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Franchise Contract and How to Distinguish a Franchise Agreement from an Intellectual Property Licence Agreement under the Vietnamese Laws
(Ngày đăng: 2020-07-10)

Franchise Contract and How to Distinguish a

Franchise Agreement from an Intellectual Property Licence Agreement under the Vietnamese Laws

 

Email: vinh@bross.vn

 

Introduction

 

According to the International Franchise Association (IFA), a franchise (or franchising) is a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system. Technically, the contract binding the two parties is the “franchise,” but that term more commonly refers to the actual business that the franchisee operates. The practice of creating and distributing the brand and franchise system is most often referred to as franchising[1].

 

In other words, franchising is a form of business that opens up business opportunities for both intellectual property rights holders and new investors. Franchising or franchise is a form of business that opens up business opportunities for both intellectual property rights holders and new investors. Franchising a business model is that the franchisor (the owner of a product or business system) having been affirmed as successful, allows other businesses to do business under their brand names against fee or royalty payment[2].

 

 

Vietnamese law defines that franchise is a commercial practice whereby the franchisor authorizes and requires the franchisee to conduct the purchase, sale of goods and provision of services by way of business management and organization set up by the franchisor and to permit to use the brand name, trade name, business know-how, business slogan, business symbol of the franchisor[3]

 

According to the Ministry of Industry and Trade (MoIT), as of May 17, 2020, there are a total of 235 franchise activities from abroad to Vietnam while only 4 cases of franchise from Vietnam to foreign countries have been registered with the MoIT[4].

 

How to Distinguish a Franchise Agreement from an Intellectual Property Licence Agreement

 

A franchise contract is different from an intellectual property licence agreement in a number of comparative characteristics in the following table:

 

 

Comparative Characteristics

Intellectual property

licence agreement

Franchise agreement

Subject of agreements

IP rights are granted in favour of the licensor such as patent, design, trademark, plant variety, copyright

A business system developed by the franchisor bearing the franchisor’s brand name

Conditions or grounds for establishing a licence or franchise transaction

 

IP rights that are the subject of a contract must be a specific type of IP right being protected

Not necessary to have a certain type of IP rights protected (for example, a trademark belonging to a franchise system may not be registered), but only need to have an operating business system.

Is the contract's validity established due to agreement or only when having been registered/recorded with a competent authority?

Established by agreement without registration

Established according to the agreement without contract registration but the franchisor must register the franchise activities with the MoIT

Must the subject of licence or franchise has been explored or run before granting the right?

No requirement

The franchised system must have been run at least 1 year before the date of grant of right[5]

How often is the level of technical support by the licensor or franchisor?

Usually much less with the level of technical support in a franchise contract. Even in many cases, there is no technical assistance, unless the parties further agree on technical assistance.

This is usually quite evident by the franchisor by providing technical assistance, training, transfer of know-how, and operation of the new system to ensure that the new system operates consistently with the franchisor's system.

Main applicable laws and regulations in case of settlement of dispute

 

The 2005 Law on Intellectual Property as revised in 2009 and 2019

The 2005 Commercial Law as revised in 2017

 

Form and content of the franchise contract[6]

 

A franchise contract must be made in writing, including the following principal provisions:

 

(a) Content of franchising rights.

(b) Rights and obligations of the franchisor.

(c) Rights and obligations of the franchisee.

(d) Price, franchise royalty fee and payment method.

(e) Term of validity of the contract.

(f) Renewal, termination of the contract and resolve disputes.

 

Unless otherwise agreed by the parties, the franchisor has the following rights: (a) to receive franchise royalty fee; (b) to organize advertising for the franchise system and franchise network; (c) to regularly or irregularly inspect the franchisee's activities to ensure the consistency of the franchise system and the stability of the quality of goods and services. The franchisor has the following obligations: (a) to provide the franchisee with documentation of the franchise system; (b) To initially train and regularly give technical assistance for the franchisee to operate the operation in accordance with the franchise system; (c) to design and arrange sales and service locations at the franchisee's expense; (d) to ensure intellectual property rights over the subject matter of the franchise agreement; (e) to make equal treatment for franchisees in the franchise system.

 

Unless otherwise agreed by the two parties, the franchisee has the following rights at default by the laws:

(a) To request the franchisor to provide adequate technical assistance related to the franchise system;

(b) To request franchisor to treat other franchisees equally in the franchise system.

 

The franchisee has the following obligations:

(a) To pay franchise fees and other payments under the franchise contract;

(b) To adequately invest facilities, financial resources and human resources to receive business rights and know-how transferred by the franchisor;

(c) To accept the control, supervision and instructions of the franchisor; to comply with the franchisor's design or trade dress, arrangement of sales locations, service provision;

(d) To keeping secrets of franchised business system, even after the termination of the franchise contract;

(e) To stop using trademarks, trade names, business slogans, business symbols and other intellectual property rights (if any) sub-granted or owned by the franchisor upon termination of the franchising;

(f) To manage the business operations in accordance with the franchise system;

(g) Franchisee may not grant any sub-franchise without the franchisor's consent.

 

Procedures for recording franchise activities

 

The law requires that before franchising, the franchisor must register the franchising activity with the MoIT (if it is a franchise from abroad into Vietnam or vice versa) or with the Department of Industry and Trade (if it is a franchise within Vietnam). The competent authority will examine the franchise registration application within 5 working days and shall enter the franchise registration book and notify the franchisor in writing of such registration. .

 

A required dossier for registration of franchise activities includes:

(a) An application for franchise operation, made according to form MD-1 in Appendix II to the Trade Ministry's Circular No. 09/2006 / TT-BTM (now as the Ministry of Industry and Trade);

(b) An introduction of the franchise according to the form in Appendix III issued with Circular 09/2006 / TT-BTM;

(c) A notarized copy of business registration license or investment certificate in case of franchising from Vietnam to foreign countries; copy of business registration license or equivalent document of foreign trader certified by the competent authority where the foreign business is established in case of franchising from abroad into Vietnam;

(d) A notarized copy of the industrial property right protection title in Vietnam or abroad in case of licensing industrial property subject matters for which protection titles have been granted;

(d) Papers evidencing the consent of the master franchisor to permit sub-franchise, in case the trader registering the franchise activities is a sub-franchisor.

 

Bross & Partners has experience in drafting, negotiating and registering trademark license agreement; counselling, reviewing, negotiating franchise contracts including registering franchise activities with MoIT. If you have specific needs, please contact: vinh@bross.vn; phone 0903 287 057, 84-4-3555 3466; Wechat: wxid_56evtn82p2vf22; Skype: vinh.bross.

 

Bross & Partners, a renowned and qualified Patent, Design, Trademark and Copyright agent of Vietnam, constantly ranked and recommended by the Managing Intellectual Property (MIP), World Trademark Review (WTR), Legal 500 Asia Pacific, AsiaLaw Profiles, Asia IP and Asian Legal Business, is providing clients all over the world with the reliable, affordable contentious and non-contentious IP services including enforcement, anti-counterfeiting,  litigation regarding trademark, trade name, industrial design, patent, copyright and domain name.

 

 



[2] According to CafeF (Vietnamese only): https://cafef.vn/doanh-nghiep/tong-quan-ve-nhuong-quyen-thuong-hieu-tai-viet-nam-20160104065931503.chn , franchise investment costs usually include monthly franchise fees, monthly management fees and initial investment costs. Franchise investment costs vary depending on the popularity of the brand associated with the franchise system. For example, for the purpose of expanding to 3,000 E-Coffee stores of Trung Nguyen Group (currently having 100 stores across the country), Trung Nguyen is offering attractive franchise packages with franchise costs 0 VND and initial investment cost from VND 65 million to VND 175 million. Meanwhile, Trung Nguyen's rival, Highlands Coffee, applies a 7% monthly franchise fee, 5% monthly management fee and an initial investment cost of VND 3.5-5 billion. Source (only Vietnamese): https://cafef.vn/chi-phi-nhuong-quyen-cua-cac-thuong-hieu-ca-phe-top-dau-viet-nam-nhu-highlands-cong-milano-la-bao-nhieu-20190920083003437.chn

 

[3] Section 284 of the 2005 Commercial Law as revised in 2017

[4] Typical franchised brand names pertaining to the registered franchises activities include Pizza Hut, BBQ restaurant chain and Japanese Shabu Shabu, Puma sports shoe retail store, etc. Source from the MoIT’s website: https://www.moit.gov.vn/nhuong-quyen-thuong-mai1?_nhuongquyenthuongmai_WAR_ECOITThongKeBCTportlet_INSTANCE_89tOi4yHAUFE_tabs1=vaoVietNam

[5] See Clause 1, Article 5 of Decree 35/2006 / ND-CP of March 30, 2006 guiding the implementation of the 2005 Commercial Law as revised in 2017 regarding franchise activities.

[6] See Sections from 285 to 291 of the 2005 Commercial Law as revised in 2017

 

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