Happy Water House

1359th Commissioners' Meeting (2017)

Case:

Happy Water House violated the Fair Trade Law by failing to disclose important franchise information and give a reasonable period for contract review

Keyword(s):

FaFranchise, important information, information disclosure

Reference:

Fair Trade Commission Decision of November 22, 2017 (the 1359th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 106106

Industry:

Retail Sale of Other Food, Beverages and Tobacco in Specialized Stores (4729)

Relevant Law(s):

Article 25 of the Fair Trade Law

Summary:

1. The FTC received complaints about Happy Water House International Co., Ltd. (hereinafter referred to as Happy Water House) did not provide important franchise information and at the same time did not give a reasonable contract review period during franchisee recruitment. The conduct was in violation of the Fair Trade Law.
2. Findings of the FTC after investigation:
   (1)According to Happy Water House, the company started to recruit franchisees in 2013. Between 2015 and 2018, the company respectively authorized Shui Dang Dang International Co., Ltd. (hereinafter referred to as Shui Dang Dang International) and Invogue Originality International Co., Ltd. (hereinafter referred to as Invogue Originality) to be in charge of recruitment of franchisees for the "Happy Water House" brand. Therefore, the FTC requested Invogue Originality to give its statements as well as conducted a questionnaire survey on the franchisees of Happy Water House and interviewed with them. Afterwards, the FTC concluded that Happy Water House, Shui Dang Dang International and Invogue Originality were the parties responsible in this case.
   (2) Happy Water House and the two other companies did give parties interested in joining the chain certain written information. Therefore, it was confirmed that the three companies did not fully disclose important franchise information, including the "contents of trademark rights licensed franchisees to use, the validity period and the range of use and restrictions," the "management plan or preliminary plan for new shops of the chain to be opened in the area where the franchisee operates," the "numbers and locations of all the franchisees of the same chain in different counties and cities," the "restrictions on franchisor-franchisee relations during the contract period," and the "conditions for contract change, termination or cancellation and handling approaches."
3. Grounds for disposition:
   (1)Before the contract was signed, Happy Water House and the two other companies did not fully disclose in writing the "contents of trademark rights licensed franchisees to use, the validity period and the range of use and restrictions" and four other types of information. Parties interested in joining the chain had no basis to evaluate sufficiently their use of trademark rights, the condition of intra-brand competition, the management performance of the franchise chain, the restrictions on franchisee management, and the ways of handling if change of the rights and obligations of both sides took place. Therefore, the FTC concluded the aforesaid information was important information parties interested in joining a chain required to assess whether they would sign the contract or find another franchisor.
   (2) Before the contract was signed, Happy Water House and the two other companies also did not allow a reasonable contract review period. The practice deprived parties interested in joining the chain of their opportunity to examine the contract thoroughly. As a result, such trading counterparts could not fully understand the contents of the contract to judge whether they would sign the contract.
   (3) After deliberation, the FTC decided that Happy Water House and the two other companies were the side with information advantages. The fact that they did not fully disclose important transaction information and did not give a reasonable contract review period during franchisee recruitment would impede trading counterparts from making right decisions. The practice also caused competitors to lose opportunities to sign contracts as a result. It was obviously unfair conduct sufficient to affect trading order in violation of Article 25 of the Fair Trade Law.
   (4) After assessing the duration of the unlawful act of Happy Water House, the sales of the company, the number of franchisees already recruited, and the offense being the first, the FTC ordered Happy Water House and Invogue Originality to cease the unlawful act, and also imposed administrative fines of NT$150,000, NT$100,000 and NT$100,000 on Happy Water House, Shui Dang Dang International and Invogue Originality respectively.