Franchising, which accounts for billions of dollars in yearly sales, is a form of marketing and distribution in which the franchisor grants to an individual or company (the franchisee) the right to run a business selling a product or providing a service under the franchisor’s business format and identified by the franchisor’s trademark or brand. Its international growth, while impressive, was hampered in the past by the lack of uniform rules for franchising contracts.
In taking account of the most commonly used clauses in franchise agreements, the model contract aims to bring a degree of uniformity to a field marked by laws and regulations that often differ from one country to another. As with other ICC model contracts, it is flexible and strikes a fair balance between the interests of the parties, in this case the franchisor and the franchisee. In some cases, alternative clauses have been suggested side-by-side, allowing the parties to choose the solution best adapted to their needs. Annexes are also provided, permitting the parties, on certain points, to insert their own requirements.
The ICC model contract deals exclusively with cross-border direct distribution franchise agreements and does not cover service contract agreements. In direct franchising, the franchisor directly appoints franchisees in another country who are granted the right to market the products manufactured or supplied by the franchisor or his designated supplier.
Clauses of the model contract cover the key issues faced by the parties in drawing up their agreement, among them:
- Territorial exclusivity;
- Training of the franchisee;
- Operation of the business;
- Fees; and
- Resolution of disputes
This new, updated version also includes a significantly expanded introduction, a section dealing with Internet sales and an explanatory commentary presenting alternative drafting solutions and identifying potential pitfalls.
ICC has been a pioneer in developing model contracts to bring uniformity to international trade. The updated Model International Franchising Contract joins a long list of other such models – including those on confidentiality, distribution, the occasional intermediary and trademark licences – that have been broadly welcomed by the world business community.