Yuanqi Brunch House Co., Ltd.

1379th Commissioners' Meeting (2018)

Case:

Yuanqi Brunch House violated the Fair Trade Law for failing to disclose important franchise information in writing before entering into contracts with franchisees

Keyword(s):

Franchise, important information, information disclosure

Reference:

Fair Trade Commission Decision of April 11, 2018 (the 1379th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 107018

Industry:

Restaurants (5611)

Relevant Law(s):

Article 25 of the Fair Trade Law

Summary:

1. Yuanqi Brunch House Co., Ltd. (hereinafter referred to as Yuanqi Brunch House) did not disclose important franchise information before the contract was signed when recruiting franchisees for the "Yuan Zhi Qi Brunch" chain. The FTC initiated an investigation to look into the matter.
2. Findings of the FTC after investigation:
   During the franchisee recruitment process, Yuanqi Brunch House did not fully disclose in writing important franchise information before the contract was signed, including the "expenses required before starting operation (costs of products and raw materials to be purchased)," the "expenses required during operation (costs of products and raw materials to be purchased)," the "contents of trademark rights to be licensed to franchisees and validity period," "numbers and locations of all the franchisees of the chain in different counties and cities," the "statistics on contract cancellation and termination in the previous year," and "estimated sales or expected profit and other financial predictions and basis of calculation or proof of management performance of existing franchisees."
3. Grounds for disposition:
   (1)Yuanqi Brunch House did not fully disclose in writing the "expenses required before starting operation" and four other types of information before signing the contract with its franchisees, making it impossible for parties interested in joining the chain to assess the amount of capital to invest, the expenses to cover during operation, whether it would become necessary to change the business logo, the future growth and stability of the franchise brand, the reasonability of the financial predictions and the level of difficulty to achieve predicted targets. Therefore, the FTC considered the aforesaid information was important for parties interested in joining franchises to evaluate whether they would sign the contract or choose a different franchisor.
   (2) After deliberation, the FTC decided Yuanqi Brunch House did not fully disclose important franchise information and thus took advantage of its information advantages and impeded trading counterparts from making correct transaction judgments. The practice also caused the company's competitors to lose opportunities to get franchisees and establish contracts. It was obviously unfair conduct sufficient to affect trading order in violation of Article 25 of the Fair Trade Law.
   (3) During the investigation, Yuanqi Brunch House already took the initiative to correct its conduct, such as producing a document titled "Review of Franchise Matters," including important franchise information for its prospective franchisees and removing financial prediction information from the website of the brand. Therefore, the FTC did not order the company to cease the unlawful act.
   (4) After assessing the duration of the unlawful act of Yuanqi Brunch House, the sales of the company, the number of new franchisees recruited, the total number of franchisees, the level of cooperativeness during the investigation and the offense being the first, the FTC cited the first section of Article 42 of the Fair Trade Law and imposed an administrative fine of NT$100,000 on the company.