1E9Ct5D

174C H A P T E R I Xbetween franchisor and franchisee includes a product or a service and a trademark, a marketingsystem, operation manuals, procedures, training programs, advertising support, andguidance for the franchisee during the operation and development of the business.With respect to the geographic area within which the franchisee operates, usually theparties agree to either a unitary franchise, where a franchisee is only entitled to open andoperate one establishment, or a master franchise, where the franchisee has the exclusiveright to open a certain specified or unspecified number of establishments within a specificterritory.The trademark that distinguishes the product or service of the franchise is an essentialelement of the contract. Granting the license to use the trademark is one of the principalobligations of the franchisor, and such a license must be registered with the Mexican IndustrialProperty Institute (Instituto Mexicano de la Propiedad Industrial, IMPI) in order to be validbefore third parties. This is a formal requirement for all franchise agreements in Mexico.This obligation of the franchisor is reciprocal to the obligation of the franchisee to usethe trademark pursuant to the terms and conditions of the license, since otherwise thetrademark can lapse for lack of use.Another essential element of this contract is the transfer of knowledge or technology(know-how) contained in the manuals, procedural guidelines, personnel training, inspections,and in general everything that allows the franchisee to produce the products orprovide the services uniformly, thereby maintaining the quality, prestige, and image of theproducts or services to which the licensed trademark applies. In this type of contract itis very important to achieve homogeneity in the product or service, establishing qualitystandards so that the franchisor can control the quality of the product or service and thusmaintain the prestige of the trademark with its clients.The consideration paid by the franchisor to the franchisee is another aspect that mustbe given specific treatment in the contract. Generally two types of payment are agreedto: an initial payment or fee giving the right to the franchise (franchise fee) and royalties(regalías)—periodic payments that will be determined, primarily, by the type of productthat is sold or the services provided.One of the principal obligations of the franchisee, in addition to using the licensedtrademark, is to comply with the specifications and methods provided by the franchisor.Failure to do so can be a cause for early termination of the contract. Furthermore, thecollaboration of the franchisee with the franchisor regarding the advertising of the productsor services is often agreed upon, since it is understood that such advertising willbenefit both.By nature the franchise agreement is usually long term and the principal cause of itstermination is the expiration of the agreement. However, the contracts often stipulateother forms of termination, such as by an advance notice from one party to the other ofthe termination of the relationship.