Difference between trademark franchising licensing phân biệt giữa trademark franchising và licensing

Difference between Trademark-Franchising_licensing_ Phân biệt giữa Trademark Franchising và Licensing

I Overview

1 Trademark Franchising

Trademark Franchising is defined under Article 248 Law on Commerce following as below:

a Definition:

Commercial franchise means a commercial activity whereby franchisors permit and require franchisees to undertake by themselves to purchase or sell goods or provide services on the following conditions:

 The purchase or sale of goods or provision of services shall be conducted in accordance with methods of business organization prescribed by franchisors and associated with the franchisors’ trademarks, trade names, business knows-how, business slogans, business logos and advertisements;

 Franchisors shall be entitled to supervise and assist franchisees in conducting their business activities

b Commercial franchise contracts

Commercial franchise contracts must be made in writing or in other forms of equivalent legal validity

c Rights of franchisors

Unless otherwise agreed, franchisors shall have the following rights:

 To receive franchise sums

 To organize advertising for the commercial franchise system and the commercial franchise network

 To conduct periodical or extraordinary inspections of activities of franchisees in order to ensure the uniformity of the commercial franchise system and the stability of quality of goods and services

d Obligations of franchisors

Unless otherwise agreed, franchisors shall have the following obligations:

 To supply documents guiding the commercial franchise system to franchisees;

 To provide initial training and regular technical assistance to franchisees for managing the latter’s activities in accordance with the commercial franchise system;

 To design and arrange places of sale of goods or provision of services at the expenses of franchisees;

 To guarantee the intellectual property rights over objects stated in franchise contracts;

 To equally treat all franchisees in the commercial franchise system

e Rights of franchisees

Unless otherwise agreed, franchisees shall have the following rights:

 To request franchisors to provide fully technical assistance related to the commercial franchise system;

 To request franchisors to equally treat all franchisees in the commercial franchise system

f Obligations of franchisees

Unless otherwise agreed, franchisees shall have the following obligations:

 To pay franchise sums and other amounts under commercial franchise contracts;

 To invest adequate material facilities, financial sources and human resources to take over business rights and know-how 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;

 To keep secret the franchised business know-how even after the expiration or termination of commercial franchise contracts;

 To stop using trademarks, trade names, business slogans, logos and other intellectual property rights (if any) or systems of franchisors upon the expiration

or termination of commercial franchise contracts;

 To manage their activities in accordance with the commercial franchise system;

 Not to sub-franchise without permissions of franchisors

g Sub-franchise to a third party

 A franchisee shall be entitled to franchise to a third party (referred to as sub-franchisee) if it is so consented by the franchisor

 Sub-franchisees shall have the rights and obligations of franchisees provided for

in Articles 288 and 289 of this Law

h Registration of commercial franchises

 Before granting commercial franchises, intended franchisors must register them with the Trade Ministry

 The Government shall specify the conditions for conducting business under commercial franchise and the order and procedures for registering commercial franchises

2 Licensing

Licensing of Industrial Property Right is defined under Article 141 Law on IP following as below

a Definition

 Licensing of an industrial property object means permission by the owner of such industrial property object for another organization or individual to use the industrial property object within the scope of the owner's right

 Licensing of industrial property objects must be established in the form of a written contract (hereinafter referred to as industrial property object licence contract)

b Restrictions on licensing of industrial property objects

 The right to use geographical indications or trade names shall not be licensable

 The right to use collective marks must not be licensed to organizations or individuals other than members of the owners of such collective marks

 The licensee must not enter into a sub-licence contract with a third party, unless it is

so permitted by the licensor

 Mark licensees shall be obliged to indicate on goods and goods packages that such goods have been manufactured under mark licence contracts

 Invention licensees under exclusive contracts shall be obliged to use such inventions

in the same manner as the invention owners according to the provisions of clause 1

of article 136 of this Law

c Types of industrial property object licence contracts

Industrial property object licence contracts shall be of the following types:

 Exclusive contract means a contract under which, within the licensing scope and term, the licensee shall have the exclusive right to use the licensed industrial property object while the licensor may neither enter into any industrial property object licence contract with any third party nor, without permission from the licensee, use such industrial property object

 Non-exclusive contract means a contract under which, within the licensing scope and term, the licensor shall still have the right to use the industrial property object and to enter into a non-exclusive industrial property object licence contract with others

 Industrial property object sub-licence contract means a contract under which the licensor is a licensee of the right to use such industrial property object pursuant to another contract

d Contents of industrial property object licence contracts

An industrial property object licence contract must contain the following principal contents:

 Full names and addresses of the licensor and of the licensee;

 Grounds for licensing;

 Contract type;

 Licensing scope including limitations on use right and territorial limitations;

 Contract term;

 Licensing price;

 Rights and obligations of the licensor and of the licensee

An industrial property object licence contract must not have provisions which unreasonably restrict the right of the licensee, and in particular the following provisions which do not derive from the rights

of the licensor:

 Prohibiting the licensee from improving the industrial property object other than marks; compelling the licensee to transfer free of charge to the licensor improvements of the industrial property object made by the licensee or the right of industrial property registration or industrial property rights to such improvements;

 Directly or indirectly restricting the licensee from exporting goods produced or services provided under the industrial property object licence contract to the territories where the licensor neither holds the respective industrial property right nor has the exclusive right to import such goods;

 Compelling the licensee to buy all or a certain percentage of raw materials, components or equipment from the licensor or a third party designated by the licensor not for the purpose of ensuring the quality of goods produced or services provided by the licensee;

 Prohibiting the licensee from complaining about or initiating lawsuits with regard to the validity of the industrial property rights or the licensor's right to license

Any clauses in a contract falling into the cases stipulated in clause 2 of this article shall be automatically invalid

II Difference between Trademark Franchising and Licensing

Criteria Trademark Franchising Licensing

Object

Trademark Franchising ( buying and selling activities attached with trademark, tradename, know-how, slogan, symbol business, advertising of franchisors)

Right to use Industrial Property in which to whom use license shall not included geographically guideline, tradename

Scope

Wider than licesing because attached with trademark, brand, symbol, know-how

Narrower than franchising because of only transferring industrial property right

Purpose Control and manage the

business system

Concentrate on label’s value, industrial pattern and useful solutions

Type of contract

– Trademark Franchising agreement

– Trademark Franchising secondary agreement: is contract between sencondary franchisor and secondary franchisee based on general franchising rights

– Agreement for developing trademark franchising:

franchisee shall have the right to set up more than one business entity based on franchising method in defined geographically area

– Exclusive contract

– Non exclusive contract – Secondary contract

Limitations - Franchisee: only transfer to

third parties if they had consent from franchisor

- Franchisor: have no limitations with franchising

Have limitation with licensor (exclusive contract): licensor have no permission to transfer license for third parties during the licensing duration

Criteria Trademark Franchising Licensing

activities

Back - up

Back up for innitial activities and frequetly technical advice for franchisee in alignment with franchising system

Have agreement between two parties on back up activities However, only back up based

on providing technical documents, data and knowledge for licensee

Controller

Franchisor has the right to supervise periodically or unexpectedly franchisee’s business activities in order to guarantee the consistency and stability of goods and services

in franchising system

III Reality of Trademark Franchising and Licensing in Vietnam and Global

1 Trademark Franchising

You have amount of money with front-street house which can use to open a shop After carefully consideration, you decide to open a fast food shop and you always thinking how to attract more customers and become popular Therefore, the shop must have nice decoration, good food, kind serving and known-well trademark If you do yourself, it spends at leat more than 3 years or even fail Hence, there is a good way that is requesting a trademark franchising deal from franchisor that called ABC and you become franchisee

Franchisor who had number of years doing business with various of nice decorated shop channel, good foods, same type of serving, well-know logo or trademark When the customer think of ABC, everyone know and want to visit ABC’s shop and ABC is willing to make franchising for you After mutually negotiating, ABC then make a survey your location and sign the trademark franchising agreement

Examples for no of famous franchisor as below:

Doing franchising agreement with ABC shall help you to set up a fast food shop that is same with ABC ABC shall provide input material for you, force you to buy input material from designated suppliers in order to guarantee food quality, provide devices

or desk that is same type with ABC or even recruit and train staff for you

ABC teach you with number of prepared documents, send staff to help and then supervise your shop and your shop use ABC’s trademark Your shop then shall become ABC’s model After a couple of months, your shop shall enjoy a famous trademark that has been existed more than 50 years That is first eye of using franchising advantage Franchisor always to expand their shop channel as much as possible If they have to spend themselves, that is too costly and difficult to grow In an another way, they shall find other parties who desire for franchising business If there are 10 parties whom want to franchise, ABC’s trademark shall appear quickly in 10 different places in countries That is first advantage who can see On the other hand, if one of shop in the channel was reported with poisonous foods, everything shall be wiped out That is fearest thing of franchisor

Align with franchising agreement, franchisor shall try their best to prvent these kind of risks Franchising agreement shall demonstrated clearly terms and conditions in relation to these risks Beside that, the contract is also mentioned to franchising innitial fee and then monthly revenue dividing prorata called franching fees Law on trademark franchising in most of countries often protect franchisee due to they are under weak side in comaparision with franchisor and franchisor have to provide their resumes to prove that they are good quality rather than fake

2 Licensing

If you are doing business and now you want to grow your business, for example launching a new beverage product of DEF company beside your existed products to increase reputation for both your existed products as well as your company That time, you shall approach to DEF and ask permission for producing DEF’s beverage product DEF shall take examine your factory and producing line and then grant permission through licensing agreement after you meet defined DEF criteria DEF shall be called

as Licensor and you are Licensee

Licensing is activities that licensor approve for licensee to use intangible or intangible assets in such period of time that was registered for copyright protection (copy is illigal) These things called industrial property right or intellectual and included: patent, useful solutions, industrial design, product’s label, know how, new seedlings, software, author’s right

Therefore, franchising has the same as well as different side with licensing

- The same side: franchising is kind of development of licensing so both are type of intellectual transfer right agreement such as patents use right, trademark, technical know – how…

- The different side is listed under two points:

Firstly, the content of franchising is wider than licensing especially for technical know – how such as know-how about package, management skill, trademark and advertising…

Secondly, franchising is often attached with privilege to do business (licensing do not have kind of character) We need to focus on privilege that is under such a period of time and designed market which is included right to produce and sell franchiser’s products, right to use tradename, symbol, trademark and product’s pattern, even for right to use designed package, advertising campaign, penetration and management know’s how

3 Franchising’s advantages

According to international marketers, we stress franchising advantages based on some aspects:

Lower cost: Because franchising is a developing step of licensing, collaborate tightly

with joint venture Therefore, it prevent disadvantages timely and enhance these advantages maximum to achieve low cost based on 2 steps:

- Firstly, franchising reduce number of expense items such as logistics and

maintenance cost due to use input material at site, import and export tax, use local low staff cost

- Secondly, regarding to total cost, due to rapidly growing of franchising attach with

expanding international expansion business lead to total cost per unit shall be reduced Advantage for Franchisee:

Most of the franchisee enjoy all the results of the marketing activities from the franchisor, so they do not have to take risks in penetrating and segmenting the market, avoiding the failure in management More importantly, franchisee enjoy a range of privileges from the franchisor The ultimate advantage is the enjoyment of low costs and lower price

Advantage for Franchisor:

During the development and expansion of the world market, the expansion of the franchisor’s business size means reducing costs and lowering product costs, maintaining a sustainable growth of sales targets , market share and profits On the other hand, the franchisor also earns a large amount of money from signing intellectual property right transfer contracts, speeding up investment in new intellectual products and strengthening its competitive position on the market It should be added that the number of privileges that the franchisor gives subsidiaries have almost no additional costs, but the direct effect is very significant

4 Franchising and Licensing trending on the world market

Picture A

In the world, franchising activities started in the 50s of last century, starting from famous American fast food brands such as KFC, Burger King, and McDonald's,

gradually spreading to other products Thanks to franchising, these fast food suppliers have quickly become the largest brands in the world within a few decades Currently present in 140-150 countries around the world (see Figure A) The offshore market shares of these brands significant superior to the traditional domestic market (see Figure B)

Hình B

5 The introduction of franchising in Vietnam

Despite the fact that there is a lack of a clear legal framework, franchising activities have been vaguely appear for a long time in Vietnam since the mid-1990s Like many other countries, franchising are imported into Vietnam by foreign franchisors Fast food chains such as Jollibee (Philippines), Lotteria (Korea) and KFC (USA) are the first franchisors to come to Vietnam

Although the substance of concept is franchising, but due to the lack of a legal framework Their original expansion strategy was to "legallize the law" by not using franchising contracts Until 2005, all foreign franchisors, including pioneering and famous fast food chains such as Jollibee, Lotteria and KFC operated only a small number of stores (Jollibee: 4 stores, Lotteria: 9 stores and KFC: 14 stores) owned by the franchisor itself not by the franchisee

Trung Nguyen Coffee - the first and largest domestic franchisor operates its stores through agency contracts rather than franchising contracts However, the appearance of this pioneer has enhanced the image of Franchising and is a motivation for the attention

of domestic businesses as well as the whole society In response to complete the franchising legal corridor Franchise is a commercial activity, specified in Commercial Law 2005, in Chapter VI, Section 8