Franchising is a very common form of marketing goods and services. It may be described as a process whereby the owner of a product, method or service (the franchisor), identified by a particular trade mark or brand name, distributes the product, method or service through authorised and affiliated dealers (the franchisee), in accordance with certain conditions and subject to certain controls.
The franchise arrangement is in many respects the most cost effective means by which overseas businesses can exploit their goods or services in Australia. The expansion program of locally developed franchise systems into the international market, though in its infancy, is steadily growing with Australian franchise systems being “exported” to countries such as New Zealand, South Africa, the United States and the United Kingdom. Franchising, as a system for exploiting goods or services both in Australia and abroad is considered below.
In Australia, franchising is subject to the requirements of a mandatory industry code, the Franchising Code of Conduct, enforceable under the Trade Practices Act 1974 (Cth). The Code, which came into effect on 1 July 1998, is binding on all parties to franchise agreements and seeks to achieve transparency in dealing between franchisors and franchisees by setting minimum standards of disclosure. It also contains important restrictions on a franchisor’s right to terminate the franchise agreement and requires all franchise agreements to provide for a complaint handling system that complies with the Code.
Many franchise agreements often have anti-competitive clauses such as tying arrangements and there is a natural tension between the typical franchise arrangement and national anti-trust legislation such as Pt IV of the Trade Practices Act 1974 (Cth), the Sherman Act 1890 (US), or regional anti-trust provisions such as Art 85(1) of the Treaty on European Union (1993) (amended in 1995). On the other hand, the effect of these clauses often gives rise to a number of pro-competitive benefits.
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