Franchises and franchise agreements must comply with the competition rules in Hong Kong’s Competition Ordinance. While franchises have a right to protect their brand and intellectual property, they don’t have a right to limit competition. Excessive restrictions demanded by franchises will run afoul of competition law, but measures specifically necessary to implement the franchise agreement will not.
Beware these restrictions:
- Resale Price Maintenance (RPM). The Ordinance’s First Conduct Rule (FCR) prohibits an agreement or arrangement between two parties that has the object or effect of harming competition in Hong Kong. A franchisor may, therefore, provide a franchisee with a recommended price list and a maximum price, but may not require a franchisee to resell goods or services at a fixed or minimum resale price.
- Non-compete. An overly zealous non-compete with a broad scope or extended duration likely breaches the First Conduct Rule. Franchisors may restrict a franchisee’s operation to a specific territory and prevent a franchisee from selling competitive goods.
- Franchisee suppliers. “A franchisor may require franchisees to purchase goods or services from the franchisor, a related company, a particular supplier, or a list of nominated suppliers.” Such arrangements, however, should not limit competition.