New franchise regulations aim to protect both franchisees and franchisors

29 February 2020

New franchise regulations aim to protect both franchisees and franchisors

To prevent franchisors from overly embracing unfair and provisional contractual conditions that may cause harm to franchisees, the government of Thailand recently issued the Guidelines for the Consideration of Unfair Trade Practices in Franchise Businesses. These guidelines, which were issued on December 6, 2019, and will take effect on February 4, 2020, highlight the requirements that echo provisions in other laws and regulations such as the Civil and Commercial Code, the Unfair Contract Terms Act, and Ministerial Regulation 25 under the Patent Act.

These new regulations state two obligations for the franchisors: an obligation to reveal any important information to the franchisee in relation to the franchise business and an obligation to offer to the franchisee the right to operate the franchising business should the franchisor decide to open a franchise in the franchisee’s vicinity.

The limitations for franchisors include forcing franchisees to exclusively buy items or products from a certain business operator; putting in additional conditions for the franchisees after the agreement has already been signed; preventing franchisees from buying other products and items from other business owners at lesser cost; preventing franchisees from offering discounts to consumers or selling their products and items at a lesser price when expiration date nears; and putting in discriminatory conditions for franchisees without giving any reasons for these.

According to Franck Fougere, managing partner at Ananda Intellectual Property in Bangkok, these new requirements are exactly was lacking in the previous law. As records of franchise agreements is required in Thailand, he says, the regulation provides a basis for the Department of Intellectual Property to object to provisions which officials believe contradict public order.

“These guidelines are meant to protect franchisees from potentially abusive terms and provisions contained in franchise agreements,” he says. “This is a first attempt of Thailand to address specific provisions which have an anti-competitive impact. Generally the changes proposed go in the right direction and are relatively codifying a well-know practice and situation under much more restrictive regimes such as in the United States and Europe.”

With these new provisions, Fougere says that these new guidelines bring clarification on what is considered unfair or may be prohibited by giving examples. He adds that this is helpful since the general framework (namely the Thai Trade Competition Act of 2017) is very general and does not specifically address unfair practices and anti-competitive behaviours in franchise agreements.

 

“The new guidelines are helpful to precisely give effect to the general law with concrete examples of unfair practices,” he says. “The guidelines prohibit, for example, a franchisor to engage in unfair competition trade practices that may cause damage to the franchisee: such as setting restrictive conditions for the franchise without justifiable reasons, such as requiring the franchisee to buy products or services from the franchisor which are irrelevant to the operation of the franchise, or restricting the franchisee from offering discounts on perishable products, or setting unfair and discriminatory terms among franchisees without justifiable reasons.”

Fougere, says he sees no challenges or disadvantages in regards to these new regulations, which benefit, protect and preserve both the franchisor and the franchisee, and brings results which are mainly beneficial.

As compared to the franchising business rules in the US and in Europe, the new guidelines, which have been issued by the Trade Competition Commission pursuant to provisions of the Trade Competition Act of Thailand (2017), are relatively easy.

“One can compare the provisions of the guidelines with other applicable legislations (namely competition laws) and case law in other countries or regions, in the US or Europe,” says Fougere. “In Europe, unfair competition practices are, for example, detailed in the Block Exemption Regulation of the European Commission. Thai guidelines are not more restrictive than international good practices to protect fair competition and non-discrimination, though it remains to be seen how these guidelines are reflected in future Thai case law.”

He further noted that since Thailand is generally very friendly for franchises – and,. in fact, many businesses in Thailand are foreign or local franchises – the new guidelines are unlikely to impact new franchisees, or those who are setting up new businesses in Thailand, either Thai or foreign citizens. “This simply clarifies better the relationship between franchisor and franchisee,” he says.

For those who want to franchise in Thailand, Fougere notes that franchise agreements must be registered with the Thai Department of Intellectual Property, or else some provisions may be declared invalid and void.


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