a copy of the Code and the franchisee must then certify that he or she has had legal advice before signing the franchise agreement.

4. Cooling-off Period – All franchise agreements must contain a minimum seven-day period from the date of the agreement during which a franchisee may change his or her mind and terminate the purchase. This is very important and the cooling off period does not apply to renewals of term or resales by franchisees.
5. Dispute Resolution – The Code sets out a dispute resolution procedure which can be used by both the franchisor and the franchisee to seek a more amicable and cost-effective solution. The Code requires all members to try to settle disputes by mutual negotiation in the first instance and this process does not affect the legal rights of both parties to resort to litigation.
6. Advisers – All advisers must provide clients with written details of their relevant qualifications and experience, and they must respect confidentiality of all information received.

Code of Ethics – All members must subscribe to the Code of Ethics which sets out the spirit in which the Code of Practice will be interpreted.

All franchisor members of the FANZ must have a franchise agreement, which contains a dispute resolution clause and a cooling-off provision. In order to resolve disputes, mediation is the favored method and has a high success rate in relation to franchising disputes.

Taxation

Tax is payable on all income earned in New Zealand. The current rate for companies is 28 percent. The goods and services (GST) tax rate is 15 percent, and it is added on to all goods and services with no exceptions. Although there are no restrictions on the transfer and remittance of currency from New Zealand to an overseas jurisdiction, the tax laws must be complied with. In relation to the payment of royalties, dividends, or interest, non-resident withholding tax (NRWT) must be deducted by the payee before funds are remitted to the overseas entity. The tax deduction must be paid by the payer to the New Zealand Inland Revenue Department (IRD), but a tax credit would be available to the overseas company. The rate of tax varies on the country involved, and New Zealand has double taxation treaties with a large number of countries. For example, for Australia, Japan, Singapore, and the United States, the rate of NRWT is 5 percent in relation to royalties, and for Canada, China, Taiwan and the UK, the rate is 10 percent. With respect to Fiji, Indonesia, Malaysia, and the Philippines, the rate is 15 percent.

Royalties means “payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematographic films, films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. The term ‘royalties’ also includes income or gain from alienation of any property or rights described in this paragraph to the extent that such income or gains are contingent on productivity, use or disposition of such property or rights.”

The clause above means that an overseas franchisor would receive royalty payments net of any taxes.

*     *     *     *     *

New Zealand is a sophisticated market and fairly deregulated with respect to business. The FANZ has been very successful in promoting self-regulation and high standards in franchising, and its Code of Practice is widely understood and accepted by franchisors in New Zealand.

Stewart Germann is the founding partner of Stewart Germann Law Office in Auckland and has over 35 years of franchising experience, including both nationally and internationally. Bob Smith is a partner in the Washington, DC office of Quarles & Brady LLP. He has represented franchisors for almost 40 years in a variety of transactions, including franchise deals in more than 80 countries.

For more information please contact

Stewart Germann (+64 9 308 9925 or stewart@germann.co.nz) or

Robert Smith (+1 202 372-9516 or Robert.smith@quarles.com).

Introduction

The relaxation of foreign investment restrictions and a growing, aspiring middle class have encouraged new players to enter Myanmar’s franchising industry in recent years. Previously, franchises in Myanmar predominantly operated in the food and beverage industry; however, in the last few years, the country has witnessed a growth spurt of franchise operations in the services and education sectors. While no official statistics are available on overseas franchises in the country, brands currently present in Myanmar include, among others, Best Western, Europcar, Gloria Jean’s Coffees, Gymboree, KFC, Krispy Kreme, Pingu’s English, and Swensen’s.

Regulations

Myanmar does not currently have any specific legislation regulating franchise relationships. In addition, there are no statutory, pre-sale disclosure requirements. Nevertheless, franchise relations are subject to relevant provisions under other statutes applicable to contracts and business operations in the country, such as the Competition Law 2015, the Consumer Protection Law 2019, the Contract Act 1872, the Myanmar Companies Law 2017, and the Trademark Law 2019.

Intellectual Property

Many franchisors are rightly concerned that a former franchisee will utilize the knowledge and experience gained from running a franchise operation to open a competing business. To prevent this, it is vital for franchisors to protect themselves by using clear and comprehensive language in their franchise agreements.

Myanmar enacted its new Trademark Law and Industrial Designs Law in January 2019, and its Patent Law in March 2019, paving the way for a stronger intellectual property landscape in the country. Under this new system, trademark, industrial design, and patent licenses must be recorded with the intellectual property office to be deemed enforceable in Myanmar. Similarly, under the Science, Technology, and Innovation Law 2018, all agreements on technology transfers must comply with the terms set by the National Council for Science, Technology, and Innovation Development, and must be registered with the designated registrar to be deemed enforceable. Franchisors should take note of these requirements to ensure that they develop a robust intellectual property protection and commercialization framework under their franchise systems.

Competition Law

While Myanmar courts generally honor and enforce contractual terms, a franchisor should be cautious about abusing its bargaining power or imposing conditions that may result in interference in the franchisee’s business operations, as these may violate provisions of local law. Charging different franchise fees to different franchisees may raise anti-competitive concerns. Restrictive covenants prohibiting a former franchisee from engaging in a similar business upon the expiration or termination of a franchise relationship should contain carefully drafted limitations on the term and geographical area in which the restrictive covenants are applicable. Further, franchise agreements should also be supplemented by robust provisions prohibiting the disclosure and use of information, knowledge, and trade secrets obtained from operation of the franchise. Under the Competition Law 2015, unauthorized disclosure of trade secrets is an act punishable by imprisonment for a term of up to two years, a fine of up to MMK 10 million (approximately US  $7,700), or both.

Taxation

Initial fees and ongoing royalty fees are subject to a withholding tax payable by a non-resident foreign franchisor at a rate of 15 percent, and by a resident foreign or local franchisor at a rate of 10 percent. For goods sold or services rendered as part of a franchise transaction by the franchisor, such as operational equipment and training fees, a withholding tax of 2.5 percent is applicable for a non-resident foreign franchisor, whereas, since July 1, 2018, no withholding tax is payable by a resident foreign or local franchisor. Subject to the discretion of the Ministry of Planning and Finance and the Internal Revenue Department, the withholding tax amount payable by non-resident foreigners may be reduced or exempted if there are existing double-taxation agreements in place. To date, Myanmar has entered into double-taxation agreements with India, Laos, Malaysia, Singapore, South Korea, Thailand, the United Kingdom, and Vietnam.

Dispute Resolution

It is common for foreign franchisors in Myanmar to opt for the franchise agreement to be governed by foreign laws, and for disputes to be settled via arbitration outside of Myanmar, such as in Singapore under the Singapore International Arbitration Centre Rules. In accordance with the Arbitration Law 2016, the default position is that a Myanmar court will not intervene in matters governed by the Arbitration Law 2016, except where the act so provides. Myanmar courts also refer parties to an arbitration agreement if a party so requests before submitting its written statement, unless the arbitration agreement is null and void, inoperative, or is incapable of being performed.

As a signatory to the New York Convention, foreign arbitral awards are recognized and enforceable by Myanmar courts, except in certain cases. For example, a Myanmar court may refuse to recognize foreign arbitral awards if it finds that the subject matter of the dispute is not capable of settlement by arbitration under Myanmar law, or if the enforcement of the award would be contrary to the national interest. Myanmar courts may also enforce interim orders, orders, and directives given by arbitral tribunals seated both inside and outside of Myanmar. Therefore, unless the dispute arising from a franchise agreement falls within one of the limited exceptions of the Arbitration Law 2016, Myanmar courts are required to honor an election of international arbitration dispute resolution where an arbitration clause has been incorporated into such franchise agreement.

A foreign civil court judgment is enforceable in Myanmar under the Civil Procedure Code, if it was pronounced by a court of competent jurisdiction, was decided on merits, was not obtained by fraud, is not against the principles of natural justice, is in accordance with the principles of international law, and does not sustain a claim founded on breach of any law in force in Myanmar.

For more information please contact Sher Hann Chua (+66 2056 5765 or sherhann.c@tilleke.com) or Robert Smith (+1 202 372-9516 or Robert.smith@quarles.com). Sher Hann Chua is a Consultant at Tilleke & Gibbins’ Bangkok and Yangon offices. She regularly assists global franchisors, across a variety of industries, with expansion into Myanmar, Thailand, and throughout Southeast Asia. Bob Smith is a partner in the Washington, DC office of Quarles & Brady LLP. He has represented franchisors for almost 40 years in a variety of transactions, including franchise deals in more than 80 countries.

Introduction

The Kingdom of Spain is a democratic parliamentary monarchy, a member of the European Union and a signatory to the Schengen Area Agreement. Spain is also part of most international organizations and a signatory to most international treaties and conventions.

Spanish territory is administratively divided in 17 autonomous communities (regions) including two autonomous cities in Northern Africa (the cities of Ceuta and Melilla). According to the 1978 Spanish Constitution and the respective Autonomic Statutes, all of these territories have some legislative, administrative and political exclusive or shared authority. Spanish law is based on civil law with civil and commercial codes.

From a commercial point of view, franchising is ruled in Spain by regulations in the Retail Act (Ley de Ordenación del Comercio Minorista), as amended in December 2018, as well as by a special Decree on Franchise (the Regulation). These norms deal with administrative and general rules, but do not regulate the franchise relationship.

Foreign franchisors are free to operate in Spain with no need for any special authorization. Moreover, according to the latest amendments to the Retail Act, other administrative obligations (such as registration on the Franchisors Register or required disclosure updates) are no longer necessary. Therefore, a non-Spanish entity does not have restrictions in granting master franchise or development rights to a local franchisee or master franchisee. Similarly, there are no general restrictions on foreign franchisors owning equity in a local business or in owning real property.

From a commercial point of view, the franchise sector has been continuously increasing. According to the 2018 Report of the Spanish Franchisors Association, there are 1,348 franchised brands operating in Spain of which about 82.8% are Spanish and the rest are from 26 different countries with France, Italy and the United States being the principal countries. This is an increase of 108.7% since 2001. Fashion is the main market followed by hotels and restaurants.

Legislation

Franchising is legally defined (Retail Act and the Regulation) as an activity in which an undertaking (the franchisor) grants to another party (the franchisee), for a specific market and in exchange for financial compensation (either direct, indirect or both), the right to exploit its own system to commercialize products or services already successfully exploited by the franchisor. The contents of this system must include, at least:

• the use of a common name or brand or any other intellectual property right and the uniform presentation of the premises or transport means included in the agreement;
• communication by the franchisor to the franchisee of certain technical knowledge or substantial and singular know-how that has to be owned by the franchisor; and
• technical or commercial assistance, or both, provided by the franchisor to the franchisee during the agreement term as the parties may agree.

The parties are free to draft a franchise agreement in whatever way they choose and it does not have to be executed in any particular language or be notarized. In addition, there are no mandatory clauses that must be contained in a franchise agreement.

The franchising rules are applicable to commercial franchise agreements regardless of the sector in which they operate. Nevertheless, a contract granting the exclusive commercial right of distribution is not necessarily a franchise if it is simply a contract through which a vendor promises to buy, under some conditions, merchandise (that is normally trademarked) from a seller who grants to the vendor, under certain conditions, exclusivity within a certain area and providing assistance to purchasers.

According to Spanish legislation, the following are expressly excluded as franchises:

• the grant of a manufacturing license;
• the grant of a right to use a trademark in a specific area;
• the transfer of technology; and
• the grant of a logo or commercial trademark name.

Presale disclosure

Spanish legislation requires franchisors to disclose certain information at least 20 days before execution of an agreement or pre-agreement or before any payment is made by the franchisee to the franchisor. The information must be disclosed in writing in an accurate and not misleading manner to the potential franchisee and includes:

• identification of the franchisor;
• justification of the ownership or license for the use and its duration of any trademark and any judicial claim affecting it;
• a general description of the sector in which the franchise operates;
• the franchisor’s experience;
• the contents and characteristics of the franchise and its exploitation, a general explanation of the business, special characteristics of the know-how and the permanent commercial or technical assistance the franchisor will provide to franchisees, and an estimate of the necessary investment and expenses to start a business.
• if the franchisor is providing sales or profit disclosures, they must be based on experience or information that can be fully justified;
• the structure and extent of the franchise network in Spain, as well as the number of franchisees that left the network in the preceding two years, including the reason; and
• the essential elements of the franchise agreement.

According to the Regulation, a franchisor can require the franchisee to execute a confidentiality agreement with respect to the information disclosed.

Disclosure is only required once. There is no requirement to provide disclosure before the same franchisee opens additional outlets.

Registration

As of December 2018, there is no requirement for a franchisor to register on any special National Register. Some regional regulations could, however, require registration at a regional level, but only when the franchisor intends to operate exclusively in that specific region. There is no requirement to register franchise agreements.

Competition law

The form of Spanish franchise agreements is typically the same form used in the EU and the United States. Typically, if a franchise agreement complies with the requirement of the EU Block Exemption Regulation (BER) 1 it will comply with Spanish competition law requirements.

Restrictions set forth in the Spanish Competition Act (Defense of Competition Act 15/2007 of July 3) apply to franchise agreements. Article 1 of this Act is similar to Article 101(1) of the Treaty on the Functioning of the European Union which prohibits anti-competitive agreements.

The Competition Act declares (Article 1.4) that the prohibitions will not be applicable to the agreements falling within the exemption of the European Commission’s Block Exemption Regulation No. 330 of 2010 (BER). The Spanish National Commission for Markets and Competition can declare (pursuant article 6) that those prohibitions are not applicable to a particular agreement when there are no specific restrictions on competition or when the agreement provides some benefits to consumers.

Moreover, those prohibitions will not be applicable (Article 5) to restrictions of minor importance set forth in the Competition Regulation, particularly when the participants in the agreement do not have a market share in excess of 10% or 15% (depending on whether the participants are competitors).

Termination

A franchise agreement can have a specific term or an indefinite term. If the contract has a specific term, it will end upon the agreed term. It can also be terminated upon a breach of contract, death (in the case of individuals) or liquidation of any of the parties (in the case of companies).

If the contract has an indefinite term, any of the parties can terminate the contract by advance notice. Since there is no legal norm regulating the length of the advance notice, it should be sent with a reasonable notice period, as dictated by the circumstances of each agreement. Nevertheless, according to the Unfair Competition Act, termination of a commercial relationship without a written and precise previous notice given at least six months in advance could be considered unfair, except in case of a severe breach or force majeure.

Ignacio Alonso is the Founding Partner of Even Abogados, Madrid, Spain. Ignacio practices in the areas of corporate, distribution, franchising and commercial law. He is also a country expert at the International Distribution Institute (www.idiproject.com), an international arbitrator and mediator. Robert Smith is a partner in the Washington, DC office of Quarles & Brady LLP. He has represented franchisors for almost 40 years in a variety of transactions, including franchise deals in more than 80 countries.

For more information please contact

• Ignacio Alonso (+34 917 818 470 / ignacio.alonso@evenabogados.com or
• Robert Smith: (202) 372-9516 / Robert.smith@quarles.com

Quarles & Brady’s Labor & Employment Practice recently presented a webinar on, “Developments at the National Labor Relations Board and Their Impact on Employers and Franchisors.” 

Judi Williams-Killackey, Chris Nickels and Steve Kruzel reviewed the recent General Counsel memo and recent decisions from the NLRB, including those relating to its joint employer standard, workplace policies and employee handbook rules, micro-unit bargaining rules, and an employer’s ability to implement unilateral changes.

Unable to attend? Click here for the video.

SB 750, the deceptively titled “Protect Florida Small Business Act,” appears to have met its demise.  Although it passed the Senate Committee on Regulated Industries by a vote of 7–2, the bill will be not be scheduled for a hearing by the Senate Judiciary Committee. This marks the end of SB 750’s journey in the 2017 Florida legislative session. SB 750 drew sharp criticism from franchisors and franchisees alike for its expansive and invasive regulation of the franchisor-franchisee relationship. If passed, the bill would have severely curtailed a franchisor’s ability to protect its brand and goodwill and undermined the viability of franchising in Florida.