Franchising. Disputes and analysis of the determination of commercial franchise contracts.

Commercial franchise contract is not a "typical contract" in our civil code ". At present, the regulations for regulating and adjusting it are limited to the "one regulation and two measures" in the administrative regulations and departmental rules, that is, the "Regulations on the Management of Commercial Franchise" and the "Measures for the Administration of Commercial Franchise Filing" and the "Measures for the Administration of Commercial Franchise Information Disclosure". The imperfection of laws and regulations leads to the lack of fundamental compliance in the determination of commercial franchise contracts, which is prone to disputes.

At present, the Supreme People's Court's interpretation document on franchise contract disputes is only the reply on the validity of franchise contracts signed by franchisors who do not have "at least 2 direct stores and have been operating for more than one year" (2010 Min San He Zi No. 18), which is a reply to specific issues, and there is no judicial interpretation to systematically guide trial practice. The local courts also only have the "Guiding Opinions on Several Issues Concerning the Application of Law in the Trial of Commercial Franchise Contract Disputes" formulated by the Beijing High Court, and the "Answers to Several Issues Concerning the Trial of Franchise Contract Disputes" formulated by the Shanghai High Court. The lack of systematic judicial interpretation leads to disputes when the judicial organs deal with specific issues in the trial.

Because the commercial franchise contract has a certain degree of professionalism, the parties to the contract have deviations in understanding and cognition. In addition, the relevant laws and regulations have certain restrictions and requirements on the qualifications and capabilities of the franchisor, and give the franchisor legal obligations such as filing, disclosure, training, and guidance, which makes some franchisors deliberately evade or blur the business of commercial franchising when signing the agreement. The model is covered up in the form of cooperation, joint operation, entrusted operation, contracting, agency, etc., with the intention to avoid the requirements and obligations related to commercial franchising.

The most authoritative and direct basis for determining the commercial franchise contract is Article 3 of the Regulations on the Administration of Commercial Franchising. "The commercial franchise (hereinafter referred to as franchise) mentioned in these Regulations refers to the enterprises (hereinafter referred to as franchisees) that have business resources such as registered trademarks, enterprise marks, patents, proprietary technologies, etc., which license their business resources to other operators (hereinafter referred to as franchisees) in the form of contracts, the franchisee shall operate under a unified business model in accordance with the contract and pay franchise fees to the franchisor". Through the above provisions, the business franchise contract can be identified from four dimensions:

Operating resources is the key to franchising, the signing and performance of the contract is carried out around the franchise resources, if the franchisor does not have the above conditions, franchising will not be possible. Whether the franchisor has its own business resources is an important basis for judging whether the contract is a commercial franchise contract.

The Intermediate People's Court of Suizhou City, Hubei Province (2016) Judgment No. 185 of E 13 Minzong found that Wang Mingfeng did not obtain registered trademarks, enterprise logos, patents, proprietary technologies and other operating resources when signing the "Hot Sister Restaurant Alliance Agreement", so he did not belong to the franchisor of the "Commercial Franchise Management Regulations". Although the "Hot Sister Restaurant Alliance Agreement" signed with Fang Yajie stipulated the contract contents such as franchise matters, however, the contract cannot be recognized as a franchise contract.

Where the franchisor owns the operating resources, it should also license the operating resources to the franchisee for use, and there is no commercial franchise contract without the license.

The Intermediate People's Court of Hangzhou City, Zhejiang Province (2020) Zhejiang 01 Minzong No. 8031 Judgment held that the contract involved clearly stipulated that Li Lunli would purchase the super classroom learning card from Hangzhou Zhengzhihang Company and then sell it to the customer, and did not stipulate that Hangzhou Zhengzhihang Company would permit Li Lunli to use the business resources it owns. Therefore, the contract in question does not have the legal characteristics of franchising and does not belong to the franchise contract.

A unified business model is one of the core elements of commercial franchising. Without a systematic and organized mature business model, commercial franchising will lose its foundation.

Beijing Dongcheng District People's Court (2021) Beijing 0101 Minchu No. 17274 ruling found that according to the terms of the contract involved and the statements of the original and defendant, the performance of the contract involved did not involve the licensed use of business resources such as registered trademarks and corporate logos, and there was a lack of agreement on the plaintiff's unified business model. The core of the cooperative business between the two parties was the promotion and sale of the water, electricity and gas meters involved, which did not exceed the scope of the agency sales contract. If it is determined that the contract involved is not an intellectual property contract dispute, the jurisdiction of the case shall be determined in accordance with the provisions of the law on ordinary contract disputes.

In this case, the court, on the grounds that the contract involved lacked an agreement on the plaintiff's unified business model, held that the contract involved did not belong to the franchise contract (the cause of the franchise contract dispute belongs to the third-level case, and the second-level case belongs to the intellectual property contract dispute), and should be the sales contract.

The operating resources owned by the franchisor generally have high commercial value, and the franchise fee is the consideration for the franchisee to use the operating resources and is the contractual obligation that the franchisee must perform.

The People's Court of Lin 'an District, Hangzhou City, Zhejiang Province (2019) Zhejiang 0185 Minchu Judgment No. 4171 held that in this case, judging from the contents of the cooperation agreement involved and the actual performance of the contract by both parties, both parties agreed that Wang Baofeng would purchase the super classroom learning card from Xiu Platinum Company and then sell it to customers in his own name, but did not agree that Wang Baofeng would pay franchise fees to Xiu Platinum Company. Therefore, the cooperation agreement involved does not have the legal characteristics of franchising, does not belong to the franchise contract, should be recognized as a product distribution contract.

Of course, if the franchisor expressly agrees in the contract that the franchisee will use the operating resources free of charge for other reasons, the nature of the commercial franchise contract cannot be denied on the grounds that the franchisor waives the right to collect franchise fees.

Commercial franchise contract is a comprehensive system composed of many elements, such as operating resources, business model, supervision, management, support, service and so on. Therefore, the identification of commercial franchise contracts should also be systematically identified. In practice, the content of commercial franchise contracts varies widely and may not cover all system elements. At this point, it is necessary to systematically grasp the nature of the contract by interpreting the content of the contract as a whole. As long as the contract has the key elements of commercial franchising, such as operating resources, unified business model, franchise fees, business guidance and training, etc., can be considered as a commercial franchise contract, without having to be strict with all the elements.

The People's Court of Zhangqiu District, Jinan City, Shandong Province (2022) Lu 0114 Minchu Judgment No. 5720 determined that the agreement involved was signed by the parties for the purpose of engaging in commercial franchising activities, and from the content of the agreement, although the content is brief, but the main feature is the franchise contract, which should be bound by the Regulations on the Administration of Commercial Franchising.

Due to the lack of knowledge of the parties to the contract and the deviation of the understanding of the terms, there may be "words that do not reach the meaning" at the time of signing the contract, and even the name of the contract may be improper, the content of the terms may be ambiguous, etc. At this point, it is necessary to examine the purpose and intention of the parties to the contract to determine the nature of the contract. Whether the purpose of the parties is to establish a commercial franchise contract relationship, whether the franchisor intends to license the franchisee to use the business resources it owns, whether the franchisee intends to operate and pay fees according to a unified business model, etc. If the above purposes and intentions are met, the relevant contract may be recognized as a commercial franchise contract.

The Intermediate People's Court of Zhaoqing City, Guangdong Province (2021) Yue 12 Min Zhong No. 217 Judgment held that:

From the perspective of the content and purpose of the "Brand Authorization Agreement" involved in the case, this case not only involves the licensed use of brands such as "promotion", but also involves the control and management of Jiang Fengzhen's business model by the promotion Love House Company. A unified, standardized and standardized business model. The Brand Authorization Agreement conforms to the main characteristics of the franchise contract, and the Brand Authorization Agreement shall be recognized as a franchise contract.

As mentioned earlier, there is a possibility that the parties to the contract may deliberately circumvent the commercial franchise relationship in order to fail to perform their legal obligations. Some are not named after franchise agreements or franchise agreements, but use the names of authorization cooperation letters, agency agreements, cooperation agreements, entrustment agreements, etc. Some agree in the agreement that "this agreement is not a franchise contract", "this agreement is not regulated and adjusted by the regulations on the Administration of Commercial Franchising", "the two parties only have an entrusted management relationship, no other legal relationship (including but not limited to investment, agency, contracting)" and so on. At this time, it is necessary to penetrate the external form of the agreement, according to the aforementioned "four dimensions" to determine whether the relevant contract is a commercial franchise contract.

The People's Court of Huangpu District, Guangzhou City, Guangdong Province (2022) Guangdong 0112 Minchu Judgment No. 156 found that the name of the contract is usually not the main basis for judging the nature of the contract, and the meaning of the terms in the contract should also be explored. Although the contract involved is called "service agreement", but from the above analysis, the "service agreement" in line with the main characteristics of the franchise contract, the plaintiff according to the agreement to the defendant actually one-time payment of the relevant fees, its essence is the franchise fee, so, the two "service agreement" involved in the case should be recognized as a franchise contract.

The franchise fee agreed by both parties sometimes does not use the name of "franchise fee", but uses the name of franchise fee, brand usage fee, or even deposit, commission, training fee, advertising fee and so on. No matter what name is used, as long as it can reflect the paid nature of the use of operating resources can be used as one of the basis for determining the franchise contract.

Shanghai Intellectual Property Court (2022) Hu 73 Min Zhong No. 348 Judgment held that judging from the purpose and content of the three contracts, the three contracts are aimed at the appellee authorizing the appellant to carry out the franchise of the living room ABC project. The essence of the 600000 yuan consultant fee agreed in the City Partner Agreement is the franchise fee paid by the appellant during his joining the contract.

After the signing of the contract, there is a situation where the actual performance is inconsistent with the contract agreement, and when there is an inconsistency, the actual performance should be combined with the content of the contract as the basis for determining the nature of the franchise contract.

Beijing Intellectual Property Court (2022) Jing 73 Min Zhong No. 2481 Judgment held that in this case, Chen Sha and Fast Lihua Company agreed on the store location standard and other contents in the joining agreement, and Fast Lihua Company provided Chen Sha with its trademark, products, business model and other business resources. However, the evidence in the case shows that in the actual performance of the contract, Chen Sha does not have the management decision-making power related to the daily operation of store employees and customers, nor does she directly collect course income, which leads to Chen Sha's failure to operate under a unified operation mode. Therefore, the court of first instance found that the franchise agreement was biased as a franchise license contract, and the court corrected it.