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China franchise agreement overview

The China franchise agreement underscores and outlines the working relationship between the franchisor and franchisee and is a legally binding document on both parties. The document needs to stipulate all the details of the agreement and can vary quite a lot depending on the type of franchise opportunity, the industry of operation and the general terms and conditions that were mutually discussed before the signing of the document. If you are looking to franchise your business, this is the most important document that will help you legally for any case in the future with your franchisee.

Bigger franchisors have a standard document for all franchisees to ensure that they are all treated equally and the franchise agreement contains all that the franchisor expects from the franchisees. However, there is no standard procedure that needs to be followed by all industries and franchisors and there is no standard format for this document.

Different from Franchise Disclosure Document

A quick note is due here. The franchise agreement should not be confused with the franchise disclosure document (known as the FDD). The franchise agreement is a legally binding document that is signed by both the franchisor and franchisee to indicate the start of their business partnership. On the other hand, the franchise disclosure document doesn’t signal the start of the business relationship.


Enforcing and Implementing Patent Protections in China:

Chinese cultures and legal systems are very different from those in other counties.  The rule of law has never been the dominant philosophy in China; instead, the Chinese relies mostly on mediation or other sources outside of the court system to resolve their disputes.  Although the Chinese government has engaged in significant efforts to enact IP protection, the lack of effective enforcement of these laws in China has been a long-standing problem.

The first essential issue for the lack of enforcement of IP laws is the education and cultural issue.  For centuries, Chinese believe that inventions and creative works belong to society, and should be freely shared or owned by the Chinese Government.  Therefore, as traditional Chinese culture does not consider IP rights as private rights, the entire concept of IP protection is quite new.  Many Chinese and business entities are not aware of their IP rights and the need to seek protection; and many infringers do not know that their activities infringe other’s private rights.

Second, since IP rights and protections are a new concept in the Chinese legal system, most Chinese lawyers and judges have no experience in this field.  Currently, China is short of lawyers specialized in patent and other IP law, and the judges who are dealing with patent and other IP disputes are mostly inexperienced law school graduates.  There are no clear judicial tests to determine infringement, and disparate treatment and inconsistent results would be obtained from different courts.


China Intellectual Property Licensing Agreeemnt


A licensing agreement can be used when you (the licensor) grant certain legal rights to another business (the licensee) to use your intellectual property (IP) under licence. If you license another business to use your IP, that business is allowed to sell products and services based on it. In return, they pay you royalties based on the income that your IP generates for them.

The agreement needs to set out the relationship between the licensor and the licensee clearly to avoid ambiguity.
This document illustrates the types of clauses you might find in an IP licensing agreement. It refers to clauses that you might find in all licences, regardless of the IP, and clauses that are more specific to particular types of IP.

Please note that you should always seek professional advice from an IP lawyer when drafting a licensing agreement.

This normally refers to the date that the licensing agreement is signed by both parties. Sometimes it may refer to a specific date upon which the licence is to start, or it may link the start date to a specific event (eg, the date of delivery of certain technology to the licensee).

The names and details of the licensor and licensee, eg:
[COMPANY NAME], a company incorporated in [China] (registration number [number]) having its registered office at [address] (the 'Licensor'); and
[COMPANY NAME], a company incorporated in [China] (registration number [number]) having its registered office at [address] (the 'Licensee').


China Patent Due Diligence

Due diligence is a necessary first step before embarking on any kind of business transaction and particularly important when considering entering into a long-term business relationship such as a license agreement. If you would like to do a patent due diligence in China, we advise you to retain our China Patent lawyer to do this job. Having identified one’s short- and long-term strategic objectives and how entering into a licensing agreement, whether it is to license-out technology or to license-in technology, fits into those objectives, it is imperative to engage in an exercise of due diligence. Such an exercise is the process of gathering as much information as possible on the potential licensor or licensee, the technology and other similar technologies available in the market or being developed, the market, the legal and business environment (local or international, as the case may be) and any other information that would enable the potential licensor or licensee to be better informed. The exercise must be conducted in a legitimate manner, keeping in mind one’s financial and time constraints, and undertaken within the bounds of the law.

It is difficult to prioritize or identify any one or more items of information as the most important in a due diligence exercise and it would be misleading to do so. What information is important depends on a variety of factors which vary from situation to situation. However, it may be useful to point out that in a due diligence exercise information is often sought with respect to the following: the ownership of the technology, is it proprietary and have all proper procedures been followed to ensure its protection in the relevant markets, are there any third parties claiming rights over the intellectual property asset, can it deliver, in that, will it serve to reduce costs, improve performance or deliver other identifiable benefit, do other intellectual property rights need to be acquired to fully implement the technology in question, what in fact is its economic and strategic value, in that, to what extent does it fit into and further the business objectives of the alliance?


Licensing Intellectual Property in China

A well-written licensing agreement can make a big difference to a business. That's why we advise you to retain our China intellectual property lawyer to draft an IP licenesing agreement for you. There are various advantages to licensing a product, technology or a trademark. A business licensing a product can retain control over the product, including how and when the licensee uses the product. For example, the business licensing the product can specify how many parties can use the product and the payments that must be made for every use. Further, a license for a product typically has a set term wherein the product reverts back to the licensor when the term runs out. This is beneficial for many companies that desire to be dynamic and have the freedom to change vendors and business partners periodically. Likewise, a business licensing a trademark can retain control over the quality of the products sold under the trademark.

I have vast experience in drafting and negotiating well-written licensing agreements that protect the intellectual property being licensed and allows for greater revenue. I am adept at working with my clients to develop strategies for exploiting their technologies and for navigating the myriad legal and technological issues that arise in drafting and negotiating licensing agreements involving technology transfer.

As a Board Certified Specialist in the area of Intellectual Property Law, I can assist you with your intellectual property licensing needs.

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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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This China Lawyer Blog is aiming at providing better knowledge and understanding of Chinese law for foreigners. Should you have any legal issue in China, do not hesitate to contact China Lawyer Blog for consultation. Preliminary consultation is free. Further legal service, however, will be charged in due rate and in due course.

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.