The right way to export your franchise abroad
Franchising can be extremely lucrative for companies operating within the hospitality industry. Michel Nassar, attorney-at-law and of counsel at SAAS Lawyers, guides us through the legal aspects of exporting an F&B brand abroad.
When a brand achieves success locally, franchising is often considered. However, anticipating how to properly export a franchise is crucial to securing maximum profits and avoiding legal disputes.
The key points to consider are:
• Drafting contracts in accordance with the local franchise law of the country in question
• Anticipating intellectual property issues
• Preparing and organizing a clear market strategy (franchise versus master franchise)
Franchise law is different in every country - beware of mandatory rules
One common mistake is to draft a franchise agreement abroad based on the template of your local franchise. Franchise law is different in every country and is often protected by mandatory rules, which means that the franchise law can override the provisions of your franchise contract. This can be particularly detrimental for your business if a clause you were relying on or, worse still, the entire franchise agreement was reversed or disregarded.
Anticipate your intellectual property protection
A franchise agreement is a complex contract with various underlying obligations. One of them is a license for intellectual property rights, such as trademarks, patents and copyrights. Since intellectual property protection only applies to a specific country or territories, it is important to check the rules of each country. We always recommend our clients to proceed with a preliminary due-diligence search before committing to the expansion of a franchise abroad.
Half of the franchise agreement basically allows another entity to use your business identity. You can only enter into such an agreement if you are the rightful owner of the intellectual property rights. In some cases, you might even want to reconsider your branding according to the result of the search.
Master franchise - a powerful tool
Franchisors can be faced with difficulties when expanding in markets that are unfamiliar to them. Businesses may have to adapt to the market of a specific region of the world or rely on local partners to understand the needs of customers. Some businesses also do not want to bear the legal cost and responsibility of franchising in some areas. In such situations, it can be interesting to offer a master franchise agreement in order to optimize market penetration.
In short, a master franchise is the subcontracting of franchise agreements. The master franchisor gives the right to the master franchisee to offer franchises to franchisees. A master franchise agreement is a powerful tool and can be an effective way to increase income.
A master franchise agreement is a powerful tool and can be an effective way to increase income.
However, such agreements add further layers to the already complex franchise agreement. These complicated contracts can discourage potential master franchisees. Effective legal assistance should provide comprehensive legal protection while trying to be as lucid and transparent as possible in the master franchise agreement.