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Mater Franchising arrangements are definitely the flavor for the day as it affords the franchisor the main advantage of the franchisee’s expertise in the local environment; provides having access to local advertising and marketing expertise and channels; reduces investment; requires negligible government approvals; provides freedom from recruitment of local workforce and therefore lowers the financial likelihood of the franchisor. The current regulatory restrictions on retail trading by foreign companies in addition to sustained economic growth; ever expanding market having a thriving class of urban consumers; quality consciousness amongst India people are some from the factors contribution to franchising being increasingly used to be a model by foreign companies for entering India initially. A typical master franchise arrangement enables the master franchisee to build up the business within a given territory beneath the franchisor’s name and trademark with or without the legal right to manufacture these products in accordance with the franchisors’ operating guidelines in conjunction with assured financial returns towards the franchisor.
There is much discussion about the requirement of enacting a specialized law to modify this growing sector in India. Before I proceed with my thoughts within the subject, I would like to quote a few lines at a report presented with the International Institute for your Unification of Private Law (UNIDROIT, an impartial intergovernmental organization that India is often a member) which states that “the foundation a successful franchising industry in a country depends on the existence of the “healthy commercial law environment” which is defined as one which has a ‘general legislation on commercial contracts, by having an adequate company law, for you are sufficient notions of joint ventures, where intellectual property rights have been in place and enforced and where companies can make use of ownership of trademarks and know-how and also to confidentiality agreements’. The Indian legal environment is described as all these key attributes, undeniable established by ever expanding international franchise relationships with India.
To appraise the need for a different legislation, we will first understand a few of the keys issues/concerns involving a franchising arrangement that generally results in potential disputes or disconnects relating to the parties and exactly how they are protected or may be protected inside realm of current Indian legislation:
(1) Licensing and Use of Intellectual Property Rights: IP rights are a fundamental piece of all franchising arrangements and each franchising agreement involves transfer of a certain amount of IP right, either as being a license of any trademark/service mark/trade name, or maybe a copyright, or perhaps a patent, invention, design or maybe a trade secrets. The manner useful of the IP rights in addition to their protection against misuse is one in the most important concerns on the Franchisor. Some on the disputes that arise during implementation on the franchise agreement relate on the scope and purpose from the trademark license, exclusivity beneficial and geographical scope, protection of confidentiality, extent of transfer in the know-how, misuse and damage caused for the brand and goodwill in the franchisor, etc. Similarly, post termination related issues include unauthorized use on the trademarks post termination, limited directly to use the trademarks for that purposes of disposal of pending inventory (in the absence which often the inventory might go waste), destruction of stationary containing trademarks/trade names, return and ceassation useful of IP rights. India already includes a host of IPR related laws for example the Trademark Act of 1940, Copyright Act, 1957, the Patent Act, etc that supply for extensive protection and enforcement mechanism for that intellectual property rights including permanent and mandatory injunctions against infringement and passing off. India is another signatory on the international conventions on intellectual property rights like the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), thereby offering protection to trademarks or famous brands, and also copyright and designs in the foreign franchisor. Recognition and protection can also be extended to service marks in India enabling the foreign franchisor to license its mark to some franchisee to deliver the services synonymous with him towards the consumers in India. IPR laws were also recently amended to be compliant with exclusive right obligations under TRIPS and accordingly, the laws meet international standards for IPR protection. Even the Indian courts are usually sensitive and proactive intended for enforcement of infringement actions. It is therefore evident it isn’t the absence of IPR laws or its enforcement contributing to potential disputes but absence of carefully drafted and negotiated agreements between your franchisor and also the franchisee associated with IPR issues conducive to potential IP related litigations.
(2) Obligations of Franchisor and Franchisee: Another crucial issue which lead to potential disputes among the parties correspond with implementation with the obligations of the franchisee like the duties and services for being rendered from the franchisee, your time and money and infrastructure on the franchise, adherence to specific operating guidelines or manual to keep uniformity, reporting requirements, quality maintenance from the product or services delivered; introduction of an agency between franchisor and franchisee, appointment of sub-contractors to fabricate and sub-franchisee to sell products and franchisor and franchisee’s liability due to their acts/omissions; meeting of annual market penetration targets; minimum stock purchase/import obligations; financial returns to your franchisor, including royalty and fee. Similarly, obligations with the franchisor associated with periodic training as to your conduct of business, upgrading the franchisee with new methods and technologies, ongoing support, tips on general operational, management, accounting and administrative practices, joint advertising and marketing campaigns, sharing of advertising costs generally cause heart burns towards the franchisee.
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