Comparative Study: Franchising And The Related Competition Law Issues

Franchising, deemed by the modern commercial society as the most economic-efficient enterprise operating model, has been widely adopted by various industries with a view of achieving the capital exploration. Under such an operation model, a continuing relationship is established between the franchisor and its franchisees whereby franchisor provides a licensed privilege to the franchisee to use its brand, trademark, commercial secrets and offers assistance in organizing, training, merchandising, marketing, and managing in return for a consideration. According to the said arrangement, the franchisees have to conduct the business according to the standard model stipulated by the franchisor. In terms of economic efficiency, franchising enjoys the competition advantage over the other economic organization due to several factors. It could efficiently absorb the external capital, create more enterprising opportunities, rapidly enhance a specific brand's reputation, and boost the market activities so as to promote the competition in the relevant market. In view of the specific structure, the competition advantage of franchising is based on the vertical strategic arrangement which could dramatically reduce the agency cost and transaction cost incurred during the course of market activities. In a nutshell, the aforesaid advantages of franchising could promote it to the top ranking of the market hierarchy as well as create positive outcomes for the market competition. In the commercial practice, for the purpose of maintaining the said advantages, the franchisor would include various kinds of vertical restrains in the franchising contracts, including without limitation to resale price maintenance, geographic restriction, tying, non-competition clauses, etc. Although the aforesaid vertical restrains are necessary to protect and maintain the consistency, reputation and efficiency of the franchising system, they could also to certain extent restrain the franchisee's right to trade freely, divide the geographic market, and prohibit other potential competitors from entering into the relevant market, thus distorting the normal competition activities in the relevant market. Therefore, the vertical restrains involved in the franchising contract have been continuing concerns for the legislators of different jurisdictions.This thesis will explore the franchising-related legislation and practice in different jurisdictions and districts in respect of competition issues and a discussion as to how China could make reference to the advanced experiences of other jurisdictions and districts on the aforesaid issues to perfect our franchising-related legal system so as to pave a good way for the franchising development in our country. The first chapter of this thesis is the introduction of franchising, which sets out the concepts and definitions stipulated by various franchising organization and jurisdictions and summarizes the essential characteristics of franchising and the primary categories of franchising in modern commercial environment. The second chapter analyses the competition advantages of franchising and its positive contribution to the market competition and economy. It further explores the potential competition issues created by the franchising. The third chapter, adopting the method of comparative study, explores the legislation and practices relating to the aforesaid vertical restrains in the franchising contracts through the analysis of relevant cases, laws and rules. Based on the aforesaid three chapters, the final chapter sets out the shortcomings and problems in China's existing franchising legal system in respect of competition issues, and makes the suggestions and comments as to how to perfect our country's franchising legal system by absorbing the successful experiences of the other jurisdictions and districts and pave the way for the further development of franchising in our country.