Single & Double Dining Co., Ltd.

Case:

Key Word(s):

Franchise, trading information, regular expenses, training and guidance, percentage of contracts terminated

Reference:

Fair Trade Commission Decision of January 16, 2013 (the 1106th Commissioners' Meeting); Disposition Kung Ch'u Tzu No.102011

Industry:

Nonalcoholic Beverage Services via Shops (5621)

Relevant Law(s):

Article 24 of the Fair Trade Law

Summary:

1. The FTC received a written complaint accusing Single & and Double Dining Co., Ltd. (hereinafter referred to as Single & Double) of violating Article 24 of the Fair Trade Law for not fully disclosing important franchising information before complainer signed the contract in Sep. 2010.
2. Findings of the FTC after investigation:
   

   The FTC reviewed the website, direct marketing materials and franchise contract of Single & and Double. It found out that, during the reasonable period before signature of contract with a trading counterpart, the company never fully disclosed the information regarding the supply and capital equipment items, the regular expenses for supply or raw materials (items and estimates), the contents of its trademark right and the validity period of the trademark use, the concrete contents and approaches of the training and guidance to be provided (such as contents of the courses and whether practical training was included), the percentages of contract cancellation and termination in the previous year, as well as the information about remodeling, the list of providers of supply or raw materials, and the items and quantities to be purchased. The finding made it difficult for the FTC to believe that Single & Double did comply with the regulations set forth in Subparagraphs 1 to 4, 6 and 7 of Point 3 of the Fair Trade Commission Disposal Directions(Guidelines) on the Business Practice of Franchisers.

3. Grounds for disposition:
   

   (1)

   The abovementioned important franchising information is closely related to the amount of capital to be invested, profit rate, use of trademark, brand growth and stability, training and guidance needed, market fluctuations, expected business performance of franchisee, related restrictions and agreement, level of ease of withdrawal, and management risks of any franchise businesses. These are important concerns of parties interested in joining a franchise and what they may rely on to decide whether they will join a franchise or which franchise to choose. However, the information asymmetry between a franchisor and its trading counterparts (parties interested in joining the franchise) is usually quite high. In comparison, the franchisor has the information advantage and it is difficult for parties interested in joining the franchise to obtain complete trading information by simply asking the franchisor for information. Therefore, franchisors have the responsibility to disclose the abovementioned information in writing to balance the information asymmetry status of both sides before signing any contract. In addition, besides the franchise fee and rights fees, a party interested in joining a franchise also needs to pay for the equipment, raw materials, supply, and remodeling. The amount of capital to be invested is not small at all. Furthermore, once the investment is made, the capital cannot be used elsewhere. Meanwhile, exclusion is involved in almost any establishment of franchise relationships. Once the contract is signed, the franchisee will not be able to become part of any other franchise that is a competitor providing similar products or services.

   (2)

   Even with its information advantages, Single & Double never fully disclosed the abovementioned trading information during the franchisee recruitment process. The conduct made the trading counterpart unable to assess the transaction accurately. It was obviously unfair for the trading counterpart or any potential trading counterpart. It would also lead to the loss of business opportunity for competitors and such conduct was therefore able to affect the trading order of the franchise market in violation of Article 24 of the Fair Trade Law. However, during the investigation, Single & Double did make necessary corrections and provide the contents of the training courses, the trademark registration certificate, and details of its supply orders. The FTC examined the documents and confirmed that the company had made the rectification and began to fully disclose the trademark right contents and validity period, contents and approaches of training and guidance, the list of providers of supply and raw materials, and the items to be purchased and their prices. For this reason, despite the company's violation of Article 24, the FTC ordered Single & Double to cease the unlawful acts but only imposed on it an administrative fine of NT$50,000.

Appendix:
Single & Double Dining Co., Ltd.'s Uniform Invoice Number: 28691455

Summarized by: Yang, Chung-Lin; Supervised by: Hung, Shui-Hsing