1119th Commissioners' Meeting (2013)
Case:
International Functional Foods Co., Ltd. violated the Fair Trade Law during its franchisee recruitment for Dr. Jiang's Zero Pollution Shop
Key Word(s):
Franchise, trading information, trademark right content, contract termination percentage
Reference:
Fair Trade Commission Decision of April 17, 2013 (the 1119th Commissioners' Meeting); Disposition Kung Ch'u Tzu No.102049
Industry:
Sale of Fishery Products in Specialized Stores (4723)
Relevant Law(s):
Article 24 of the Fair Trade Law
Summary:
Before signing the franchise contract with its trading counterparts, the written documents, including franchise description, contract, letter of intent, reservation letter, learning passport and company product description, that IFF provided and the franchisee recruitment web pages on the company's website never fully disclosed any information with regard to the content of its trademark right, the validity period of the trademark right, and the percentage of contract cancellation and termination in the previous year. The conduct of IFF was therefore not in compliant with Subparagraphs 3 and 6 of Paragraph 2 of Point 1 of the Fair Trade Commission Disposal Directions (Guidelines) on the Business Practices of Franchisers.
| (1) | The abovementioned franchise information was closely associated with the use of trademark, potential brand growth, brand stability, expected market changes, management risks, and so on, that were the concerns of people interested in joining the franchise. In other words, potential franchisees needed the said information to assess whether they would sign the franchise contract or instead choose a different franchiser. Due to the high information asymmetry that normally exists between franchisers and their trading counterparts, potential franchisees, franchisers have an information advantage over their trading counterparts. Potential franchisees often find it difficult to obtain full trading information simply by asking orally. Therefore, franchisers are required to disclose to potential franchisees the aforesaid information in writing before the contract is signed by both parties in order to balance the information status of both sides. Besides the franchise fee and licensing fee, a party interested in joining a franchise also has to pay for machines and equipments, raw materials, products, and even remodeling of the shop space. The investment is usually not small and the funds invested cannot be transferred for other purposes. Moreover, exclusiveness also exists after a franchise contract is signed. In this case, once an interested party signed the contract with the offender, other franchisers who offered similar products or services lost the opportunity to do business with the said party.
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| (2) | Being the party with the advantageous status of information, IFF did not fully disclose the aforesaid information in writing during the franchisee recruitment process. The conduct barred its trading counterparts from making the correct transaction decision and was obviously unfair to the trading counterparts or other unspecific potential trading counterparts, while at the same time the company also deprived its market competitors of the opportunity to establish contracts with such trading counterparts. The conduct was able to affect the trading order of the franchise market in violation of Article 24 of the Fair Trade Law. After reviewing the regulations set forth in Article 36 of the Enforcement Rules of Fair Trade Law, the FTC ordered IFF to cease its unlawful act and at the same time imposed on it an administrative fine of NT$50,000. |
Appendix:
International Functional Foods Co., Ltd.'s Uniform Invoice Number: 53093870
Summarized by Tsai, Hui-Chi; Supervised by Hung, Shui-Hsing