Presentation by HASAN IRFAN KHAN Attorney At Law

Presentation by HASAN IRFAN KHAN Attorney At Law 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 1

UNITED TRADEMARK & PATENT SERVICES Trademark, Patent, Design, Copyright Law Consultants & IRFAN Legal Consultants Corporate, Commercial, Intellectual Property Law, Licensing & Litigation West End Building, 61 -The Mall, Lahore-54000, PAKISTAN Ph: +92 42 628 5581 -84 Fax: +92 42 628 5585, 86, 87 E-Mail : Hasan. Khan@UNITEDtm. com Website: http: //www. utmps. com 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 2

What is Franchising? l Different definitions by different franchising associations 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 3

Definition by British Franchise Association l A contractual licence granted by one person (the franchisor) to another (the franchisee) which: l (a) permits or requires the franchisee to carry on, during the period of the franchise, a particular business under or using a specific name belonging to or associated with the franchisor; and 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 4

(b) entitles the franchisor to exercise continuing control during the period of the franchise over the manner in which the franchisee carries on the business which is the subject of the franchise; and (c) obliges the franchisor to provide the franchisee with assistance in carrying on the business which is the subject of the franchise (in relation to the organization of the franchisee’s business, the training of staff, merchandising, management or otherwise); and 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 5

(d) (e) 11/3/2020 requires the franchisee periodically, during the period of the franchise, to pay the franchisor sums of money in consideration for the franchise, or for goods or services provided by the franchisor to the franchisee; and is not a transaction between a holding company and its subsidiary (as defined in section 736 of the Companies Act 1985) or between subsidiaries of the same holding company, or between an individual and a company controlled by him. Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 6

Definition by International Franchise Association l 11/3/2020 “A franchise operation is a contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format and/or procedure owned Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 7

or controlled by the franchisor, and in which the franchisee has or will make a substantial capital investment in his business from his own resources. ” 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 8

In Pakistan, the Honourable Supreme Court of Pakistan in Bolan Beverages v. Pepsico 2004 CLD 1530 at page 1539 has referred to the definition of franchising given in the Black’s Law Dictionary in the following terms: “As franchise is not defined in our own Contract Act, we may have a reference to Black’s Law Dictionary 6 th Edition pager 658, where franchise is defined as “a privilege granted or 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 9

sold, such as to use a name or to sell products or service. The right given by a manufacturer or supplier to a retailer to use his product and name on terms and conditions mutually agreed upon. ” In its simplest terms, a franchise is a license from owner of trademark or tradename permitting another to sell a product or to serve under that name or mark. Precisely this definition is more akin to a license rather than an agency. What exists between the present parties is more suitable to be determined in the light of the agreement itself then the relevant laws on the subject. ” 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 10

Perhaps, the only Pakistani law defining “Franchis(e)ing” is the Federal Excise Rules, 2005 made under the Federal Excise Act, 2005 which defines Franchise as Rule 2(ma): (ma) “franchise” means an agreement by which the franchisee is granted representational rights to sell or manufacture goods or to provide service or to undertake any process identified with franchiser against an agreed fee or consideration including royalty, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be is involved; 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 11

It also defines franchiser as : Rule 2(mb): “franchiser” means any person who enters into franchise and includes any associate of franchiser to enter into franchise on his behalf, and the term ‘franchisee’ shall be construed accordingly; 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 12

There is thus NO uniformity in describing what “Franchising” is and what is its extent 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 13

It is however clear that some common features emerge such as: i) Contractual relationship flowing from Franchisor to Franchisee. ii) Control by the Franchisor over entire business operations of the Franchisee. iii) Assistance by the Franchisor to Franchisee in setting up, development, operation and promotion of a business. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 14

iv) Payment of royalty and fee by the Franchisee to the Franchisor and Franchisee are two distinct legal entities having their own profit and loss liabilities. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 15

l Evolution in Pakistan: l Franchising is not a new concept in Pakistan. l It has existed ever since Pakistan’s independence. l However, its form was different. l The earliest Franchise operations in Pakistan were those of Petrol Stations such as Pakistan Burmah Shell (PBS), CALTEX. l The popular brands of 7 -UP, Coca Cola and Pepsi Cola were also the earliest franchise operations in Pakistan in a different context. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 16

• They referred to “franchising” in the context that concentrate was supplied by Franchisor to the Franchisee/bottler in Pakistan. • The agreement was usually headed as “franchise and bottling agreement”. This (perhaps) still continue the same way today. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 17

Franchising in modern times in Pakistan l Fast food chains e. g. Business operation module in service sector l Telecommunication business l 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 18

Fundamentals of franchising l a) 11/3/2020 Intellectual property and other rights, e. g. , trademark, copyright, interior and exterior décor, know how, trade secrets, design and patents, operating manuals, etc. Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 19

b) Contract i) Acknowledgement of Franchisor’s IPR’s by the Franchisee, l ii) License by the Franchisor to the Franchisee to use the intellectual property rights. l iii) Consideration for the contract/royalty/fee l iv) Control of Franchisor over Franchisee’s conduct of business and use of intellectual property rights. l 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 20

b) Contract v) Adherence by the franchisee to franchisor’s method, specifications manner and module of conduct of business. l vi) Manner and mode of sale of products or rendition of services. l vii) Touch of uniformity of goods, their recipe, taste etc. in the business pattern/shop décor etc. , l 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 21

b) Contract l v) Adherence by the franchisee to franchisor’s method, specifications manner and module of conduct of business. l vi) Manner and mode of sale of product or rendition of services. l vii)Touch of uniformity in the business pattern/shop décor etc. , 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 22

b) Contract viii) Relationship of the consumer/customer with the franchisor through Franchisee and the limitations imposed thereon by contractual warranties, indemnities and guarantees. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 23

Various Forms of Franchising in Pakistan l i) Retail franchise – petrol franchise etc. , 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 24

Various Forms of Franchising in Pakistan l ii) Product franchise – including manufacturing, processing, services etc. , for example, 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 25

Various Forms of Franchising in Pakistan l iii) Management franchise – (a form of service franchise) 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 26

Various Forms of Franchising in Pakistan iv) Local diversity : l Seekh kabab Pizza, Chicken Tikka Pizza, Mc. Arabia. l 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 27

Contractual Arrangement In Pakistani there is no specific law regulating all the issues relating to franchising. Therefore, relationship of the parties and their rights and liabilities inter se are, principally, governed by contractual arrangements which, under law, are subject to strict interpretation of the terms of the contract. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 28

Contractual Arrangement Therefore, franchising relationship is purely a contractual relationship. l It is, however, not only governed by the contract itself, but to the extent of the use of intellectual property rights, is regulated by their respective laws. l l In the broader since, other laws of Pakistan recognize the concept of franchise arrangements, such foreign exchange laws (remittance of royalty franchise fees etc. ). 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 29

Myths and Realities Whether franchisee is an agent of the franchisor? l No l There is a violent conceptual collision. Franchisers maintain that franchise is merely a form of licensing and therefore revocable, whereas franchisees dispute that a franchise is actually a license or an agency coupled with interest not subject to termination without compensation. l 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 30

In Pakistan the question of termination of a license agreement has been clarified in the Bolan Beverages Case 2004 CLD 1530 and Sensodyne Case 2005 CLD 1805 where the argument that license was an agency coupled with interest was rejected. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 31

LICENSING FRANCHISING Trademark / service mark use only Use of whole concept including trademark/ service mark Licensing of goods may not involve purchase of raw material from the licensor. Franchising involving goods invariably require purchase of raw materials and goods from franchisor or its approved suppliers. The term license suggests limited rights and control The term franchise represents more substantial rights and controls. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 32

LICENSING FRANCHISING Trademark / service mark use only Use of whole concept including trademark/ service mark Licensing of goods may not involve purchase of raw material from the licensor. Franchising involving goods invariably require purchase of raw materials and goods from franchisor or its approved suppliers. The term franchise represents more substantial rights and controls. The term license suggests limited rights and control 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 33

Company owned/operated stores/operations, howsoever uniform, are not franchise operations. Distinguishable from a pure license, agency, distributorship, dealership and retailing. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 34

FRANCHISOR-FRANCHISEE RELATIONSHIP- LEGAL & CONTRACTUAL. Under the Pakistani law the relationship is governed by the terms of the contract. Under ordinary circumstances, it is the form of a license to the extent of use of IPRs and no agency rights are created. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 35

Each party remain responsible and liable for performance of its own obligations. Obligations and liabilities of franchisee do not permeate into those of the franchisor. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 36

Customer’s Relationship with Franchisor Through Franchisee. Franchising contracts typically carry a clause relating to any product liability to be the responsibility of the franchisee and such liability cannot, under normal circumstances, be passed on to the franchisor. If product liability issues arise as a result of acts or omissions on the part of franchisor, still franchisee may not be able to pass on those liability issues to the franchisor but may have a remedy of damages against the franchisor on the basis of such acts or omissions. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 37

TERMINATION, ENFORCEMENT AND CONFLICT OF LAWS. The Pakistani law recognize the right of the franchisor (and of the Franchisee) to terminate franchising arrangements in the manner provided by the contract. The Pakistani law envisage a solitary exception i. e. where the franchisee can establish “an interest in the subject matter of the franchise”, such a franchise cannot be unilaterally terminated. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 38

In franchising arrangements, where the franchisor is a foreign company regulated by some foreign law, Pakistani law and courts recognize right of the parties to chose any foreign law as law governing the franchise agreement arbitration in a foreign country which may be governed by any set of rules, law and the forum through mutual agreement. recognize enforceability of a foreign arbitration award in Pakistan. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 39

- Any agreement in restraint of trade is void (Section 27). Usually franchise agreement contain a clause that neither during the continuation of the franchise agreement nor for a certain period in post termination situation, the franchisee could engage in any business competing with that of the franchisor. In strict legal sense of the matter, in Pakistan, such a contractual covenant would be invalid as our law does not validate such a contractual arrangement. 11/3/2020 Hasan Irfan Khan Hasan. Khan@UNITEDtm. com 40