CHINA Law and Practice Contributed by: Qiang Ma and Yan Feng Liu, Jingtian & Gongcheng
7.3 Mandatory Content Article 11 of the Regulation stipulates that the fran - chise contract must be in writing and include the fol - lowing mandatory clauses: • basic information about the franchisor and fran - chisee; • the content and term of the franchise; • the type, amount and payment method of franchise fees; • specific details of operational guidance, technical support, and business training; • provisions on product or service quality control; • clauses on the use of the franchise brand and related advertising; • provisions for the renewal, termination and transfer of the franchise; • liability for breach of contract; and • dispute resolution mechanisms. 7.4 Prohibited Provisions in Local Law The law does not provide a specific “blacklist” of pro - hibited contractual provisions. However, any clause that violates the mandatory provisions of the franchise regulations or other fundamental principles of Chinese law would be deemed invalid and unenforceable. 8. Dispute Resolution 8.1 Enforcement of Foreign Judgments China is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbi - tral Awards. Therefore, arbitration awards made in other member states are generally recognisable and enforceable in Chinese courts. Enforcing foreign court judgments in China is gen - erally considered challenging. Enforcement primarily relies on bilateral treaties or the principle of reciprocity. 9. Payment and Taxes 9.1 Restrictions or Limits on Franchisee Fees and Royalties There is no specific restriction imposed on the pay - ment of franchise fees.
majority of franchise systems that do not possess sig - nificant market power.
7. Choice of Governing Law 7.1 Possibility of a Franchisor Stipulating Non-Local Law Parties to a franchise agreement are generally permit - ted to choose a foreign law to govern their contract. This principle of party autonomy is recognised under Chinese law, particularly Article 41 of the Law on the Application of Law for Foreign-Related Civil Relations of the People’s Republic of China. If the franchise agreement involves the licensing of intellectual prop - erty, Article 49 of the same law specifically addresses IP transfer and licensing, allowing parties to choose the applicable law. The choice of law is not absolute, however, and is subject to limitations. • Any choice of foreign law cannot derogate from the mandatory provisions of Chinese law that apply to franchise activities conducted within China. This means that regardless of the chosen govern - ing law, Chinese regulations concerning franchise operations – such as disclosure requirements, registration with the MOFCOM, operational rules, and protections for franchisees – will still apply if the franchise is operating in China. • Rights in rem concerning IP (eg, ownership and validity) are generally governed by the law of the Article 2 of the Regulation stipulates that “the engage - ment in commercial franchise within the territory of the People’s Republic of China shall be governed by this Regulation”. Thus, mandatory franchise regula - tions (eg, disclosure rules, registration requirements, the “two stores, one year” requirement for filing, con - tract duration, and termination requirements) cannot be contractually avoided by selecting foreign law. The validity, protection, and infringement of intellec - tual property rights (trade marks, patents, etc) in China are exclusively governed by Chinese law. place where protection is sought. 7.2 Local Law Requirements
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