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Practices

Franchising in Japan

Economy

Japan's economy is thriving and is the world’s 3rd largest economy, based on GDP figures.

Legislation

In Japan there are three (3) relevant definitions for a franchise business, as a result there are various Acts regulating franchise agreements. These include the Medium and Small Retail Commerce Promotion Act (Law No. 110 of 1973) (which defines franchises using terminology such as a 'chaining businesses' and 'specified chaining businesses'.) The Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Act No.54 of 1947) Lastly the Japanese Franchise Association Guidelines, which contribute to the regulation of the relationship between the franchisor and franchisee - membership to this association is voluntary.

Franchise Market

The Japanese franchise market has over 1000 franchise concepts with the services and retail based franchises accounting for approximately eighty (80) percent of the Japanese franchise market.

Franchise Legislation
  • Franchisors are not required to comply with any registration requirements prior to the grant of franchise rights in Japan.
  • A franchisor whose business falls under the definition of a 'specified chaining businesses' is required to provide written pre-contractual disclosure to a potential franchisee.
  • The Japanese Franchise Association Guidelines require franchisors to disclose sufficient and accurate information to prospective franchisees.
  • The Japanese courts have expansive power and authority to alter specific provisions or the entire franchise agreement. The entire franchise agreement may be rendered void (rendering the agreement unenforceable) by the Japanese courts if construed to be an 'abuse of bargaining power' or if either party acts contrary to the doctrine of acting in good faith (the franchisee having to pay unreasonably high fees for example).
  • Other areas of local law such as anti-monopoly, trade marks and anti-trust apply to franchise relationships in Japan.
Conclusion

The Japanese courts adopt a case by case analysis of franchise agreements. To ensure compliance and the enforceability of franchise agreements with both Japanese common law and legislative restrictions it is crucial that franchisors seek specialist legal advice.