Saptaswara Chakraborty| North Eastern Hill University| 10th June 2020
Introduction
The title of this article in itself poses us with a very particular question: “What is a franchising agreement?” To understand this better we are required to understand what is a franchise. Under the Black Law Dictionary, a franchise is a licence essentially from the owner of the trademark or the trade name thus permitting the other person to sell a product or to provide service under that name or mark (Black Law Dictionary(6th Ed.) Centennial Edition(1891-1991) at p.658)
The person or company that grants such a representational right to sell or manufacture goods or provide services in its name is called as the franchiser and the individual or the company that avails such a right is called as the franchisee. The worldwide recognition of franchising has come after the evolving of the business standards of the major companies with a clear objective of expansion all over the world. In a similar manner any entrepreneurial initiative can also be a beneficiary of the franchise market. In this article we shall be dealing extensively with a franchising agreement, its types and the legal governance of it.
Understanding a franchise agreement
A franchising agreement is a legally binding document that provides or outlines the terms and conditions of the terms and conditions of the franchisor that are required to be followed by the franchisee. The main purpose of such an agreement is to protect the franchisor’s intellectual property and ensure how each of its franchise operates.
Under a normal franchise agreement, there are essentially two parties involved. They are: 1) A franchisor who grants the representational right that is the trademark or the trade name and 2) a franchisee who after an initial payment gains such a representational right under the franchisor’s name. The concept of franchising is primarily a foreign concept even mainly functioning in the US and the UK tracing its existence back to the times of feudalism. Having obtained the definition pertaining to franchising from British Franchise Association and the Federal Trade Commission of the U.S., the following characteristics were established: 1) an existence of such a franchise was possible though a contractual relationship, 2) the brand name should be owned by the franchisor, 3) a substantial amount must be made by the franchisor, 4) a franchisee to be trained by the franchisor so that it runs in accordance to the business system and 5) a form of consideration to be paid to the franchisor for the licence rendered.
Types of Franchise agreements
- Invention licencing agreements– The kind of an agreement is available in a situation where the person has created or invented something and plans on expanding on it across the borders. This is achieved by the licencing of the patents, design rights, after which the manufacturing and marketing is done.
- Trademark licencing agreement– Under such an agreement, the franchisor or the owner of a trademark grants licencing rights to the franchisee for anything that is related to or associated with the trademark. They may include marketing- manufacture presentation and sale of goods. Under such an agreement, provisions would also be there to preserve the integrity of the goods, the goodwill and the reputation of the brand.
- Character merchandising agreement– Under such an agreement, any sports or entertainment personality or for that matter a fictionalised character is licenced to be used on the products. Such agreements provides for provisions that protects their reputation to such personalities or copyright associated with such characters.
- Deals or distributor marketing agreements– This is the most common for of agreement between the dealer and the franchisor. Under such a system, the dealer or the distributors adopt any particular system of the franchisor. This can mainly be seen in automobiles, food, petrol pumps and gas stations.
Legal framework of the franchise
While the functioning of such a franchise seems to be hassle free, there are certain legal procedures that must be applied. While India does not have a specific law pertaining to the franchising, several laws are found to be used. They are:
- Indian Contract Act, 1872- The very basic step of an agreement is through a contract and therefore Indian Contract Act, 1872 is applicable. Acceptance to the offer, lawful consideration, lawful object and free consent are some of the basic things that the agreement must fulfil for it to be legally enforceable. Under such a contract, it is better to have a written form of contract so that it provides a much clearer picture of the obligations between the franchisor and the franchise.
- Protection of the Intellectual Property- Each and every agreement require the protection of the intellectual property as they form the core of a franchise. While participating in any sort of business, there is always the transfer of some intellectual property either in the form of trademark or the patent. In order to protect them four acts which covers the intellectual property rights namely The Copyright Act(1957), The Patents Act(1970), The Trademark Act(1999), and The Designs Act( 2000) are evoked.
- Consumer Protection Laws- Under such a law, the consumers have a right to file a complaint against the franchisor or the franchisee depending upon the type of contract or agreement that has been entered.
- Labour laws- Depending on the franchising agreement, and its control, the various labour problem may arise. While entering into such an agreement, it is necessary for the franchisor to have an understanding of such a law and how it would affect their functioning.
Conclusion
After having discussed about the franchising agreement in this article, it can be seen that there is a need for a legislation that governs the franchising market. After the hit of globalisation there has been a wide spread increase in the number of investments and with the evolving of the business sector focussing on entrepreneurship a need for such a law is of prime importance.
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