International Franchising

• Within 15 days of the execution of its first franchise agreement, a Franchisor is required to file the following:
  The basic information about the commercial franchise;
• The distribution of stores of all Franchisees within mainland China;
• The marketing plan of the Franchisor;
• Incorporation certificate or business license of the Franchisor;
• Registration certificate of trademark, patent, or other operation resources relating to franchise;
• Materials to prove satisfaction of the “two own stores and one year of operation” requirement;
• The first franchise agreement signed with the Franchisee within the mainland of China;
• A sample franchise agreement;
• The table of contents of the franchise operation manual.  
• The franchisor’s undertaking signed by an authorized representative of the Franchisor; and
  Other documents as may be reasonably requested by the Bureau of Commerce. 

• Article 26 of 2007 Regulations provides that when a Franchisor requires a Franchisee to pay expenses before a franchise agreement is concluded without explaining in writing the purpose of expenses and the conditions and method for refund, the Bureau of Commerce may order Franchisor to correct and impose a fine of not less than RMB 10,000; if the circumstances are serious, imposed fines may not be less than RMB 10,000 and not more than RMB 50,000.
• When Franchisor fails to provide the required information or fails to file amendments concerning critical franchise information or fails to complete the filing formalities pursuant to the 2007 Regulations and the Filing Rules, the Bureau of Commerce may order such information be filed or such filing be completed, as applicable, and impose a fine of not less than RMB 10,000 and not more than RMB 50,000.  If the circumstances are serious, imposed fines may not be less than RMB 50,000 and not more than RMB 100,000.
• If Franchisor either fails to account for fees collected from Franchisees for advertising and promotion in a timely manner, does not use the fees for such purpose, conducts advertising and promotion activities in a fraudulent or misleading manner, or the advertisements it releases contain information publicizing the profits of Franchisees from their franchise activities, the relevant market supervision and administration authority may order Franchisor to make a correction and impose a fine of not less than RMB 30,000 and not more than RMB 100,000.  Where the circumstances are serious, it may impose a fine of not less than RMB 100,000 and not more than RMB 300,000.

Providing false or exaggerated information or the omission of important items can lead to a penalty of up to five years of imprisonment or a fine of not more than KRW 300 million.

If Franchisor fails to meet the disclosure period requirement, Franchisor may not receive the franchise fee from Franchisee and may be subjected to a possible term of imprisonment of up to two years or a fine of up to KRW 50 million.

• An administrative violation, which may result in fines, temporary or permanent closure of Franchisor’s business and administrative arrests for up to 36 hours. Fines are the most likely sanction to be assessed by IMPI.
• Voiding or rescission of the franchise agreement.

• Civil claims for breach of contract seeking (i) specific performance or (ii) rescission of the franchise agreement with the injured party having standing to demand payment of direct damages and losses.
• IMPI using its limited injunctive relief to enjoin the breaching party from marketing certain products when the marketing constitute a violation of intellectual property rights, order the seizure of merchandise, or order the closure of a business
• Criminal remedies in connection with repeated violations of rights protected by the Industrial Property Law, forgery of trademarks to obtain illicit profits and disclosure of confidential information deemed to be an industrial secret.