1149th Commissioners' Meeting (2013)
Case:
Mei Chi Cheng Enterprise violated the Fair Trade Law during its "Good Morning Mei Chi Cheng" franchisee recruitment process
Key Word(s):
Franchise, important franchise information, trademark right
Reference:
Fair Trade Commission Decision of November 13, 2013 (the 1149th Commissioners' Meeting); Disposition Kung Ch'u Tzu No.102193
Industry:
Restaurants (5610)
Relevant Law(s):
Article 24 of the Fair Trade Law
Summary:
The FTC examined the franchise brochure, contract, business equipment supply agreement and payment plan, business equipment list, list materials supplied the first time, list of franchisees in each county and city and total number in the country, contract termination ratio chart, list of training courses provided by Mei Chi Cheng Enterprise before the contract was signed, as well as the franchise information on the company's website. Apparently, Mei Chi Cheng Enterprise did not fully disclose the content of trademark right, its validity period, range of use licensed and restrictions, and the addresses of other franchisees. Therefore, the FTC concluded that Mei Chi Cheng Enterprise had failed to meet the regulations set forth in Subparagraphs 3 and 6, Paragraph 2, Point 3 of the Fair Trade Commission Disposal Directions (Policy Statements) on the Business Practices of Franchisers.
| (1) | Licensing by a franchiser should include description of the content and validity duration of trademark right, range of use licensed and restrictions. These form the basis of the right to use the trademark and have an effect on the sustainability of the franchise brand, its management and the interest of trading counterparts in joining the franchise. The franchiser may exercise the right to exclude others from using the trademark while trading counterparts are required to pay a corresponding price. Meanwhile, the addresses of other franchisees are important information for parties interested in joining the franchise to understand the level of intra-brand competition in the market, make decisions of whether to join the franchise, and evaluate and choose appropriate locations to set up their operations. However, information asymmetry exists between a franchiser and a potential franchisee. The franchiser has advantages over the potential franchisee in access to related trading information. The potential franchisee is unlikely to obtain full and complete trading information by asking orally. Therefore, franchisers have the obligation to disclose such information in writing to potential franchisees to ensure information symmetry. Although Mei Chi Cheng Enterprise did not collect franchise and trademark licensing fees, parties interested in joining the franchise were still required to pay for machine equipment, materials, products and remodeling of the shop space. The amount invested was not small and could no longer be used for other purposes. Moreover, once a potential franchisee signed the contract with Mei Chi Cheng Enterprise, other competitors providing similar products or services would lose their opportunity to do business with the potential franchisee.
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| (2) | Mei Chi Cheng Enterprise took advantage of information asymmetry and did not fully disclose the aforesaid information in writing during the recruitment process. The conduct obstructed trading counterparts from making correct trading judgments. It not only was obviously unfair to trading counterparts and unspecific potential trading counterparts, but also caused other competitors to lose their opportunity to do business with such trading counterparts. It was likely to affect the trading order of the franchise business market in violation of Article 24 of the Fair Trade Law. Acting according to Article 36 of the Enforcement Rules of Fair Trade Law, the FTC ordered Mei Chi Cheng Enterprise to cease its unlawful act and also imposed on the company an administrative fine of NT$250,000. |
Appendix:
Mei Chi Cheng Enterprise Co., Ltd.'s Uniform Invoice Number: 86744304
Summarized by Lin, Cheng-Yu; Supervised by Hung, Shui-Hsing