Considerations with respect to Franchise Agreements in Mexico

October 8, 2011
Considerations with respect to Franchise Agreements in Mexico

In accordance with Mexican Intellectual Property Law, a franchise exists when technical know-how or technicalassistance is provided in addition to issuance of a written license for use of a trademark, so that the franchiseemay produce or sell goods or provide services in a uniform manner while maintaining the same quality, prestigeand image of the products or service that are the subject matter of the franchise agreement. Even though theterms of the franchise agreement are negotiated by the parties, Mexican intellectual property law imposesconditions that must be met so that such agreement is effective. Of particular importance is the obligation by thefranchisor to provide the intended franchisee, at least thirty days prior to the execution of the agreement, withprecise information on the franchise, the age of the issuing company, intellectual property rights included in theagreement, amounts and types of payments to be made, the type of technical assistance to be provided, etc. Inother words, the franchisor is required to provide complete information to the intended franchisee on the generalcontents of the franchise agreement. Likewise, article 142 of the Intellectual Property Law establishes theminimum requirements that the agreement must include. These requirements are noteworthy since few lawsprovide a catalogue of items that should be included for certain agreements to be valid. Among otherrequirements is the obligation to include the following in the agreement: the geographic zone contemplated by thefranchise agreement; location, minimum dimensions and characteristics of investments in infrastructure;inventory policies, marketing and publicity; provision of merchandise and contracting with providers; financingpolicies; methods for determining profit margins; and characteristics of technical and operational training. Whilesuch contents are typical for this type of contract, the law requires that such aspects must be included in all theseagreements. Finally, we note that the law also provides that the contracting parties may not terminate orunilaterally rescind the agreement, unless the duration of such is for an indefinite time or there is just cause fortermination. Early termination of the franchise agreement, whether by mutual agreement or rescission, mustcomply with the causes and procedures provided therein.

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