What is a franchise


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When should an agreement be a franchise? The Federal Court held that even without a 'Franchising Agreement' an agreement was deemed to be a franchising agreement because it consisted of sufficient elements as set out in the Franchising Code.

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What is a franchise

  1. 1. Steve Brown IS ITA FRANCHISE?
  2. 2. www.etiennelaw.com Is It a Franchise? When should a:! Distributorship Agreements! License Agreement for Intellectual Property! Heads of Agreement! Rights Agreements! Other types of Agreements! be considered Franchise Agreements.
  3. 3. www.etiennelaw.com Franchising Code of Conduct there is a written, oral or implied agreement! that agreement grants the right to carry on the business of offering, supplying or distributing goods and services in Australia under a system or marketing plan substantially determined by the franchisor! the operation and the business will be substantially or materially associated with the trade mark, advertising or a commercial symbol! the franchisee must pay or agree to pay the franchisor an amount of money in return for the right to conduct the business
  4. 4. www.etiennelaw.com The Answer According ! to the Federal Court Raffety v Time 2000 West Pty Ltd (No.4) [210] FCA 725! The question of whether a particular agreement within the Franchising code is to be determined by reference to the definitions in the Code and not by reference to any preconceived notions of other agreements which are not ordinarily understood to be franchise agreements.
  5. 5. www.etiennelaw.com I Don’t Have a Marketing Plan “it will be sufficient for the purposes of clause 4.1(b) that there be a power in the agreement which is said to be a franchise agreement to impose a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor.”! Justice Besanko considered whether the terms of the definition of a marketing system were satisfied and identified that if some or all of the elements were present, a system or marketing plan probably exists.
  6. 6. www.etiennelaw.com Elements to Identify a Marketing Plan Centralised book keeping and record keeping computer operation provided for distributors.! Reservation by the franchisor of a right to screen and approve all promotional materials used by the distributors.! Prohibition of repackaging of products by the distributor.! Comprehensive advertising and promotional programme by the franchisor.! Division of a state into marketing areas.! Establishment of sales quotas.!
  7. 7. www.etiennelaw.com Franshisor has right to approve any sales personnel.! Mandatory sales training regime.! Provision of quotation sheets to distributor’s employees.! Provision by the franchisor of prescribed invoices and other sales forms.! Requirement that the distributor collect certain information from the customer and provide to the franchisor.! Restriction on the distributor selling any of the franchisor’s products with first consulting the franchisor.
  8. 8. www.etiennelaw.com Justice Besanko’s Findings Many of the elements were present! There was a system or marketing plan! The Heads of Agreement was an agreement to enter into a franchise! The Rights Agreement was a franchise agreement for the purposes of the code.
  9. 9. www.etiennelaw.com But I Assumed! Assuming that an Agreement is simply a license agreement or a distributor agreement can be:! Risky! Possibly costly! without careful consideration of the Code of Conduct
  10. 10. www.etiennelaw.com Risks If a franchisor does not comply with the Codes penalties may be imposed by! Courts or! ACCC
  11. 11. www.etiennelaw.com Consequences A franchisor may be liable to! pay compensation to the franchisee; or! offer the franchisee an opportunity to exit their agreements
  12. 12. www.etiennelaw.com Company Directors Beware If a company enters into a license, distribution or other type of agreement that attempts to avoid the code it’s! Directors! Servants! Agents! Associates! may be held liable
  13. 13. For Further Information Contact! Steve Brown! 8845 2400 sbrown@etiennelaw.com DON’T BE PENALISED FOR FALLING FOUL OF THE FRANCHISING CODE