Institution Definition

A special type of agreement whereby one undertaking (the franchisor) grants to the other (the franchisee), in exchange for direct or indirect financial consideration, the right to exploit a package of industrial or intellectual property rights (franchise) for the purposes of producing and/or marketing specified types of goods and/or services. This package typically relates to trade marks, trade names, shop signs, utility models, designs, copyrights, know-how or patents. A franchise agreement usually contains obligations relating to (1) the use of a common name/shop sign and a uniform presentation of contract premises and/or means of transport, (2) the communication by the franchisor to the franchisee of know-how, (3) the continuing provision by the franchisor to the franchisee of commercial and technical assistance during the life of the agreement. European Commission

A special type of vertical relationship between two firms usually referred to as the "franchisor" and "franchisee". The two firms generally establish a contractual relationship where the franchisor sells a proven product, trademark or business method and ancillary services to the individual franchisee in return for a stream of royalties and other payments. The contractual relationship may cover such matters as product prices, advertising, location, type of distribution outlets, geographic area, etc. Franchise agreements generally fall under the purview of competition laws, particularly those provisions dealing with vertical restraints. Franchise agreements may facilitate entry of new firms and/or products and have efficiency enhancing benefits. However, franchising agreements in certain situations can restrict competition as well. (...) © OECD

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