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A Study on the Legal Concept and Statutory Definition of Franchise Fee

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초록

Franchising is a brand-new way of business which had not been known of until the 20th century. That is, the traditional contract law has only covered agreements that deal with complete control over one party to another (e.g. employment agreement) or those that deal with one party imposing duty without any operational control to another party. However, franchise agreement involves licensing of franchisor’s intangible property right, such as trademark, service mark, logo and other commercial symbols, to the franchisee; substantial control over the franchisee’s business method so as to protect those rights entitled to the franchisor; and yet the franchisor does not undermine the franchisee’s status as an independent businessman. In order to constitute the franchise agreement and differentiate it from any other types of agreements, franchisee agreement must include the following requirements: (1) licensing of the franchisor’s commercial symbol to the franchisee (2) franchisor’s substantial control over and/or assistance to franchisee’s business operation (3) required payments in exchange for the above licensing, control and/or assistance (4) independence between franchisor and franchisee. The "required payments" requirement brings about complex issues as regards the definition of franchisee fee. Therefore, many franchise related laws specifically provides definition of franchisee fee. In Korea,Fair Franchising Act article 2.6 provides its definition. However, the above article 2.6, unlike the foreign legislations, commits the error of circular reasoning by explicitly listing the specific types of franchise fees, and yet providing that “any other payments from the prospective franchisee or the existing franchisee to the franchisor to enter into or continue franchised business” in article 2.6.5. Further, this definition of franchise fee is adopted when applying article 3(exemption) of the above Act as criteria for exempting the application of the Act and in deciding the qualification of article 6(deposit of franchise fee). The clause regarding the definition of franchise fee in the Korean Fair Franchising Act is inappropriately enacted, which calls for a legislative reform to adopt the mainstream of the foreign legislative precedent, i.e. to provide a general definition of franchise fee and then to exclude the several types of payment that does not qualify as franchise fee. Also, it is advisable to supplement the general definition with the Notifications of the Guide by the Korea Fair Trade Commission as they do with the Compliance Guide in the United States.

Abstract

Franchising is a brand-new way of business which had not been known of until the 20th century. That is, the traditional contract law has only covered agreements that deal with complete control over one party to another (e.g. employment agreement) or those that deal with one party imposing duty without any operational control to another party. However, franchise agreement involves licensing of franchisor’s intangible property right, such as trademark, service mark, logo and other commercial symbols, to the franchisee; substantial control over the franchisee’s business method so as to protect those rights entitled to the franchisor; and yet the franchisor does not undermine the franchisee’s status as an independent businessman. In order to constitute the franchise agreement and differentiate it from any other types of agreements, franchisee agreement must include the following requirements: (1) licensing of the franchisor’s commercial symbol to the franchisee (2) franchisor’s substantial control over and/or assistance to franchisee’s business operation (3) required payments in exchange for the above licensing, control and/or assistance (4) independence between franchisor and franchisee. The "required payments" requirement brings about complex issues as regards the definition of franchisee fee. Therefore, many franchise related laws specifically provides definition of franchisee fee. In Korea,Fair Franchising Act article 2.6 provides its definition. However, the above article 2.6, unlike the foreign legislations, commits the error of circular reasoning by explicitly listing the specific types of franchise fees, and yet providing that “any other payments from the prospective franchisee or the existing franchisee to the franchisor to enter into or continue franchised business” in article 2.6.5. Further, this definition of franchise fee is adopted when applying article 3(exemption) of the above Act as criteria for exempting the application of the Act and in deciding the qualification of article 6(deposit of franchise fee). The clause regarding the definition of franchise fee in the Korean Fair Franchising Act is inappropriately enacted, which calls for a legislative reform to adopt the mainstream of the foreign legislative precedent, i.e. to provide a general definition of franchise fee and then to exclude the several types of payment that does not qualify as franchise fee. Also, it is advisable to supplement the general definition with the Notifications of the Guide by the Korea Fair Trade Commission as they do with the Compliance Guide in the United States.

참고문헌 (14)

  1. 법제처, "알기 쉬운 법령정비기준 (제3판)", 2009
  2. Howard Yale Lederman, "What Makes a Franchise? : The Franchise Fee", Mich. B.J., 23 (2008)
  3. Jason J. Cabral, "The Connecticut Franchise Act: How Important is the Absence of a Franchise Fee Requirement in the Connecticut Franchise Act?, 25 QLR 663 (2007)", ~ (2007)
  4. Kim A. Lambert, "Definition of a Franchise: A Survey of Existing State Legislative and Judicial Guidance", Fall Franchise L.J., 3~ (1989)
  5. LS Sealy and RJA Hooley, "Commercial Law(4th ed.)" (2009)
  6. Martin W. Hesselink, "Commercial Agency, Franchise and Distribution Contracts" (2006)
  7. "Michael Garner, 1 Franch & Distr Law & Prac § 1: 27", ~ (2007)
  8. Philip F. Zeidman, "Franchising and Other Methods of Distribution: Regulatory Pattern and Judicial Trends, PLI", ~ (2009)
  9. Roy Goode, "Transnational Commercial Law" (2007)
  10. Susan H. Morton, "Pricing Structure and Minimum Purchase Reqs Could be Franchisee Fee, 7 No. 3 Leader's Franchising Bus. & L. Alert 8 (2000)", ~ (2000)
  11. Susan H., "Advertising Co-op Contributions Were Indirect Franchise Fee, 8 No. 5 LJN's Franchising Bus. & L. Alert 8", ~ (2002)
  12. Susan H., "Dealer's Bias Claims Withstand Summary Judgment; Expenses May Constitute Franchise Fee, 8 No. LJN's Franchising Bus. & L. Alert 8", ~ (2002)
  13. UNIDROIT, "Guide to International Master Franchise Arrangements (2nd ed., 2007)" (2007)
  14. "62B Am. Jur. 2d Private Franchise Contracts §17 (2nd ed., 2007)", ~ (2007)

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