Australian courts have given a very broad interpretation of the definition of “franchise agreement” in the Australian Franchising Code of Conduct resulting in many dealership or re-seller agreements, distribution agreements, trade mark licences and IP licence agreements being franchise agreements in Australia and subject to compliance with the Australian Franchising Code of Conduct. These types of agreements are generally not considered to be franchise agreements in other countries and Australia is out of step with what is happening internationally.
Businesses should have their existing agreements and arrangements with dealers, distributors, re-sellers and after sale service centres assessed as to whether or not they constitute a franchise agreement for the purpose of the Franchising Code of Conduct.
When are Dealership, Distribution, Re-seller and IP Licence Agreements franchise agreements for the purpose of the Australian Franchising Code of Conduct?
The question of whether an agreement is a franchise agreement for the purpose of the Franchising Code of Conduct requires consideration of whether each of the elements of the definition of “franchise agreement” in the Code are met[i]. This involves looking at the relevant written, oral or implied agreement or arrangements between the parties including manuals and related documents and how parties transact business or deal with each other in connection with the supply or distribution of goods and/or services.
The elements required for a “franchise agreement” are:
- An agreement that contains a grant of a right by a person (franchisor) to another person (franchisee) to carry on business of offering, supplying or distributing goods or services in Australia.
- The right to carry on the business must be under a system or marketing plan.
- The system or marketing plan must be substantially determined, controlled or suggested by the franchisor or an associate of the franchisor.
- The operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol owned, used or licensed by the franchisor or an associate of the franchisor or specified by the franchisor or an associate of the franchisor.
- Payment of fee(s) by the franchisee to the franchisor or an associate of the franchisor including, for example, initial capital investment fee, royalty, licence fee, franchise fee or a training fee but excluding:
- Payment for goods and services at or below their usual wholesale price;
- Repayment by the franchisee of a loan from the franchisor;
- Payment of the usual wholesale price of goods taken on consignment;
- Payment of market value for the purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement.
For a more detailed explanation of the above elements, click here.
How Stephens Lawyers & Consultants can assist:
Stephens Lawyers & Consultants can assist businesses with:
- Review of existing distribution agreements, dealership agreements, reseller agreements and trade mark and IP licence agreements to assess whether they are franchise agreements for the purpose of the Australian Franchising Code of Conduct.
- Preparation of Area Development Agreements.
- Preparation of Franchise Agreements and Disclosure Documents in compliance with the Australian Franchising Code of Conduct.
- Structuring or restructuring channels of distributions for the supply of goods and services that are not franchises.
- Preparation of distribution agreements, dealership agreements, reseller agreements, trade mark and IP licence agreements.
- Protection of trade marks and intellectual property rights.
For information about recent ACCC action and Court decisions in relation to the above, click here.
For more information contact:
Katarina Klaric | Principal
STEPHENS Lawyers & Consultants | Suite 205, 546 Collins Street, Melbourne VIC 3000 Australia
T + 61 3 8636 9100 | F + 61 3 8636 9199 | E firstname.lastname@example.org
PO Box 16010 Collins Street West VIC 8007 Australia
Stephens-Klaric Legal Pty Ltd (ACN 117 672 376) trading as Stephens Lawyers & Consultants
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Disclaimer: This article is not intended to be a substitute for obtaining legal advice.
© Stephens Lawyers & Consultants. October 2018. Authored by Katarina Klaric.
[i] Clause 5(1), Competition and Consumer (Industry Codes – Franchising) Regulations 2014.