Franchising Guidelines Revamped
Chun-yih Cheng

The Guidelines Governing Disclosure of Information by Franchisors were first promulgated by the Fair Trade Commission in 1999. The last amendments were made in 2009. Because franchising business has developed rapidly, expanding to various industries, on the other hand, however, disputes between franchisors and franchisees have erupted, the Fair Trade Commission recently has revamped and renamed the guidelines as the Guidelines Governing the Business Operation of Franchisors (Guidelines).

The main points of amendments are as follows:

1. Expanded disclosure of material information

If the franchisor has disclosed in writing material information to the prospective franchisee ten days, or within a reasonable period as determined on a case by case basis, before the contracting, it may be considered not concealing material information and thus not in violation of Article 24 of the Fair Trade Act. Examples of material information are outlined in the Guidelines. Unlike the previous guidelines of which material information are limited to those listed in the guidelines, the outlined material information is not exhaustive and serves as a minimum requirement.

2. Review period and delivery of original contract

Five days, or within a reasonable period as determined on a case by case basis, before signing the contract, the prospective franchisee should be provided an opportunity to review the proposed contract. In addition, the contract should be executed in duplicates, and the franchisee should be delivered one original. Failing to comply with the above requirements by the franchisor may be considered in violation of Article 24 of the Fair Trade Act if the trading order will be prejudiced.

3. No activity of restricting competition or impairing fair competition

After the signing of contract, the franchisor may not engage in the activities of differential treatment or unjustified limitation on the franchisee's business operation such as tying sales, limitation on trading counterpart, minimum purchase etc.

In the past, the focus of the guidelines was only on the disclosure of certain specified material information and the review period of franchising contract. The Guidelines not only emphasizes the importance of pre-contracting disclosure of material information and review period, but also expands the scope of disclosure and prohibits certain post-contracting activities of the franchisor.