Transcript Presentation by HASAN IRFAN KHAN Attorney At Law November 6, 2015 Hasan Irfan Khan [email protected] UNITED TRADEMARK & PATENT SERVICES Trademark, Patent, Design, Copyright Law Consultants & IRFAN &

Presentation
by
HASAN IRFAN KHAN
Attorney At Law
November 6, 2015
Hasan Irfan Khan
[email protected]
1
UNITED TRADEMARK & PATENT SERVICES
Trademark, Patent, Design, Copyright Law Consultants
&
IRFAN & IRFAN
Legal Consultants Corporate, Commercial, Intellectual Property
Law, Licensing & Litigation
West End Building, 61-The Mall, Lahore-54000, PAKISTAN
Ph:
+92 42 628 5581-84
Fax: +92 42 628 5585, 86, 87
E-Mail : [email protected]
Website:
http://www.utmps.com
November 6, 2015
Hasan Irfan Khan
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What is Franchising?

Different definitions by different
franchising associations
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Definition by
British Franchise Association

A contractual licence granted by one person (the
franchisor) to another (the franchisee) which:

(a) permits or requires the franchisee to carry on,
during the period of the franchise, a particular
business under or using a specific name
belonging to or associated with the franchisor;
and
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(b)
entitles the franchisor to exercise
continuing control during the period of
the franchise over the manner in which the
franchisee carries on the business which is
the subject of the franchise; and
(c)
obliges the franchisor to provide the
franchisee with assistance in carrying on
the business which is the subject of the
franchise (in relation to the organization of
the franchisee’s business, the training of
staff, merchandising, management or
otherwise); and
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(d)
requires the franchisee periodically,
during the period of the franchise, to
pay the franchisor sums of money in
consideration for the franchise, or for goods
or services provided by the franchisor to
the franchisee; and
(e)
is not a transaction between a holding
company and its subsidiary (as defined in
section 736 of the Companies Act 1985) or
between subsidiaries of the same holding
company, or between an individual and a
company controlled by him.
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Definition by
International Franchise Association

“A franchise operation is a contractual
relationship between the franchisor and
franchisee in which the franchisor offers
or is obliged to maintain a continuing
interest in the business of the franchisee
in such areas as know-how and training;
wherein the franchisee operates under a
common trade name, format and/or
procedure owned
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or controlled by the franchisor, and in
which the franchisee has or will make a
substantial capital investment in his
business from his own resources.”
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In Pakistan, the Honourable Supreme Court
of Pakistan in Bolan Beverages v. Pepsico
2004 CLD 1530 at page 1539 has referred to
the definition of franchising given in the
Black’s Law Dictionary in the following terms:
“As franchise is not defined in our own
Contract Act, we may have a reference to
Black’s Law Dictionary 6th Edition pager
658, where franchise is defined as “a
privilege granted or
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sold, such as to use a name or to sell products or
service. The right given by a manufacturer or
supplier to a retailer to use his product and name
on terms and conditions mutually agreed upon.” In
its simplest terms, a franchise is a license from
owner of trademark or tradename permitting
another to sell a product or to serve under that
name or mark. Precisely this definition is more
akin to a license rather than an agency. What exists
between the present parties is more suitable to be
determined in the light of the agreement itself then
the relevant laws on the subject.”
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Perhaps,
the
only
Pakistani law
defining
“Franchis(e)ing” is the Federal Excise Rules, 2005
made under the Federal Excise Act, 2005 which defines
Franchise as
Rule 2(ma):
(ma) “franchise” means an agreement by which the
franchisee is granted representational rights to sell or
manufacture goods or to provide service or to
undertake any process identified with franchiser against
an agreed fee or consideration including royalty,
whether or not a trade mark, service mark, trade name
or logo or any such symbol, as the case may be is
involved;
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It also defines franchiser as :
Rule 2(mb):
“franchiser” means any person who enters into
franchise and includes any associate of
franchiser to enter into franchise on his behalf,
and the term ‘franchisee’ shall be construed
accordingly;
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There is thus NO uniformity in describing what
“Franchising” is and what is its extent
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It is however clear that some common features
emerge such as:
i)
ii)
iii)
Contractual relationship flowing from
Franchisor to Franchisee.
Control by the Franchisor over entire
business operations of the Franchisee.
Assistance by the Franchisor to Franchisee
in setting up, development, operation and
promotion of a business.
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iv)
Payment of royalty and fee by the
Franchisee to the Franchisor.
Franchisor and Franchisee are two distinct
legal entities having their own profit and loss
liabilities.
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 Evolution in Pakistan:
 Franchising is not a new concept in Pakistan.
 It has existed ever since Pakistan’s independence.
 However, its form was different.
 The earliest Franchise operations in Pakistan were
those of Petrol Stations such as Pakistan Burmah
Shell (PBS), CALTEX.
 The popular brands of 7-UP, Coca Cola and Pepsi
Cola were also the earliest franchise operations in
Pakistan in a different context.
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•They referred to “franchising” in the context
that concentrate was supplied by Franchisor to
the Franchisee/bottler in Pakistan.
•The agreement was usually headed as
“franchise and bottling agreement”. This
(perhaps) still continue the same way today.
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Franchising in modern times
in Pakistan

Fast food chains e.g.
 Business operation module in service sector
 Telecommunication business
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Fundamentals of franchising

a) Intellectual property and other rights,
e.g., trademark, copyright, interior and
exterior décor, know how, trade secrets,
design and patents, operating manuals,
etc.
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b) Contract
i) Acknowledgement of Franchisor’s IPR’s by
the Franchisee,
 ii) License by the Franchisor to the
Franchisee to use the intellectual
property rights.
 iii) Consideration for the contract/royalty/fee
 iv) Control of Franchisor over Franchisee’s
conduct of business and use of intellectual
property rights.

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b) Contract

v) Adherence by the franchisee to
franchisor’s method, specifications
manner and module of conduct of
business.
 vi) Manner and mode of sale of products
or rendition of services.
 vii) Touch of uniformity of goods, their recipe,
taste etc. in the business pattern/shop décor
etc.,
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b) Contract

v) Adherence by the franchisee to
franchisor’s method, specifications
manner and module of conduct of
business.
 vi) Manner and mode of sale of product
or rendition of services.
 vii)Touch of uniformity in the business
pattern/shop décor etc.,
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b) Contract
viii) Relationship of the consumer/customer
with the franchisor through Franchisee
and the limitations imposed thereon by
contractual warranties, indemnities
and guarantees.
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Various Forms of Franchising in
Pakistan

i) Retail franchise – petrol franchise etc.,
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Various Forms of Franchising in
Pakistan

ii) Product franchise – including
manufacturing,
processing, services etc., for example,
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Various Forms of Franchising in
Pakistan

iii) Management franchise – (a form of service
franchise)
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Various Forms of Franchising in
Pakistan

iv) Local diversity :

Seekh kabab Pizza, Chicken Tikka Pizza,
McArabia.
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Contractual Arrangement
In Pakistani there is no specific law
regulating all the issues relating to
franchising. Therefore, relationship of the
parties and their rights and liabilities inter se
are, principally, governed by contractual
arrangements which, under law, are subject
to strict interpretation of the terms of the
contract.
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Contractual Arrangement

Therefore, franchising relationship is purely a
contractual relationship.
 It is, however, not only governed by the contract
itself, but to the extent of the use of intellectual
property rights, is regulated by their respective
laws.

In the broader since, other laws of Pakistan
recognize the concept of franchise arrangements,
such foreign exchange laws (remittance of royalty
franchise fees etc.).
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Myths and Realities

Whether franchisee is an agent of the franchisor?
 No
 There is a violent conceptual collision. Franchisers
maintain that franchise is merely a form of licensing
and therefore revocable, whereas franchisees dispute
that a franchise is actually a license or an agency
coupled with interest not subject to termination
without compensation.
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In Pakistan the question of termination of a
license agreement has been clarified in the
Bolan Beverages Case 2004 CLD 1530
and Sensodyne Case 2005 CLD 1805
where the argument that license was an
agency coupled with interest was rejected.
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LICENSING
FRANCHISING
Trademark / service mark
use only
Use of whole concept
including trademark/
service mark
Licensing of goods may
not involve purchase of
raw material from the
licensor.
Franchising involving
goods invariably require
purchase of raw materials
and goods from franchisor
or its approved suppliers.
The term license suggests
limited rights and control
The term franchise
represents more substantial
rights and controls.
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LICENSING
FRANCHISING
Trademark / service mark
use only
Use of whole concept
including trademark/
service mark
Licensing of goods may
not involve purchase of
raw material from the
licensor.
Franchising involving
goods invariably require
purchase of raw materials
and goods from franchisor
or its approved suppliers.
The term franchise
represents more substantial
rights and controls.
The term license suggests
limited rights and control
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Company owned/operated stores/operations,
howsoever uniform, are not franchise operations.
Distinguishable from a pure license, agency,
distributorship, dealership and retailing.
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FRANCHISOR-FRANCHISEE
RELATIONSHIP- LEGAL &
CONTRACTUAL.
Under the Pakistani law the relationship is
governed by the terms of the contract.
Under ordinary circumstances, it is the form of a
license to the extent of use of IPRs and no
agency rights are created.
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Each party remain responsible and liable for
performance of its own obligations.
Obligations and liabilities of franchisee do not
permeate into those of the franchisor.
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Customer’s Relationship with Franchisor
Through Franchisee.
Franchising contracts typically carry a clause relating to
any product liability to be the responsibility of the
franchisee and such liability cannot, under normal
circumstances, be passed on to the franchisor.
If product liability issues arise as a result of acts or
omissions on the part of franchisor, still franchisee may
not be able to pass on those liability issues to the
franchisor but may have a remedy of damages against
the franchisor on the basis of such acts or omissions.
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TERMINATION,
ENFORCEMENT
CONFLICT OF LAWS.
AND
The Pakistani law recognize the right of the
franchisor (and of the Franchisee) to terminate
franchising arrangements in the manner provided by
the contract.
The Pakistani law envisage a solitary exception i.e.
where the franchisee can establish “an interest in the
subject matter of the franchise”, such a franchise
cannot be unilaterally terminated.
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In franchising arrangements, where the
franchisor is a foreign company regulated by
some foreign law, Pakistani law and courts
recognize right of the parties to chose
any foreign law as law governing the
franchise agreement
arbitration in a foreign country which
may be governed by any set of rules, law
and the forum through mutual agreement.
recognize enforceability of a foreign
arbitration award in Pakistan.
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-
Any agreement in restraint of trade is void
(Section 27).
Usually franchise agreement contain a
clause that neither during the continuation
of the franchise agreement nor for a certain
period in post termination situation, the
franchisee could engage in any business
competing with that of the franchisor.
In strict legal sense of the matter, in
Pakistan, such a contractual covenant would
be invalid as our law does not validate such
a contractual arrangement.
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