At the convention, a moveable feast
Philip F. Zeidman
Illustration by Jonathan Hankin
Dateline San Antonio (again)
In last month’s column (“So two guys walk into a franchise convention...), I swooped, drone-like, over the International Franchise Association’s annual convention and admired the extraordinary menu of international programs and activities of which two (fictitious, but realistic) attendees could partake.
Today we are back at ground level, and extracting some of the morsels of information about developments in individual countries. Nowhere else in the world could you have browsed through a smorgasbord this rich and varied, all in one meal. Join me at the buffet, and let’s sample a proposed regulation, the application of a doctrine, and developments in enforcement.
Shortly before the convention the draft Franchise Industry Code was published in South Africa. It proposes to add some unusual features to the traditional dispute resolution process: a specialized body to be known as the Franchise Industry Ombud, and the appointment of an ombudsman, to receive complaints arising from franchise agreements.
The objective is to help resolve franchise disputes, with the ombudsman acting more as a mediator than an arbitrator, seeking to facilitate a consensual settlement. The parties will be bound by the provisions of the code, but the submission of the dispute to the process is voluntary.
If the parties accept the ombudsman’s recommendations they become binding and enforceable. If they do not, the matter comes to an end. But oddly, a party may nonetheless seek damages in another forum (such as a court or arbitration tribunal).
One of the several questions this process raises is what use, if any, the party may make of the material developed in the course of the ombudsman process when it resorts to another forum. One suspects this proposal will not be adopted in its current form, but that other countries will nonetheless be following it with interest.
Developments in Germany surfaced frequently in San Antonio, from recent cases to the ongoing debate as to whether that nation should join other major European countries (France, Italy, Spain) in adopting a franchise law. The most intriguing discussion, though, was about a doctrine of which most lawyers (and certainly most franchisors) are at best only dimly aware.
With the forbidding label culpa in contrahendo (“fault in concluding a contract”) it bears some similarity to the more familiar doctrine of good faith. But in Germany, where it originated, and in some other countries (Austria, the Czech Republic, Hungary, Poland and elsewhere, although with different interpretations) it takes on a sharper edge.
While far more likely to be invoked in an expansive form when a franchisor is dealing with an unsophisticated, single-unit prospective franchisee, it has potentially broad applications. Most franchisors probably complacently assume that in the absence of a franchise-specific statute there is no need to provide pre-sales disclosure. But, especially in instances where only the franchisor is aware of important information, Germany sounds a powerful wakeup call to the contrary.
We have already reported, in this column and elsewhere, on the dialogue with regulators regarding the proposed retrenchment on the so-called two-plus-one rule: A decision had been made to restrict a franchisor’s showing of compliance to the direct subsidiary. That would, of course, substantially hamper a franchisor’s freedom of action in deploying its resources. It now appears the regulators have been persuaded to take a more common sense approach, to the relief of franchisors and their counsel.
In San Antonio, there was discussion of other activity in the field of enforcement, including the potential for franchisors with its trademark applications pending being able to register under certain circumstances, a welcome development given the chronic backlog at China’s Trademark Office. Another important step forward: Provincial authorities have now aligned their filing requirements much more closely with those of the Ministry of Commerce.
A final development is a reminder of the sometimes unintended consequences of otherwise welcome, and overdue, reforms. Those seeking to root out government corruption have come to recognize that the longer an official remains in his or her post, the more susceptible to improper overtures. So officials are now being rotated out of their positions far more rapidly, but with the consequence of a dramatically slowed franchise approval process as the newly trained officials get their bearings.
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And this is but a tasting of the fare that was available. There were discussions in some depth of Singapore, Mexico and other Latin American and Caribbean markets (including Cuba), and the Middle East. They included economic developments; currency issues; commercial and demographic trends, and more.
You could have learned about what’s happening in almost every country in the world, and visited with both individual business people and delegations from many of them. For those who want to keep current on what’s happening in the world of international franchising, it truly is a unique opportunity.
So put next year’s convention on your calendar: January 29- February 1, Las Vegas. And bring your appetite.
Philip Zeidman is a senior partner in the Washington, D.C., office of DLA Piper and an expert in international franchise law. Reach him at firstname.lastname@example.org.