Franchise laws cover antitrust, contract, intellectual property, and international law. Franchise relationships involve a franchisor allowing a franchisee to use their system for a commission. Each country has its own franchise laws, such as the FTC Franchise Rule in the US. Franchise attorneys need broad legal knowledge due to regional, national, and international variations in franchise laws. Legal systems also affect franchise laws, with civil law systems allowing courts to look beyond contracts.
Franchising laws exist in many areas of law, including antitrust law, contract law, intellectual property law, and international law. Franchise laws are all the laws that govern franchise relationships. They establish requirements for each party in these relationships in order to protect each party from fraud by the other party. These laws may vary from place to place, but are generally similar.
A franchise relationship is an agreement between one or more parties to engage in a business relationship. One side is the franchisor and the other is a franchisee. The franchisor agrees to allow a franchisee to use a particular system or method of selling a particular product or service developed by the franchisor. In return, the franchisee pays the franchisor various commissions.
Franchising occurs on a worldwide basis. Each country has its own franchise laws that will govern these relationships. For example, in the United States, the Federal Trade Commission (FTC) regulates franchising. Franchisors must comply with the FTC Franchise Rule, which requires a franchisor to provide a Franchise Disclosure Document (FDD) to a prospective franchisee.
The FDD contains the company’s litigation history, the type of assistance the franchisor provides to a franchisee, territorial restrictions, and other critical information. These disclosures provide a potential investor with a means to make an informed decision before entering into a relationship with a franchisor. The rule also helps protect potential customers from fraud. A franchisor must provide the FDD to a prospective franchisee before entering into any agreement. Failure to comply could result in fines and serve as a basis for an affiliate to cancel a contract.
Mexico, China, Australia and Spain are countries that have also enacted specific franchise laws. Like the United States, these countries require franchisors to provide certain information to prospective franchisees. Numerous other countries have similar franchise laws. A US franchisor who wishes to expand into foreign markets must comply with the franchise laws of other countries. US embassies can provide information on franchise laws in countries that may be of interest to US franchisors.
A franchise attorney must have a broad base of legal knowledge to advise their clients, as franchise laws vary regionally, nationally, and internationally. The legal disclosure requirements of merely offering a franchise will likely differ in each jurisdiction.
Franchising laws will also differ based on the country’s legal system. A civil law system and an Islamic law system will not work the same way as a common law system. For example, the United States has a common law legal system, which relies on judicial precedents to make decisions. Countries with civil law systems are not obligated to enforce contracts in the same way as courts in common law systems. A civil law system allows courts to look beyond the terms of a contract to make a decision.
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