Repurposing Domestic Franchise Agreements for Brand Export Jenny Buchan Associate Professor, Business School, UNSW

Repurposing domestic franchise agreements Cultural fit Intellectual property Structuring the international franchise program Tax Specific national laws and codes Domestic franchise agreement If only someone had mentioned that! Contingency planning

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1. Cultural fit Globalisation Current differences – eg: language, etiquette, consumer behaviour, risk taking, attitude towards control, women! Legal culture – eg: long term contracts, dispute resolution, legal system, role of lawyers

2. Intellectual property

Should versions of the TMs be registered in different alphabets? Are there any problems with the TMs in the language(s) of target countries? Should versions of the TMs be registered in different alphabets? Any prior applications/uses/registrations of the mark in target countries Single country or multi-national registration of TMs Once registered, can you licence the mark in the target country? Priority for first to use or first to register? Any local laws that require a TM be licensed for a minimum duration? Eg: Malaysia – 5 years. How can franchisor enforce its IP rights?

3. Structuring the international franchise program Joint Venture Franchisor enters into a joint venture with local company. The parties retain independence beyond the venture.  Area Developer  purchases the rights to develop and own an exclusive area development territory, and then sells portions of this territory to new sub-franchisees. Area developers may establish their own units. Master Franchisee   signs local franchise agreements, pays a franchise fee and ongoing royalties to the franchisor and collects royalties from franchisees.  Direct Franchising franchising units directly from the franchisor's home jurisdiction Branch Office Franchisor establishes a branch office in the target country and appoint unit franchisees. Relocation   franchisor lives in the target country and appoint unit franchisees.   In some cases a master franchisee may appoint an area developer to assist with recruitment of unit franchisees. © UNSW Australia

Direct franchising used: when: Target and home countries are close geographically Very high sunk costs –e g hotel Very simple business that needs little ongoing franchisor input Testing the water

4. Tax Does target impose withholding tax on fees paid to franchisor? Are there tax exemptions for specific systems? Is there different tax treatment of TM licence fees vs technology licence fees and service fees? Double tax treaty? Will franchisor’s home jurisdiction treat any withholding tax as a credit or allow it as a deduction? Does the country tax franchisor’s worldwide income? Transaction taxes? (eg VAT) Tax ramifications of local branch/subsidiary with employees in target country? How do contracts need to be drafted to ensure royalties not reduced by tax? Is tax planning advisable?

5. Specific national laws and codes Types: Anti-trust Foreign trade and investment Franchise regulations. Disclosure and cooling off rights Relationship Registration and other aspects Compliance program must be set up to track compliance

6. Domestic franchise agreement For international franchising you should really decide on setting up documents which can go everywhere. (Gilles Menguy) Minimum term? Are good faith and unconscionable conduct recognised? How is data protected, and by whom? Dispute resolution Governing law Termination provisions – explicit requirements can exist

7. If only someone had mentioned that! Ramifications of registering franchise agreements in Middle East as commercial agency agreements– not mandatory but benefits local and disadvantages franchisor in event of termination Any special legislation that affects franchising? Eg Macron Act 2016 in France Differences between litigating in civil law and common law jurisdictions Post termination restraints

8. Contingency planning Keystone Group collapses into receivership; Jamie’s Italian, Kingsleys and Chophouse among 17 venues for sale Eloise Keating SmartCompany, 29.06.16

Resources Mark Abell, The Franchise Law Review (Law Business Research, 2nd ed, 2015) Marco Hero (ed), International Franchising: A Practitioner's Guide (Global Law and Business, 2010) Will K Woods (ed) Fundamentals of international Franchising (ABA, 2nd ed, 2013)