Prohibition of Unfair Trade Practices
Prohibition of unfair trade practices
- No franchiser shall engage in, or cause any other business entity to engage in, any of the following acts that are likely to hamper fair franchise business transactions (Article 12 of the 「Fair Transactions in Franchise Business Act」, Article 13(1) and Attached Table 2 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
1. Transaction refusal: No franchiser shall suspend or refuse to provide a franchisee with goods, services, support, etc. or commit any of the following acts that markedly limit the same. The same shall not apply where it is difficult for the franchiser to continue to maintain its business relationship with the franchisee due to grounds attributable to the franchisee, such as a breach of agreement, etc.
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Type
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Detailed Standards
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Prohibition of rejection of sales support, etc.
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During the transaction period, no franchiser shall, without justifiable cause, suspend or refuse the provision of real property, service, facilities, goods, raw materials or auxiliary materials necessary to lead a franchise business to a franchisee, or cease to provide support, etc. for management and sales activities, or markedly limit the same.
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Prohibition of unreasonable refusal to renew agreement
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No franchiser shall unreasonably refuse the renewal of the agreement with a franchisee.
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Prohibition of unreasonable termination of agreement
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No franchiser shall unreasonably terminate an agreement with a franchisee during its term.
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2. Conditional transaction: No franchiser shall unreasonably restrict or limit the price of goods or services, business partners, sales area, or business activities of a franchisee.
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Type
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Detailed Standards
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Prohibition of restriction on price
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1. No franchiser shall engage in the following acts without justifiable causes: fixing the price of goods or services that a franchisee sells and requiring the franchisee to keep the set price; unreasonably restrict a franchisee from determining the price of its goods or services; forcibly imposing a sales price through prior consultation. 2. However, this shall not apply to the following acts: acts to determine a sales price and recommend the same to a franchisee; acts to engage in prior consultation with a franchisee when determining or modifying a sales price.
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Prohibition of restriction on the other party to a transaction
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1. No franchiser shall unreasonably force a franchisee to deal with a specific party (including the franchiser itself) in relation to purchase, sales, lease, etc. of real property, service, facility, goods, raw materials or auxiliary materials. 2. However, this requirement shall not apply in the following cases: where it is objectively recognized that said real property, service, facility, goods, raw materials and auxiliary materials are essential to manage the franchise business; where it is objectively recognized that it would be difficult to protect the franchiser's trademarks and to maintain the identity of goods or services if a franchisee does not deal with a specific party; where a franchiser enters into an agreement with the franchisee after notifying the franchisee of the relevant facts in advance through an information disclosure statement.
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Prohibition of sales of franchisee's goods or services
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1. No franchiser shall unreasonably cause a franchisee to sell only the designated goods or services or restrict the sales of goods or services depending on the other party to a transaction. 2. However, this requirement shall not apply in the following cases: where it is objectively recognized that it would be difficult to protect the franchiser's trademarks and to maintain the identity of goods or services, if the sales of franchisee's goods or services are not restricted; and where a franchiser enters into an agreement with the franchisee after notifying the franchisee of the relevant facts in advance through an information disclosure statement.
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Prohibition of coercion of sales areas
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1. No franchiser shall unreasonably coerce a franchisee into complying with a sales area 2. However, the same shall not apply to the following acts: an act for a franchiser to determine a sales base; an act to allow a franchisee to sell in areas other than his/her sales area, if the franchisee fulfills his/her sales responsibility in his/her sales area; or an act to cause a franchisee to pay compensation equivalent to promotion costs, such as advertising costs, etc. to another franchisee in an area other than his/her sales area, if the franchisee intends to sell in an area other than his/her sales area.
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Other prohibition of franchisee's sales activities
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1. No franchiser shall unreasonably restrict the sales activities of a franchisee, which are equivalent to acts stated above. 2. However, this requirement shall not apply to the following cases: where it is objectively recognized that it would be difficult to protect the franchiser's trademarks and to maintain the identity of goods or services, if the sales of franchisee's goods or services were not restricted; and where a franchiser enters into an agreement with a franchisee after notifying the franchisee of the relevant facts in advance through an information disclosure statement.
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3. Abuse of transactional status: No franchiser shall abuse its position in transactions to engage in the following acts that put a franchisee at an unfair disadvantage (Subparagraph 3 of Article 12(1) of the 「Fair Transactions in Franchise Business Act」). However, this requirement shall not apply in the following circumstances: where it is objectively recognized that it would be difficult to protect the franchiser's trademarks and to maintain the identity of goods or services if the sales of franchisee's goods or services were not restricted, and where a franchiser enters into an agreement with a franchisee after notifying the franchisee of the relevant facts in advance through an information disclosure statement.
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Type
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Detailed Standards
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Prohibition of forced purchase
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No franchiser shall force a franchisee into purchasing or renting facilities, equipment, goods, services, raw materials, auxiliary materials, etc. which are irrelevant to the management of the franchise business or are in an amount exceeding what is required.
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Prohibition of unreasonable coercion
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No franchiser shall unreasonably coerce a franchisee into providing economic gains or bearing expenses.
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Prohibition of establishment or modification of unreasonable contract provision
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No franchiser shall establish or modify a contract provision that is difficult to enforce or that is unfavorable to a franchisee. Also, no franchiser shall establish or modify a contract provision that is markedly more unfavorable than the existing terms and conditions or the terms and conditions of other franchises.
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Prohibition of interference with management
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No franchiser shall force, without justifiable causes, a franchisee into operating a franchise store with a specific person.
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Prohibition of forced sales target
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No franchiser shall unreasonably force a franchisee into setting a sales target and accomplishing the same.
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Prohibition of the imposition of disadvantage
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No franchiser shall unreasonably impose a disadvantage on a franchisee which is equivalent to acts stated above.
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4. Imposition of unreasonable indemnity obligation: No franchiser shall unreasonably impose obligations to compensate for damage on a franchisee, or impose an excessive penalty compared with the following criteria, such as the purpose and contents of an agreement, and losses that will occur (Subparagraph 5 of Article 12(1) of the 「Fair Transactions in Franchise Business Act」 and Subparagraph 4 of the Attached Table 2 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
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Type
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Detailed Standards
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Imposition of excessive penalty
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No franchiser shall prescribe a contract provision for excessive penalties or impose the same with regard to the following: circumstances leading to the cancellation of the franchise agreement; the degree of fault assigned to each party of the franchise business; remaining term of franchise agreement; the amount of damages for a period that the franchiser is expected to take to enter into an agreement with the succeeding franchisee after early termination, etc. No franchiser shall prescribe a contract provision for excessive damages for delay or impose the same in relation to the following: circumstances leading to the delay in payment for goods or services; common practices of transaction, etc.
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Shifting of indemnity obligation for consumer damages
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Where a consumer suffers from damages caused by a primitive defect in goods that a franchiser supplies to a franchisee, no franchiser shall impose a contract provision to have the franchisee bear the indemnity obligation in full.
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Other unreasonable imposition of indemnity obligation
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With regard to cases corresponding to acts to prescribe a contract provision for excessive penalties or impose the same or shift an indemnity obligation for consumer damages, no franchiser shall have a franchisee bear an unreasonable indemnity obligation, or shift to a franchisee an indemnity obligation that it shall bear.
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5. Other unfair trade practices: No franchiser shall engage in any act that is likely to interfere with fair transactions in franchising, such as imposing a disadvantage on the sales of its franchisees or on the franchise business of a competing franchiser by inducing franchisees of the competing franchiser to conduct transactions with the franchiser (Subparagraph 6 of Article 12(1) of the 「Fair Transactions in Franchise Business Act」 and Subparagraph 5 of the Attached Table 2 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
Sanctions against violation
- Where a franchiser commits unfair trade practices against a franchisee, it shall be subject to corrective measures, penalty surcharges, etc. (Articles 33, 34 and 35, and Subparagraph 2 of Article 41(2) of the 「Fair Transactions in Franchise Business Act」)
Prohibition of Unfair Violation of Sales Areas
Prohibition of unfair violation of sales areas
- A franchiser shall designate a sales area for a franchisee, and define such sales area in the franchise agreement when it enters into said franchise agreement with the franchisee (Article 12-4(1) of the 「Fair Transactions in Franchise Business Act」).
· However, where a franchiser intends to change the existing sales area in the course of renewing the franchise agreement due to the occurrence of causes, such as a significant change in commercial districts or other causes as specified below, it shall reach an agreement on the same with the franchisee (Article 12-4(2) of the 「Fair Transactions in Franchise Business Act」 and Article 13-4 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
√ A sudden change in the business district occurs due to reconstruction, redevelopment, or new town construction
√ There is a remarkable change in the resident population or the floating population in the relevant business district
√ There is a remarkable change in demand for the relevant goods or services due to changes in consumer preferences, etc.
√ Where it is deemed remarkably unreasonable to maintain the existing area of business as it is, for any of the reasons stated above or for other reasons.
- No franchiser shall open a direct retail store or a franchise store (referring to an affiliated company under subparagraph 12 of Article 2 of the Monopoly Regulation and Fair Trade Act; the same shall apply hereinafter) of its owned store or its affiliated company of the same type of business (referring to a type of business that may be recognized as the same type of business in terms of the regional and human range of the demanding class, items dealt in, form and method of trading) as that of a franchisee within the sales area for the franchisee during the period of the franchise agreement without just grounds (Article 12-4(3) of the Fair Transactions in Franchise Business Act).
Sanctions against violation
- Where a franchiser unfairly violates the sales area of the franchisee, it shall be subject to penalty surcharges imposed by the Fair Trade Commission (Article 35(1) of the 「Fair Transactions in Franchise Business Act」).
Prohibition of Unfair Pressure to Improve Store Environment
Prohibition of unfair pressure to improve store environment
- No franchiser shall compel a franchisee to improve the store environment; however, this requirement shall not apply in any of the following circumstances (Article 12-2(1) of the 「Fair Transactions in Franchise Business Act」 and Article 13-2(1) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
· Where facilities, equipment, interior, etc. of the store are objectively deemed to have deteriorated
· Where it is difficult to maintain the unity of the franchise business due to sanitary or safety defects, or reasons corresponding thereto, or such defects remarkably interfere with normal business.
Franchiser's bearing of costs to improve store environment
- For costs incurred in improving the store environment of the franchisee, such as the costs of replacing a signboard and the costs of interior decoration work (referring to all the costs incurred in performing interior decoration work excluding the costs of replacing equipment and utensils), the franchiser shall bear a cost equivalent to a percentage stated below, and not exceeding 40/100 of costs (Article 12-2(2) of the 「Fair Transactions in Franchise Business Act」 and Article 13-2(2) and (3) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
· For improvement of the store environment that does not involve the expansion or relocation of the store: 20/100
· For improvement of the store environment that involves the expansion or relocation of the store: 40/100
※ However, the costs incurred for additional work performed by a franchisee irrespective of the unity of the franchise business shall be excluded (Article 12-2(2) of the 「Fair Transactions in Franchise Business Act」 and Subparagraph 2 of Article 13-2(2) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
※ In any of the followings cases, the franchiser shall not bear the cost of improving the store environment (Proviso to Article 12-2(2) of the 「Fair Transactions in Franchise Business Act」).
√ Franchisee voluntarily makes improvements to the store environment, without a request from the franchiser
√ Franchisee must inevitably make improvements to the store environment due to sanitation problems, safety problems, and other similar problems occurring for reasons imputable to him/her
Sanctions against violation
- If a franchiser unduly forces a franchisee into improving the store environment, it shall be subject to penalty surcharges imposed by the Fair Trade Commission (Article 35(1) of the 「Fair Transactions in Franchise Business Act」).
Prohibition of Unfair Restrictions on Business Hours
Prohibition of unfair restrictions on business hours
- No franchiser shall unfairly restrict the business hours of a franchisee (hereinafter referred to as "unfair restrictions on business hours") beyond normal transaction practices (Article 12-3(1) of the 「Fair Transactions in Franchise Business Act」).
Acts considered unfair restrictions on business hours
- Any of the following acts by a franchiser shall be considered unfair restrictions on business hours (Article 12-3(2) of the Fair Transactions in Franchise Business Act and Article 13-3 of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
1. Though a franchisee requests the franchiser to permit a reduction in business hours because sales from 00:00 am to 6:00 am or to 1:00 am are not sufficient to meet the expenses incurred in conducting such business due to reasons such as the characteristics of the business district where the franchisee's store is located and an operating loss occurs for three months immediately preceding the month in which franchisee requests such reduction, franchiser does not permit a reduction in business hours.
2. Though a franchisee requests the franchiser to permit a minimal reduction in business hours due to inevitable reasons such as the occurrence and treatment of a disease, franchiser does not permit a reduction in business hours.
Sanctions against violation
- Where a franchiser unfairly forces a franchisee into maintaining certain business hours, it shall be subject to the imposition of a penalty surcharge by the Fair Trade Commission (Article 35(1) of the 「Fair Transactions in Franchise Business Act」).
Provision of Accurate Information regarding Advertising and Promotional Events and Perusal thereof
Notification of execution details of advertising and promotional events
- Where the franchiser holds advertising and promotional events for which the expenses are to be fully or partially borne by a franchisee, it shall notify the franchisee of the following within three months after the end of each business year (Article 12-6(1) of the 「Fair Transactions in Franchise Business Act」 and Article 13-5(1) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
· Titles, details and periods of advertising or promotional events (including cases where expenses are only partially executed in the relevant business year) held in the relevant business year
· Amount paid by all franchisees for advertising or promotional events in the relevant business year
· Expenses executed for each advertising or promotional event held in the relevant business year and the total amount borne by the franchisee
Perusal of advertising and promotional events
- Where a franchisee requests to peruse the execution details of advertising or promotional events, the franchiser shall allow the perusal of the relevant documents after determining the time and place therefor (Article 12-6(1) of the 「Fair Transactions in Franchise Business Act」 and Article 13-5(3) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
Sanctions against violation
- Where a franchiser fails to provide exact information regarding advertising and promotional events and the perusal thereof, it shall be subject to the corrective measures and penalty surcharges of the Fair Trade Commission (Article 33(1), 34 and 35 of the 「Fair Transactions in Franchise Business Act」).
Other Obligations
Franchiser's obligations
- A franchiser shall fulfill the following obligations in the course of leading a franchise business (Article 5 of the 「Fair Transactions in Franchise Business Act」)
· To devise business plans for the success of the franchise business
· To continue efforts for the quality management of commodities or services, and the development of sales techniques
· To provide franchisees with facilities for their stores and to supply them with commodities or services at reasonable prices and costs
· To provide franchisees and their employees with education and training
· To render constant advice and assistance to franchisees with respect to their management and business activities
· To refrain from establishing any direct retail store within the business territory of a franchisee, or establishing a franchise store of any type of business similar to that of a franchisee
· To strive to settle any dispute arising in connection with a franchisee through a coversation and negotiation