CONSTITUTION OF A FRANCHISE AGREEMENT

Key Areas in a Franchise Agreement

Purpose of the Franchise Agreement

Obligations of the Franchisee:

• Investment in infrastructure

• Adherence to operating guidelines

• Reporting requirements

• Quality maintenance of the products/services

Obligations of the Franchisee:

• Appointment of sub-contractors

• Advertising Budget

• Meeting annual market penetration targets

• Minimum stock purchase obligations

• Financial returns

Obligations of the Franchisor:

• Periodic training as to the conduct of business

• Upgrade with new methods and technologies

• Ongoing support on general operational, management,

accounting and administrative practices

• Joint marketing and advertising campaigns

Enforcement of Non-Compete Covenants:

• Agreement in restraint during the Term of the Franchise Agreement

• Agreement in restraint of trade post-termination of Franchise Agreement

• Reasonability of non-compete covenants, duration of restraint and area of restraint

• Consistence with public interest

Duration, Renewal and Termination:

• Fixed Term Agreements (as against open ended term)

• Termination for convenience and breach

• Renewal by Mutual Agreement (as against automatic extension)

Payment Terms and Taxes

Protection of Trade Marks:

• Prior Consistent User of trademark i.e. priority in adoption prevails over priority in registration

• Use/license of trademarks and scope of trade mark license:

- limitation on term of license

- Territory and extent of usage

- Use by Franchisee accrues to the benefit of

Franchisor

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Misuse/Unauthorized Use and Protection thereof:

• Use of Trade Mark likely to cause injury to Franchisor’s goodwill

• Relief includes:

- Injunction

- Seizure of offending goods

- Destruction of offending goods

- Damages for loss of business

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Indemnification:

• Indemnification against loss from misuse of Intellectual Property Rights, breach of Agreement, etc.

• Indirect or consequential losses are excluded

• Liquidated damages against breach

Agency Issues

Governing Laws and Implementation of Laws:

• Clarity on governing laws and jurisdiction for adjudication

• Alternate Dispute Forums

Post Termination Issues:

• Misuse of Intellectual Property Rights and Confidential Information

• Inventory Handling

Anti-Competition:

• Restrictive trade practices

Seema Jhingan, Partner

LexCounsel, Law Offices

C-10, Gulmohar Park,

New Delhi – 110049

Tel: +91-11-41662861

Fax: +91-11-41662862

E-mail: sjhingan@lexcounsel.in; lexcounsel@lexcounsel.in