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Franchising Internationally - How Is It Affected By Brexit?

Posted on: Tuesday, 28 January 2020 9:37 am

With Brexit coming closer and closer every day and so much uncertainty still a massive part of the debates, it’s clear that the Brexit issue is far from solved. While EU rules and regulations will still apply in the UK until 2021, now is the time for all franchisors to be taking a look at the impact the massive changes Brexit might have on their business. While Brexit will impact almost all business and franchise owners, international franchises are especially likely to have to make some big changes to how their franchise network operates. At The Franchise Company, as experts in international franchising, we are keeping a close eye on how Brexit negotiations are developing, and the impact this can have for franchises overall, including international franchises. Some of the biggest changes for franchisors are likely to be related to supply chains and territorial disputes, but almost all aspects of business will feel the effects of Brexit as trademark laws, movement of goods and changing legal systems, among other elements will see dramatic changes.

Changes To Supply Chains

One of the biggest advantages for international franchises working across the EU is the free movement of goods currently available. This allows franchisors and franchise networks to share resources across the continent, and take advantage of economies of scale as one supplier can provide for the whole network in the region. When the UK withdraws from the free market and potentially loses access to this system of free movement of goods, this will no longer be possible for franchisees in the UK, and, depending on the structure of the franchise network, may disrupt the supply chain for franchisees in remaining EU countries as well. Import and export duties to and from the UK are likely to return, making the movement of goods slower, more laborious and more expensive. If organisations don’t take steps to rearrange their supply chain now, they may find themselves facing delays and extra costs when the new rules are agreed and come into effect.

However, new regulations may also make it easier to import from non-EU countries, who can simply take the place of EU members in the supply chain. Franchisors may want to look into alternative suppliers in other locations ahead of regulation changes to smooth the road into a post-Brexit world and minimise costs and delays in the supply chain. However, as with many issues surrounding Brexit, there is uncertainty as franchisors have to decide whether to restructure their supply chain before exit negotiations have been finalised and potentially end up on the back foot compared to competitors, or to wait until agreements are finalised, and risk delays and issues as regulations change.

Territorial Restrictions

As the UK officially leaves the EU, the impact of territorial provisions may be extensive. For example, if a master franchisee or regional franchisee has been granted the territory throughout the EU, including the UK, do they still have rights to the UK? What happens to franchisees already established under the master franchisee in the UK? These are all questions franchisors need to answer before the exit agreement is finalised, to prevent complications and ensure complex legal action isn’t required on the part of the franchisor, master franchisee or individual franchisees. Some organisations may decide to simply edit the territory to include EU member states and the UK, though this would require master franchisees or franchisors to work across two different legal systems. Franchisors could appoint a UK master franchisee, but this would involve either giving up franchise territory, which isn’t something all organisations want, or taking a large market away from a current master franchisee. There are hundreds of different options for international franchises when it comes to territory disputes caused by Brexit, so you may find yourself in need of a franchise consultant, to talk you through your options, mediate disputes and find a solution that satisfies all parties in a post-Brexit world.

Enforcing Franchise Agreements

Currently, many international franchise agreements are subject to English law, and so disputes are subject to the jurisdiction of English courts. However, as English laws may change dramatically after EU restrictions are lifted, this may not stay the same way. Currently, there are two main EU regulations that determine which courts a certain dispute will enter, which laws will be applied in the dispute and how the judgement made will be enforced, but after Brexit these regulations wouldn’t apply in English courts. There may need to be separate treaties with each of the EU member states and the UK to define how UK judgements can be applied in disputes between the UK and the individual EU countries. However, the UK could potentially sign the Hague Convention, though have said previously they will not sign the Lugano Convention.

In future cases, foreign franchisees may have the ability to challenge English law, especially if the franchise agreement does not have any particularly strong link to or relationship with the UK. In these cases, the law of the foreign franchisee’s country may be used, or arbitration may become more popular among the franchise sector. For franchisors based in the UK and franchising internationally, English law is likely to still apply, however.

Trademark Law

For franchisors, trademark law is a vital part of how the business operates. As a franchise is based on licensing out a brand and relevant materials based on that brand, being able to trademark their own materials is of the utmost importance. Currently, an EU trademark, or EUTM, is protected in all EU countries, including the UK, however, when the UK leaves the EU, there is a lot of uncertainty around how trademark law will operate going forward. Whether EUTM’s will still be protected in a post-Brexit UK is still unknown, or if organisations will have to take out a separate UK trademark in order to be protected across an international franchise network. UK companies may also not have the right to oppose new trademark registrations in the EU where they would have been able to seek its cancellation as a member state.

However, like so many issues concerning Brexit, much of this is uncertain looking into the future. To find out more about how you can protect your business after Brexit or get advice on how Brexit might affect you, get in touch with the team at The Franchise Company today.

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