6 April 2020
Thailand

Despite the fact that there is no specific law governing franchise businesses in Thailand, the Board of Trade Competition has set guidelines in determining the unfair trade competition for franchise businesses. The Board’s Notification Regarding the Guidelines for the Consideration of Unfair Trade Practices in Franchise Businesses has been published in the Government Gazette on 6 December 2019 and came into force in Thailand on 4 February 2020. Failure to comply with the Board’s Notification will cause a penalty under Section 57 of the Trade Competition Act B.E. 2560 (2017) resulting in a fine up to ten times the company’s income in the year of the penalty.

The Notification imposes two main issues:

  1. Obligations on the franchisor to disclose essence information.
    1. The following information must be disclosed to the franchisee prior to entering into the franchise agreement.
      1. information on compensation and cost of business, such as franchise fee, royalty fee, marketing cost, training cost, expenses for the purchase of equipment necessary to conduct business, expense method, including payment details and refund conditions, etc.;
      2. franchise business plan, such as management assistance, training plan, consultation, number and location of current and future nearby franchisees, sale promotion strategy, etc.; and
      3. information on the trademark rights, patent, copyright and the related rights, term of protection, scope and condition of the license agreement.
    2. During the course of franchise business operations, if the franchisor would like to expand the business in any geographical area, the franchisor is obligated to notify and offer the right of first refusal to the nearest franchisee. In this case, the priority to operate the said business must be given to the existing franchisee if they respond within the prescribed time.
  2. The Notification also restricts the franchisor from engaging in trade practices that may cause damage to the franchisee and would be considered unfair.
    1. Setting restrictive conditions for the franchisee without justifiable reasons, such as forcing the franchisee to exclusively buy products or services that are irrelevant to the operation of the franchise business from a designated supplier, or forcing the franchisee to purchase any raw material in an amount that exceeds the normal requirement with a non-refundable condition.
    2. Setting a term that forces the franchisee to enter into any additional condition after the execution of the franchise agreement without justifiable reasons, such as buying additional products or services, or performing other duties.
    3. Prohibiting the franchisee from buying products or services from other sources without justifiable reasons despite that the quality and pricing of the products or services are equivalent or even better.
    4. Prohibiting the franchisee from selling perishable goods or good near expiration at a discounted price.
    5. Discriminating or enacting a double standard franchise agreement between two different franchisees without justifiable reasons.
    6. Setting any restrictive conditions for the franchisee in an aim for other objectives other than to maintain the reputation, quality, and standards in accordance with the franchise agreement.

Despite the announcement of this Notification, other laws governing contracts and business operations are still applied and interpreted to govern franchise relationships and franchise business transactions, in particular, the Civil and Commercial Code, the Revenue Code, the Unfair Contract Terms Act B.E. 2540 (1997), the Trade Competition Act B.E. 2560 (2017), the Direct Sales and Direct Marketing Act B.E. 2545 (2002), the Consumer Protection Act B.E. 2522 (1979), the Product Liability Act B.E. 2551 (2008), as well as various Intellectual Property Laws and other regulatory approval requirements such as for food, beverages, pharmaceutical, nutritional, hazardous, and cosmetics.

If you have any questions or require any additional information, please contact Nuttaphol Arammuang or ZICO IP Thailand.

This article first appeared on WTR Daily, part of World Trademark Review, in March 2020. For further information, please go to www.worldtrademarkreview.com.


This alert is for general information only and is not a substitute for legal advice.