General obligations of the parties in a franchise contract

General obligations of the parties in a franchise contract

(i) Obligations of the franchisor in a franchise contract

It is the common responsibility of many franchisors to support the franchise system operations of franchisees and contribute additional value to the development of the franchised system. The franchisor is also responsible for training and guiding the franchisee to successfully operate the franchise system, support sales and marketing when necessary. In addition, some parties may overlook one of the most important responsibilities of the franchisor that is maintaining the validity and exclusivity of the licensed intellectual property rights. The franchisor must ensure the proper operation of the franchised system in a fair and consistent manner.

Basically, the franchisor will typically have the following obligations under a franchise agreement:

  • Consulting on finding premises;
  • Advising on changing, upgrading and using items in the business system;
  • Generally advising on how to set up and operate the franchise system;
  • Suppling equipments, products and accessories;
  • Providing operation manual;
  • Conducing initial training programs for franchisees;
  • Supporting in PR and marketing campaign;
  • Ensuring intellectual property rights of licensed rights under the franchise agreement;
  • Equally treating all franchisees in the franchise system.

In addition, according to Vietnamese laws, for franchising activities from abroad to Vietnam, the franchisor must register the franchising activity with the Ministry of Industry and Trade of Vietnam. Another important obligation is that the franchisor must obtain the protection title for his franchised intellectual property rights in Viet Nam. It should be noted that the trademark protection is only limited within registered countries. Having registered for trademark gives the franchisor the exclusive right to use its trademark in Viet Nam. In practice, there are some franchise systems, like Burger King, when expanding their franchise system to other countries, they have found that their trademark has been registered by another unrelated third party. In this case, the franchisor will have to spend a lot of time, effort and expenses in IP-related disputes.

(ii) Obligations of the franchisee in a franchise contract

General obligations

In the sense of purpose, most obligations and restrictions are imposed on the franchisee is to protect and benefit the franchisee itself because if the franchisee does not comply with the franchised system, it can be detrimental to the entire franchise system, including the franchisee.

Some other common obligations of the franchisee include:

– Paying franchise fees and other payments under the franchise agreement;

– Preparing the premises at the request of the franchisor;

– Only using items and products provided by the franchisor for franchise business;

– Operating the franchise business according to the operation manual and guidance by the franchisor;

– Only using relevant marks and packaging approved by the franchisor.

– Maintaining the premises under the highest standard and do not make any changes without the consent of the franchisor;

– Using the best efforts to promote and expand the franchise business and meet target revenue/number of stores;

– Ensuring that employees will behave in accordance with the process and brand identity system;

– Accepting the franchisor’s control;

– Complying with confidentiality obligations, even after the termination if the franchise agreement;

– Stopping using trademarks, trade names, business slogans, business logos and other intellectual property rights (if any) or doing the franchisor’s system after the termination of the franchise contract.

Specific intellectual property rights obligations 

In terms of intellectual property obligations, most franchisors will specify the wide range of restrictions with which the franchisee must comply. From the franchisee’s side, it is the franchisee’s obligation to only use the licensed intellectual property rights within the scope of franchise business specifying under the franchise agreement. In addition, the franchisor may detail the franchisee’s obligations to the franchised trademarks, technologies, and upgrading IP-related processes during the franchise term.

Disclaimer: This article is for general information only and is not a substitute for legal advice. Apolat Legal is a Vietnamese law firm with experience and capacity to advise on matters related to Contract Drafting and Reviewing and Franchise Consulting . Please click here to learn more about our services and contact our lawyers in Vietnam for advice via email info@apolatlegal.com.

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