On December 6, 2019, the Notification Regarding the Guidelines for the Consideration of Unfair Trade Practices in Franchise Businesses was issued to prevent franchisors from adopting overly restrictive and unfair contractual conditions that are deemed to potentially cause damage to franchisees. The notification will become effective on February 4, 2020.
This notification emphasizes and compiles in one place a number of requirements that mirror provisions already set out in other laws and regulations, such as the Unfair Contract Terms Act, Ministerial Regulation 25 under the Patent Act, and the Civil and Commercial Code. It was issued by the Office of the Trade Competition Commission, which is empowered under the Trade Competition Act B.E. 2560 (2017) to regulate unfair trade practices in certain selected businesses. The longstanding draft Franchising Business Act—if passed into law—may have further implications on the interpretation of this notification as there are similar restrictions set out in the draft law.
The notification imposes two main obligations on the franchisor:
- Obligation to disclose important information relating to the franchise. Prior to entering into a franchise agreement, the franchisor must disclose important relevant information to the franchisee, such as details on (1) the royalty fee and other mandatory payments relating to the operation of the franchise business, (2) the franchise business model, (3) the intellectual property rights, and (4) the renewal and termination of the franchise agreement.
- Obligation to notify and offer the right of first refusal to the nearest franchisee. If the franchisor intends to open and manage a new branch in the vicinity of the franchisee’s area of operations, the franchisor is required to first offer the franchisee in that area the right to operate the branch.
The notification also prohibits the franchisor from engaging in the following trade practices that may cause damage to the franchisee:
- Setting restrictive conditions for the franchisee without justifiable reasons, such as forcing the franchisee to exclusively buy products or services that are irrelevant to the operation of the franchise business from a designated business operator.
- Setting additional conditions for the franchisee to comply with, after the franchise agreement has already been executed. Exceptions may apply if there is a justifiable reason and any additional conditions are made in writing.
- Restricting the franchisee, without justifiable reasons, from purchasing products from other business operators that offer products with comparable quality but at a lower price.
- Restricting the franchisee, without justifiable reasons, from offering discounts on perishable goods or products close to their expiration.
- Setting discriminatory conditions among franchisees, without justifiable reasons. Setting any inappropriate conditions for purposes other than to maintain the reputation, quality, and standards of the franchisor in accordance with the franchise agreement.
For more information on this topic, or on any other aspect of trade competition in Thailand, please contact Tilleke & Gibbins at [email protected] or +66 2056 5555.