CONSTITUTION OF A FRANCHISE AGREEMENT

Key Areas in a Franchise Agreement  Purpose of the Franchise Agreement  Obligations of the Franchisee: Investment in infrastructure Adherence to operating guidelines Reporting requirements Quality maintenance of the products/services

 Obligations of the Franchisee: Appointment of sub-contractors Advertising Budget Meeting annual market penetration targets Minimum stock purchase obligations Financial returns

 Obligations of the Franchisor: Periodic training as to the conduct of business Upgrade with new methods and technologies Ongoing support on general operational, management, accounting and administrative practices Joint marketing and advertising campaigns

 Enforcement of Non-Compete Covenants: Agreement in restraint during the Term of the Franchise Agreement Agreement in restraint of trade post-termination of Franchise Agreement Reasonability of non-compete covenants, duration of restraint and area of restraint Consistence with public interest

 Duration, Renewal and Termination: Fixed Term Agreements (as against open ended term) Termination for convenience and breach Renewal by Mutual Agreement (as against automatic extension)  Payment Terms and Taxes

 Protection of Trade Marks: Prior Consistent User of trademark i.e. priority in adoption prevails over priority in registration Use/license of trademarks and scope of trade mark license: -limitation on term of license -Territory and extent of usage -Use by Franchisee accrues to the benefit of Franchisor 1

 Misuse/Unauthorized Use and Protection thereof: Use of Trade Mark likely to cause injury to Franchisor’s goodwill Relief includes: -Injunction -Seizure of offending goods -Destruction of offending goods -Damages for loss of business 1

 Indemnification: Indemnification against loss from misuse of Intellectual Property Rights, breach of Agreement, etc. Indirect or consequential losses are excluded Liquidated damages against breach  Agency Issues

 Governing Laws and Implementation of Laws: Clarity on governing laws and jurisdiction for adjudication Alternate Dispute Forums  Post Termination Issues: Misuse of Intellectual Property Rights and Confidential Information Inventory Handling

 Anti-Competition: Restrictive trade practices

Seema Jhingan, Partner LexCounsel, Law Offices C-10, Gulmohar Park, New Delhi – Tel: Fax: