Puerto Rican law requires an ordinary franchise contract to be read in conjunction with Puerto Rico’s Dealers Act, commonly known as Law 75. Law 75 provides additional protections to distributors of products regarding:
Termination rights (requiring cause)
Jurisdiction for resolution of disputes (Puerto Rico)
Choice of law (Puerto Rico) beyond what might be contained in the four corners of any franchise agreement
Consequently, corporations interested in expanding their franchise markets into Puerto Rico need to confer with experienced local counsel to maximize benefits of doing business in Puerto Rico and customize contract language, business practices and dispute resolution with local franchisees.
Ordinarily a franchise arrangement involves the licensing of trademarks and methods or production or service to an independent business owner. There are two primary forms of franchising: product/trade name franchising and business format franchising. Many franchise agreements, drafted by the franchisor, include considerable contractual benefits to the franchisor, with an understanding that the franchisor is taking the larger financial risk.
Franchisors must produce and update a Uniform Franchise Offering Circular that lays out the franchise’s legal, financial and personnel history. Under common franchise contracts, franchisees purchase the right to:
Use the franchise name and trademark-protected logo and other products
Participate in training and management coaching from the franchisor
Use the franchisor’s expertise in marketing, advertising, design, and product look
Do business in a territory protected from competing franchisees
Because of the broad reach of Law 75, its terms apply to ordinary franchise contracts, offering considerable protections to Puerto Rican franchisees beyond the franchise contracts.
While legislation and additional judicial opinions are unfolding, franchising can, of course, continue.
Posted in Franchise Law
Tagged business format, product distributors, trade name, Uniform Franchise Offering Circular