JK Foods Co.

1307th Commissioners' Meeting (2016)

Case:

JK Foods violated the Fair Trade Law by failing to disclose important franchise information in writing to franchisees before the contract was signed

Keyword(s):

Franchise, important information, information disclosure
Reference:
Fair Trade Commission Decision of November 23, 2016 (the 1307th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 105127

Industry:

Beverage-serving Activities via Shops (5631)

Relevant Law(s):

Article 25 of the Fair Trade Law

Summary:

  1. The FTC received complaints from "Rainbow Snow" franchisees accusing the franchiser of violating the Fair Trade Law by failing to provide important franchise information during the franchisee recruitment process.
  2. Findings of the FTC after investigation:
    During the process of franchisee recruitment, JK Foods Co. (hereinafter referred to as JK Foods) had the company� trademark registration and the addresses of existing franchisees posted on the company website but never provided the important information regarding the contents of trademark rights, the total number of its franchisees and their addresses to trading counterparts in writing.
  3. Grounds for disposition:
    1. Before it entered into the contract with the franchisees, JK Foods did not disclose in writing the "contents of trademark rights licensed to franchisees and the duration of the franchise agreement" and "the number of franchisees of the same franchise in each city (county), their addresses and the ratios of contract cancelation and termination in the preceding year." However, such information was closely associated with the use of trademark rights, intra-brand competition condition and expected business performance and risks. People interested in joining the franchise needed the said information to evaluate whether they wanted to become part of the franchise or choose a different franchiser.
    2. JK Foods contested that it had already posted the trademark rights registration and addresses of existing franchisees on the company website. However, information posted on websites could be updated any time. If a franchiser failed to maintain and update the contents of web pages due to some kind of negligence, there could be problems later when both sides had discrepancies over the website contents and whether the information the trading counterparts had actually received was unclear.
    3. Therefore, the FTC� final decision was the failure of JK Foods to disclose important franchise information in writing constituted a practice to take advantage of the important transaction information in its possession. Yet, without full disclosure of the important information, its trading counterparts would be unable to make the right transaction decisions while its competitors would also lose opportunities to have new franchisees. Therefore, the practice obviously constituted unfair conduct able to affect trading order in violation of Article 25 of the Fair Trade Law.
    4. After assessing the duration of the unlawful act, the total amount of franchise fees the company received, the trading counterparts affected, the level of its cooperativeness throughout the investigation, and the violation being the first ever, the FTC cited Article 42 of the Fair Trade Law and ordered JK Foods to cease the unlawful act. In addition, FTC imposed an administrative fine of NT$50,000 on the company.

Appendix:
JK Foods Co.'s Uniform Invoice Number: 10106122

Summarized by:�sai, Jing-Hui; Supervised by: Ho, Yen-Jung