Sesame Village Education Co., Ltd. was accused of concealing or delaying to disclose important trading information when recruiting franchisees, in violation of the Fair Trade Law

Chinese Taipei

Case:

Key Words:

sesame street, ladder, franchise

Reference:

Fair Trade Commission Decision of December 22, 2005 (the 737th Commissioners' Meeting); Kung Ch’u Tzu No. 094139

Industry:

Education Services (7910)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. This case originated from a complaint letter submitted by Sesame English school Chupei Branch, also known as Chupei City Sesame Street Kindergarten, and Kuanghua Branch, also known as Hsinchu City Private Sesame English Short-term Cram School (hereinafter collectively referred to as the “Complainants”) on March 31, 2005. In the said letter, it was stated that:
   Sesame Village Education Co., Ltd. (hereinafter referred to as the “Respondent”), a franchise organization, failed to comply with the “FTC’s Guidelines for Information Disclosure by Franchise Enterprises.” The Respondent did not explain in writing to franchisees about relevant operating information, franchise organization’s operating conditions, and intellectual property rights authorized to franchisees and relevant statistics ten days before signing the franchise contract. The Complainants also did not know the Respondent’s stock structure and the relation between the Respondent and Ladder Co., Ltd. Disputes thereby arose from the continuation of the franchise contracts and the Complainants therefore filed the complaint letter.
2. Upon the investigation, the Fair Trade Commission (“FTC”) found that:
   During the inquiring period, the Respondent will provide a potential franchisee with Sesame English’s franchise Handbook. When the potential franchisee submits a franchise application, the Respondent will evaluate the applicant and the planned location of the franchised school. If all of the conditions are cleared, the Respondent will then provide a Sesame English Franchise Contract for the applicant to review in advance. It is about one month from the said contract is delivered to the day when both parties sign the contract. Therefore, such a situation falls under Article 4 of the “FTC’s Guidelines for Information Disclosure by Franchise Enterprises,” where a franchise enterprise shall provide relevant written information to its trading counterpart ten days prior to the establishment of the franchise relationship. In the materials provided by the Respondent, including the Sesame English Franchise Handbook and Sesame English Franchise Contract, the information to be disclosed as set forth in the aforementioned Guidelines is not fully disclosed herein.
3. Grounds for Disposition:
   1. Upon review of any and all written information provided to the potential franchisees by the Respondent before signing the franchise contract (including the Sesame English Franchise Handbook and Sesame English Franchise Contract), it was found that the Respondent failed to comply with Article 4 (1) and (2) of the “FTC’s Guidelines for Information Disclosure by Franchise Enterprises,” by not disclosing franchise enterprise’s capital amount, operating items, date of establishment, date of commencing franchise business, and major business managers’ names and experiences in related franchise business. Therefore, the Respondent had concealed important trading information and affected the trading order of franchise market.
   2. It was also found that in the Sesame English Franchise Handbook and Sesame English Franchise Contract, the Respondent did not provide each and every franchisee’s business name and address within the city or county (city) where the applicant’s business was located. Additionally, the Respondent did not disclose previous fiscal year’s statistics regarding the number of franchises nationwide, number of other franchisees within the city or county (city) where the applicant was located, and the number of franchisees that terminated the contracts.
   3. The intellectual property rights authorized to the franchisees by the Respondent was based upon the authorization contract entered by and between U.S. Berlitz Language Inc., Ladder Company and Chiao Men Company (transliteration). The Respondent consequentially acquired the authorization through Chiao Men Company from Berlitz Language Inc. Upon review of the aforesaid handbook and contract, it was found that the Respondent did not disclose the content and time regarding the authorization of intellectual property rights that it acquired from Berlitz Language Inc. The Respondent alleged that the content and time mentioned above were Berlitz Language Inc. and Sesame Workshop’s business secrets; therefore, it could not disclose such matters to any third party without the said companies’ prior written consent. However, the disclosure of the application for intellectual property rights or the time of acquisition may also be disclosed through ways other than providing the photocopy of the said authorization contract. Hence, the Respondent did not disclose any proof that could evidence its acquisition of authorization; and it also failed to disclose the time of such acquisition in any written form or text.
   4. To sum up, the Respondent failed to provide the franchise enterprise’s capital amount, operating items, date of establishment, date of commencing franchise business, and major business managers’ names and experiences in related franchise business. It also failed to provide each and every franchisee’s business name and address within the city or county (city) where the applicant’s business was located. Additionally, the Respondent did not disclose previous fiscal year’s statistics regarding the number of franchises nationwide, number of other franchisees within the city or county (city) where the applicant was located, and the number of franchisees that terminated the contracts. Moreover, the Respondent failed to provide the application or time of acquisition of the authorized intellectual property rights. Therefore, the Respondent certainly concealed important trading information and caused obvious unfairness to its trading counterparts. Furthermore, the Respondent employed the same information disclosure procedure with franchisees that continued the franchise contracts or with non-specific businesses that intended to become franchisees. Taking into account that the Respondent has total 115 franchisees nationwide, the Respondent’s concealment of important trading information was certainly sufficient to affect the trading order of franchise market; and therefore, the Respondent violated Article 24 of the Fair Trade Law.

Summarized by Mai, Huei-Li;
Supervised by Lu, Li-Na

Appendix:
Sesame Village Education Co., Ltd.’s Uniform Invoice Number: 80524303