Japan

1. Japan Souichirou Kozuka Sophia University, Tokyo JAPAN - Souichirou Kozuka

2. Franchising in Japan • 1200+ franchisors, 235.000 outlets • JFA member: 254 franchisors • Sales 20.3 trillion yen (203 billion Euros) • Two types of networks • Convenience stores: individual franchisees, strong control by the franchisor • Restaurants: large franchisees, often joining more than one chain JAPAN - Souichirou Kozuka

3. Franchising legislation in Japan • Medium-small Retail Business Promotion Act (MSBRP): disclosure law • Disclosure items provided by Ministerial Order: Main points of the franchise agreement plus information about the franchisor • Applicable only to retail franchising • Protection of SMEs – applicable when half of the franchisees are SMEs JAPAN - Souichirou Kozuka

4. Competition law: JFTC Guidelines • JFTC Guidelines of 2002 serves as the second franchising legislation • Disclosure + some relationship regulations • Open list of disclosure items • Abuse of dominant position; tie-in; retail price maintenance • Applicable to all kinds of franchising • Cease and desist order, injunction by parties JAPAN - Souichirou Kozuka

5. Self-regulation • Disclosure format by Japan Franchise Association (JFA) • Satisfying both MSBRP and JFTC Guidelines • Mandatory on all members (expanding the scope of legislative regulation) JAPAN - Souichirou Kozuka

6. Nature of franchise agreement • SC 4 July 2008 • “Open account” in a franchise agreement of convenience stores • Nature of that part of the agreement: mandate (franchisee mandates franchisor to carry out accounting and settlement) • Duty of reporting derived from the Civil Code • Disclosure of payment details ordered JAPAN - Souichirou Kozuka

7. Interpretation of franchise agreement • SC 11 June 2007 • Calculation of franchise fee under a franchise agreement for a convenience store • Whether the purchase price for goods disposed of by the franchisee is included in “sales” • Definition in the manual prevailed • Textual interpretation – consistent with SC 2008 (requalification by the Court)? JAPAN - Souichirou Kozuka

8. Termination of franchise agreement • Usually definite term is provided • General rules for a continuing contracts: grave reason is required for termination?(no SC case but lower courts tend to affirm) • Tokyo DC 25 Jan. 2005: failure to provide deposit plus repeated delay in payment of royalties found to have destroyed relationship • No right of indemnity JAPAN - Souichirou Kozuka

9. Practical tip for termination • Tokyo DC 21 Feb. 2006 • Repeated failure to pay royalties, unreported borrowing from a nonbank with high interest rate, substandard quality of service • Warning, followed by suspension upon MOU three times (for three years) • Termination justified as relationship found to have been destroyed, no abuse affirmed JAPAN - Souichirou Kozuka

10. Case law on disclosure • Application of disclosure law (MSRBP) does not preclude the development of case law • Duty of franchisor to provide accurate information before concluding an agreement • Earnings claim: not included in the disclosure items under MSRBP but often disputed later • Unreasonable assessment makes the franchisor liable (eg CA Fukuoka 31 Jan. 2006) JAPAN - Souichirou Kozuka