In a commercial franchise transaction, one party to the transaction possibly has to accept one or more “unfair” contents, compared to the other party. The nature of commercial franchise is that franchisors permit and require franchisees to undertake by themselves to conduct business, provide goods or services according to a system specified by franchisors and associated with the franchisors’ trademarks, trade names, business slogans, business logos and advertisements. Therefore, in order to ensure that franchisees comply with and maintain the method of operation and business organization by system, mandatory requirements applicable to franchisees shall be given by their franchisors. This article covers a number of obligations of franchisees in commercial franchise transactions in Vietnam.
1. Obligations related to payment of expenses
One of the important commercial interests of franchisors is franchise sums paid by their franchisees. The franchisees shall be obliged to pay all fees and other amounts (if any) under franchise contracts.
The fees and types of fees vary, depending on the scale of the franchisees and franchise models. Accordingly, there are a number of basic fees such as initial franchise fee, monthly franchise fee, fee collected in percentage of turnover, etc. In particular, the parties to a contract often stipulate closely exclusive cases of expense payment obligations, penalty fees due to non-compliance with commitments, etc.
2. Obligations related to the organization and management of franchise stores
The franchisees must ensure that their franchise stores will have the same form to ensure the franchisors’ uniformity and “system”, to be specific:
- To operate their activities in accordance with the commercial franchise system.
- To invest adequate material facilities, financial sources and human resources to take over rights transferred by franchisors.
- To submit to the control, supervision and instruction by franchisors, to comply with all requirements set forth by franchisors on designing and arrangement of places of sale of goods or provision of services.
- Not sub-franchise to a third party without the franchisors’ consent
3. Obligations to keep information confidential
Goods purchased or service provided by franchisees shall be associated with franchisors’ trademarks, trade names, trade secrets, advertisements, etc. Therefore, in order to ensure the intellectual property ownership and protect competitive advantages, obligations to keep information confidential are imposed with a number of contents such as:
- To stop using trademarks, trade names, business slogans, business logos and other intellectual property rights (if any) or systems of franchisors upon the expiration or termination of commercial franchise contracts.
- Not sub-franchise to a third party without the franchisors’ consent.
- To keep secret the franchised business know-how even after the expiration or termination of commercial franchise contracts.