Newsletter
FTC AMENDS DISCLOSURE RULES FOR FRANCHISERS
On 25 November 2003, the Fair Trade Commis-sion (FTC) promulgated amendments to its Standards Governing the Disclosure of Informa-tion by Franchisers. Previously, the FTC only included less controversial items in the disclo-sure requirements. But in handling cases in the past four years, the FTC has discovered that in the process of recruiting franchisees, some franchisers have committed other violations of the Fair Trade Act (FTA) that were not covered by the standards. Therefore the FTC has now amended the standards, taking into consideration its past experience, and relevant foreign legisla-tion.
The FTC states that in recent years franchise chain operations have developed rapidly in many sectors in Taiwan, and that most franchisers are in a dominant economic position relative to in-dividual franchisees, placing franchisees at an informational disadvantage. Thus, the standards were amended to ensure fair competition by mandating more disclosure.
The key points of the amendment are as follows:
The old standards provided that a franchiser must disclose important trading information in writing 10 days before concluding a franchise contract. The amendment bring this time point forward to 10 days before entering into a franchise operating relationship. This change addresses the fact that in practice when re-cruiting franchisees, before signing the fran-chise contract, some franchisers in Taiwan establish a franchise operating relationship with their trading counterpart by means of a draft contract or purchase order, and collect payments, so that the trading counterpart has to part with funds before the franchiser fully discloses important trading information. Therefore the amendment now covers the previous time gap.
The old standards required a franchiser to dis-close important trading information in writing to a franchisee. The amendment expands the recipients of disclosure to include a trading counterpart that has not yet concluded a franchise contract with the franchiser but is about to enter into a franchise operating rela-tionship (including by draft contract or pur-chase order).
The information that a franchiser must dis-close in writing to its trading counterpart in-cludes:
1.The name of the franchiser, the amount of its capital, its business address, its business activities, the date of its establishment, and the date on which it began operating a franchise business.
2.The names of the responsible officers and chief management personnel of the fran-chiser, and details of their relevant business experience.
3.The royalty payments and other charges to be paid to the franchiser by the franchisee before a franchise contract is signed and while the franchise contract remains in force, stating the items payable, their amounts, method of calculation, method of payment, and conditions for refund.
4.The intellectual property rights to be li-censed to the franchisee by the franchiser, including, in the case of trademark rights, patent rights, or copyrights, the date when such rights were applied for registration or obtained, their content, their term of valid-ity, the scope of use to be licensed to the franchisee, and any restrictive conditions.
5.The content and form of the business as-sistance, training, and guidance to be pro-vided to the franchisee by the franchiser.
6.The franchiser's business program for the franchisee's operating area relative to other franchisees and to stores directly operated by the franchiser.
7.The business names and addresses of all franchisees of the franchiser within the municipality, county, or city where the franchisee's operating area is to be located; the number of franchisees that the fran-chiser had in the previous accounting year, throughout the ROC and in the same mu-nicipality, county, or city; and the number of franchisees that terminated their fran-chise contracts in the previous accounting year.
8.The length of time for which the franchise contract will remain in force, and restric-tions on the business relationship between the franchiser and franchisee.
9.Conditions for the modification, termina-tion, or rescission of the franchise contract, and the methods for handling them.
Before any written contract relating to the franchise operating relationship is signed, the franchiser must allow the trading counterpart a contract review period of at least five days, to enable the counterpart to thoroughly acquaint itself with the detailed content of the contract, as the basis for an appropriate judgment as to whether to enter into the contract.
Over the course of recent years, the FTC has issued regulations regarding various economic sectors in which some enterprises have a domi-nant position, by requiring greater transparency of trading information in order to protect rela-tively weaker trading counterparts. In case a franchiser violates the disclosure requirement, it may be sanctioned for violation of Article 24 of the FTA. Both franchisers and prospective franchisees should take note of the new re-quirements to protect their rights and interests.