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Gargollo, , p. The lack of legal regulation has not been a problem for the creation of franchises in Colombia. It's no secret that the franchise has become a growing phenomenon in our country. Law of , which provides regulation for all consumer rights and obligations, does not provide any regulation on this issue regarding the franchise agreement, not even for when the consumers' rights have been violated by a franchise.

Furthermore, for entrepreneurs it is an easy way to start their own business, taking advantage of the experience and structure that have been tried by others. One of the main advantages of starting a franchise is the ability to jump into the market knowing how it works, how the brand is established, how the product is sold and how it is accepted by the general public.

On the other side, The rise of the franchise can be qualified as wild, since there is no specific regulation to this trade, thus, it is not strange that franchisor and franchisee enter into abusive contracts that benefit the franchisor Gonzalez, , p. The lack of legal regulation often leads the brand owners to make demands that can be very hard to accomplish on the side of the franchisee. It is a figure that may give a lot of power to the franchisor and puts the franchisee in disadvantage in terms of their negotiation power.

Such an uneven contract can have devastating consequences on the success of the business and it can determine if the franchise contract succeeds or fails. The contract is based on the voluntary agreement of the parties; the franchise is an agreement between the franchisor and the franchisee, in which one is granting the other permission to use the name and likeness of an established business, transmit expertise or provide technical assistance. The franchisor must ensure the franchisee the existence and title over such rights, be the owner of them or have permission from the owner to grant licenses to third parties.

At the same time, the franchisor must guarantee the peaceful use of the licensed logos and do everything in its power to oversee that third parties do not use them in detriment of the franchisee. Ruiz, , p. Franchises minimize the risk for investors because there are specific results and procedures from which they can benefit.

These procedures decrease operating costs, as well as provide a good return on investment and easy advertisement and promotion of the product. Some of the other benefits are the membership to a group or network of franchises, which makes it easier to sell and distribute the product or service, the access to a pool of free innovation and first-hand information about an established business.

Services on Demand

On the other hand, franchises even help in the field of costs and organization; they are also ways to limit the potential of other items and ideas of the producer, which could at the same time, seek a balance in the economy and create opportunities to others who do not have the money to invest in a franchise.

This article will deal with the franchise in Colombia and it will try to answer possible concerns that an entrepreneur might have when buying a franchise in Colombia. It will also analyze the procedures, regulations and cases of successful and unsuccessful franchises in the country. The Latin American economy, despite having so many inequalities, has grown substantially in the last decade, which has led to the market demanding products and services that exist in developed countries.

With this expansion, franchises arrived in the region. In Colombia, franchises have spread widely these years. According to the director of the board of Colfranquicias, Luis Felipe Jaramillo Lema, Colombia went from networks in late to about in December , with about 8, establishments under this figure, which generate between 35, and 40, jobs. Each year 40 new franchises open in the country.

Franchising is a multinational phenomenon; many companies have opted for it in their own countries and have slowly ventured into foreign markets driven by economic globalization phenomena. According to Scott Murphy, senior president of Dunkin 'Brands, Dun-kin' Donuts, We are a global company that sells 8 billion dollars, with 2 billion cups of coffee daily, making us the number one selling coffee cups daily.

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Colombia has been the basis for our growth in Latin America Gomez, The case of Dunkin donuts shows how the Colombian economy has been the basis for the evolution of this contract in Latin America, in addition to the relationship of the representative in Colombia with the owner of the chain, who has allowed the Colombian coffee to be sold by Dunkin Donuts in the United States. The result of a successful relationship with an American franchise like Dunkin Donuts has brought different benefits to our country, and has benefited other parties like the coffee makers, who are now exporting directly to Dunkin Donuts in the USA.

The brand intends to begin the renovation of the points on 9 Colombian cities, with an investment of five million dollars over the next five years. For the next 10 years, it intends to open 70 more stores.

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  • Cartagena and Santa Marta are cities where they are interested to venture. Gomez, Another case of great importance to the Colombian economy, and for the recognition of its coffee, is Starbucks, this chain has more than 19, stores in 62 countries. Some people say that the world of coffee owes much of its development to this company, which employs , people and generates annual revenues of approximately 14, million Revista Semana, Cases like Dunkin and Starbucks put Colombian coffee on the map.

    Both companies are aggressively advertising our coffee and millions of people around the world are recognizing the true value of the drink. For example, Starbucks CEO not only came to officialize the opening of the franchise into the Colombian market, he also came to discuss a strategy with the National Federation of Coffeemakers to give more visibility to Colombian coffee in its stores around the world. The idea is for a consumer in New York City, Hong Kong or any place that has a Starbucks store, to be able to identify the origin of the Colombian coffee grain Revista Semana, Another good example is Century 21, this company ventured in Colombian Market with its first franchise in Moloney, Since then, it has grown to 24 franchises in Colombia; other newcomers to the Colombian market in that moment were Calvin Klein, Swarovski and Mango.

    In Colombia it is clear that the legislators have not covered in depth one of the most urgent issues to regulate today, regarding the franchise agreement, which has to do with the responsibility derived from the breach in the contract, creating multiple dangers for the parties Otero, The way the franchise agreement is seen by lawyers and jurisprudence is by analogy; there are other laws that are applicable in this situation on the commerce code. Under our legal system, every particular case has to be analyzed separately and carefully by all the parties involved.

    There are some regulations in Colombia applicable to the franchise figure, for example, the commerce code because the relationship in the franchise agreement is essentially commercial. Therefore, we directly apply the following books of the Commerce Code: i General Provisions, ii Of the merchants and Trade Affairs, iii commercial property, and iv commercial contracts and obligations.

    Some of the regulations that can be found in the commerce code and international treaties that regulate the figure of franchise by analogy are the following Codigo de Comercio, :. Article this title is about the applicability of the commercial law, the provisions of commercial law govern traders and business matters, and cases expressly unregulated will be decided by analogy with its rules. On trade issues that are unable to be regulated under the previous rule, the provisions of the civil law.

    Article Commercial practice shall have the same authority as commercial law, if not overtly or tacitly runs counter to the facts constituting the same are public, uniform and reiterated in the location where they met the performance or relationships emerged to be regulated by it. In the absence of local custom will take into account the overall country, provided it meets the requirements of the preceding paragraph. Of the merchants and trade affairs. Article Other mercantile acts; It will be also all acts as commercial traders or companies related to trading activities, and executed by anyone to ensure compliance with trade obligations.

    Article Application of Commerce law acts. If the merchant acts regardless of the parties, the provisions of commercial law shall govern it. Nor will the processing merchant of such fruits that made farmers or ranchers, provided that such transformation is itself a company, and. Commercial contracts and obligations Article It is the obligation of every merchant to:. As the franchise contract award carries a trademark, it is necessary to consider the regulations governing this procedure.

    Therefore, this decision applies, especially on article on the trademark license. Article - The owner of a registered or pending registration may license one or more parties to use the mark. Any license to use the mark shall be registered with the competent national office Failure to register will cause the license to be unenforceable against third parties.

    Any interested person may apply for registration of a license Decision de Cartagena, Regimen Comun sobre propiedad Industrial, It is important to remember that according to the hierarchy of the Colombian legal system, international treaties are beneath the Constitution and the Laws, which is why lawyers and investors have to be overly careful when entering into such contracts. Every issue that may come out must be analyzed with great concern, and the parties should be overly explicit in the contracts in order to avoid conflict and litigation.

    There are some important steps to acquire a franchise in Colombia.

    Body of law

    Having a first contact is good for the franchisor and the franchisee to start knowing each other, evaluate each other and create a first impression. Therefore, most companies propose that the investor interested in joining the network visits its headquarters to objectively discover how it is and how the business works.

    If at this time the two parties are still interested in the relationship, it is common to sign a preliminary agreement, which is a contract by which the franchisor grants the franchisee the reservation of an area until they find the right place. Upon signing the preliminary contract, the franchisee must pay an amount which will vary depending on the brand as advance payment or fee, to be paid when they sign the final contract. After signing the preliminary contract, the hard work of finding the ideal venue for the activity begins.

    Normally, the center advises the franchisee on the type of establishment and the place to locate for success in managing the activity. Some companies are responsible for seeking the establishment to its partners and therefore, the franchisee does not have to search alone. It is very important to consider the economic requirements that will be needed to acquire the franchise. Before signing the franchise agreement, the franchisee must ensure that they have the necessary funds to start the business.

    In addition to the initial investment required, they must have a financial cushion to develop the activity during the first few months. Most companies usually help their franchisees to reach agreements with banks or facilitate access to various funding sources. Several authors such as Marcela Castro Ruiz , have been responsible for defining certain elements that can explain the process in order to define the method to own a Franchise in the country. It is important to say that these contracts are established by the Colombian Civil Code as an atypical contract, this means, the effects have not been disciplinary regulated by the law.

    Although there are also those who think that this contract is collaborative in which, instead of opposite interests, there is a common purpose for both parties, which is to sell merchandise or provide services Marzorati, Castro Ruiz said that these are the elements necessary for a franchise agreement to come to light: first, the granting of a license to use property rights, second, the transmission of know-how from franchisor and third, the remuneration by the franchisee Ruiz, , p. The granting of a license to use property rights: The franchise agreement grants the franchisee a license to use the logos of the chain.

    Through the contract the franchisee is authorized to use the marks, names, emblems, labels, appellation, slogans, logos and packaging. The transmission of know-how by franchisor: This means that the franchisor literally knows how to do something; it is the set of technical, administrative, business and financial management skills. This may be the most important element because it is where the franchisor is committed to transfer the expertise of entrepreneurship.

    The remuneration by the franchisee: Franchising is essentially an onerous contract, and the payment for the franchisee to enter and remain in the franchise, is an essential element for the existence of this contractual figure. Knowing the legal framework of a contract is essential when one has succeeded in developing a business.

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    Knowing the rights and obligations, meeting the most important clauses of the contract and staying within current legislation to make it more transparent and attractive to the potential customer brand Park Agudelo, Essential elements that individualize those that allow a contract and distinguish it from other legal transactions ART. Article says: Three things can be identified in each contract. The things that of its essence, the things that are of its nature and the things that are purely incidental. The things that are of its essence cannot be missing in the contract and if they are, it degenerates into a different contract.

    The things that are of its nature ate the ones that not being essential to it, are inherent without the need of a special clause. The things that are purely incidental are the ones that not being of its essence or of its nature do not belong to it and are added by means of special clauses. The custom has been the way to regulate the franchise agreement in Colombia. It has become usual to follow the essential elements previously mentioned for the formation of the franchise. Osvaldo Marzorati gives a great idea of the importance of the franchise in terms of economic development.

    In Bogota, between July 12th and 13 th , the sixth edition of the Andean Fair of Business and Franchises Fanyf took place, which stated that there were about Franchise networks in late , while in there were McDonald's is one of the largest and the most recognized franchise of fast food around the world.

    Nowhere in the world McDonald's had grown as fast as in Colombia. The record held in Saudi Arabia, to open five stores in 12 months of operation, was overruled when the same amount of stores opened in the first five months in our country Re-vista Semana, Over 58 million customers are served at McDonald's every day in more than countries. Every franchise owner pays markets rates, and the monthly rent to the parent corporation. In Colombia, McDonald's is the most popular American franchise: they have opened 11 commercial points in the last year, creating 1, jobs, double-digit growth in sales and the brand's foray into two new cities in the country are some of the achievements that allow Colombia to be one of the most important markets in the region for McDonald's.

    As of now, McDonald's has 61 restaurants and 21 McCafes, which are stores smaller than restaurants, focusing in desserts and coffee, because McDonalds found that these are the main products that the general public demands. Despite its recent economic growth, Colombia is not yet a fully developed market for a company like McDonalds. Colombia has 4 big cities and the rest of the country are mainly rural areas and small towns and villages, which is why McDonalds is not offering more franchises at the moment.

    McDonalds requires that only people and not corporations buy their franchise, mainly because it requires full-time attention to the business and they are concerned that corporations may disregard the needs of the franchise. McDonald's investors must enter into a process of evaluation that ranges from six months to one year, after which the franchise may be granted or denied. This is done with the objective of avoiding future conflicts, but it doesn't assure the company that they won't exist.

    Last year, McDonalds closed its entire operation in the city of Cali, which is the third most important market in the country. Due to differences between the brand owner and franchisee, the multinational McDonalds closed all its outlets in the city. The decision is costing millions and threatens jobs. The company says it expects to reopen its operation in the capital of Valle. In Colombia the multinational has twelve years of operations, but has not achieved the expected result.

    Diario El Pais, The closure was prompted by an ongoing conflict for more than two years; the U. Company and the company Vallecaucana Alinco S.

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    A, owner of the McDonald's franchise in the capital of Valle, failed to reach an agreement and decided to close the business McDonald's cierra sus puertas , McDonald's Cali never became profitable for neither one of the parties, and McDonald's Corporation started pushing the Colombian franchisee to repay the debt of the initial investment. According to Article The ideas and principles behind computer programs including those which serve as the basis for its interfaces are explicitly denied copyright protection 5.

    Malware such as computer viruses, is also excluded from protection. The Copyright Act generally provides that copyrights in a work belong to the author, who is the person or group of persons who creates the work 6. In respect of computer programs, Article In these circumstances, employee authors will maintain their moral rights over the work see below , while the economic rights belong — by legislated automatic transmission of rights — to the employer 8.

    The law also provides for works with multiple authors. Joint works works that are the unique result of the collaborative efforts of a variety of persons are the property of all the authors and the rights correspond to them as they may agree. In default, the rights are held equally.

    Rights in the composed work belong to the person who performs such composition, without prejudice to the rights of and the need for authorisation from the prior author According to Article 99 of the Copyright Act, the economic rights in computer programs comprise the exclusive rights to perform or authorise the performance of :.

    Article 99 does not mention the right of public communication e. Article 99, last paragraph, expressly provides that the first sale in the European Union of a copy of a program by the rightholder or with his consent shall exhaust the distribution right of that copy within the Community, with the exception of the right to control further rental of the program or a copy thereof.

    This is understood to apply only to tangible copies i. Sections The Act expressly provides that these exceptions, except that set out in Para 9. Hence, contractual provisions to the contrary are deemed not to be valid. However, the exercise of these statutory rights is often difficult in practice because the licensee generally has no access to the source code of the application and it is not obvious to enforce access legally. The Copyright Act makes no mention of moral rights in relation to computer programs.

    These are regulated by Article 14 of the Act, which is understood to apply to computer programs like any other protected work These rights include the paternity right and the right to oppose to modifications and applications which might affect the honor or reputation of the author These rights are inaliable and unwaivable 16 , and remain in force following the death of the author. For juridical persons holding rights employers or rightsholder in a collective work , the term is 70 years from the 1st January of the year after legitimate public dissemination of the program or its creation, if it is not published Rights in a co-authored joint work last until 70 years after the death of the last co-author.

    As regards collective works, having a unique rightsholder the editor , the copyrights last for 70 years after first legal publication of the work. However, if the natural authors are mentioned in the published versions, rights in the work have the same general term: life or dissemination plus 70 years. This is done by operation of law in the case of employee created works, as we have seen above. If the contract does not state these terms, transfers are deemed non-exclusive, for 5 years, for the country where the transfer is made, and only for the purposes that are necessarily deduced from the contract and necessary for fulfilling its purpose.

    If there is no contract for the transfer of rights, no rights are transfered. In addition, depending on the degree of participation of the commissioning party client e. Transfers of rights can be exclusive or non-exclusive. Exclusive transfers must be expressly stated as such, and may be for one, several or all the copyright rights.

    The exclusive licensee may grant non-exclusive licences to third parties, and also has legal standing to defend the rights in court, independently from the original rightsholder. The Copyright Act establishes specifically that, unless proof is provided to the contrary, the granting of any use license will be considered non-exclusive and non-transferable, only for the purpose of satisfying the needs of the user Non-exclusive rights may not be onwards-transfered, nor sub-licensed.

    Copyright transfers may be royalty bearing or for free. This issue is independent of the rights that are granted. Payments made be one-off, or a proporational participation in the profits of exploitation of the work royalties Article of the Copyright Act establishes the terms of breach of copyright: the unauthorised performance of any exclusive rights reproduction, transformation, distribution, public communication , and in particular:. This latter provision Art. As set forth above, only software that is original in the sense that it is an intellectual creation of the author benefits copyright protection.

    Introduction to software protection under Spanish law

    Non-original software does not come into consideration for copyright protection and can, in principle, be used freely. Due to the functional nature of many programs, the degree of originality for software is not considered to have to be particularly high, and basically a subjective criteria of being the result of personal effort that is not copied from another work, is sufficient Under Spanish law, public domain is limited to works for which the copyrights have expired This software — if there is any today!

    It can in certain cases even be presented by third parties as their own work, and by modifying the original work, third parties can take certain versions of the public domain software out of the public domain again. From a conceptual and legal point of view, FOSS is like any other computer program, and benefits from the protection granted by copyright law.

    Spanish copyright law fully supports the rights of the copyright holder usually the author to establish determined conditions in the software license, having the exclusive right to exercise or authorise the exercise of the rights of reproduction, transformation and distribution and public communication. So, save for public policy prohibitions, a rightsholder is free to choose the conditions under which he or she licenses a computer program to third parties. And, like any other software license, the FOSS license conditions must be respected by the licensee user , or the license permissions may be revoked.

    Although FOSS can be written by one person or be owned by one legal entity 30 , generally speaking, after some time it is extended, improved, corrected and generally transformed, becoming the result of the work of several authors who can make claims to it. The question is whether later additions create a collaborative work a work created by collaborating authors , or whether the original software is the end work and every contribution created during the further development of the software, a derivative or composed work.

    The legal consequences are different. For FOSS to be a work created by means of a collaborative process, i. However, to be a co-author, the contribution needs to be worthy of protection by copyright. The provider of an idea is not a co-author, nor is the person who corrects a technical error or merely follows instructions Therefore, in terms of the legal consequences, a distinction needs to be made between the rights of the original co-authors and the rights of subsequent authors who carry out work based on the original.

    The contributions may be indivisible, i. As we have seen above, in the case of collaborative works, the authors are free to regulate the exercise of the copyrights by agreement. Co-authors can agree how the program is made public e. They can also reach agreement as to the economic, such as royalty payments, and moral rights 35 e. So if a coder wishes to use his or her contribution in another manner, this will be possible, provided this does not create, for example, a competing product.

    In the absence of agreement, unanimity is required for decisions, and in the absence of unanimity the court decides, and the court will decide according to the provisions of the Civil Code in relation joint properties 36 which usually means a majority rule, and by default contributions are deemed equal unless proof is provided otherwise. The court will also weigh different factors to be taken into account, including good faith, the degree of collaboration, the degree of substitution of the different contributions, etc.

    As each author has the right to exploit her contribution, it is clear that she may, in her name and without intervention of the other authors, institute legal proceedings for an infringement of copyright in the work, and in her contribution. This is clear in so far as such proceedings are for an injunction to end the infringement What is not so clear is the right to individual compensation and it is thought that for these cases, the consent of the co-authors is required see above. However, in some cases the lack of unanimity may result in the inadmissibility of this claim, e.

    After some time FOSS will, in most cases, be a derivative work of the original or a composed work which includes it. Derivative works and composed works are works which reproduce parts or characteristics of the original work, and in which the new authors bring an original contribution thus creating a new work by way of transformation or composition of the orignal.

    The author s of the derivative or composed work hold copyright rights in the new work, and independent and full copyright. It is, however, restricted because the derivative or composed work cannot be exploited without the consent of the holder of the copyright on the original work. For usual FOSS licenses this consent is not a problem, subject to respecting the terms and conditions e. This issue gives rise to certain difficulties as it is not always clear if use of the previous work is by way of mere reproduction or compilation into a new work , or by transformation the previous work — depending on the FOSS licenses, different conditions may apply.

    This may be key to understanding the impact of copyleft obligations in the GPL v2 o v3. The existence of this organisation will simplify the management and enforcing of the eventually joint copyrights The collective management of copyrights is perfectly possible under Spanish law, and is usually, but not necessarily, regulated by an exclusive license or transfer of copyrights to the person or organisation in question.

    Generally speaking, FOSS originated in the United States, and FOSS licensing tends to attach less importance to the question of moral rights of the author 43 , however it must be noted one common factor among all FOSS licenses is the obligation to maintain attribution to the original authors, and indicate modifications — a contractual form of guaranteeing certain moral rights paternity and integrity.

    The Open Source Definition specifies that the author of software distributed under a FOSS license cannot oppose the use of the software by certain people and groups 44 or for certain areas of application The author of a work distributed under the FOSS license should theoretically therefore be able to oppose any use of his work by people or groups or for certain purposes which affect his honour or reputation, based on his moral rights.

    Moral rights are also carried through to derivative works: the author of the original work will therefore, based on his moral rights, not only be able to oppose the use by third parties of his work, but also the use of derivative works which affect his honour or reputation. The question whether a FOSS license can be enforced under the Spanish legal system depends on whether a valid license has been granted. The essential questions are: i between whom is a license reached, and ii has the license been validly reached and what are its terms?

    Another dimension to this debate is whether a FOSS license can only be considered a contract requiring formalisation as such: an offer and its acceptance, being a manifestation of consent to be bound by the terms, often absent in FOSS practice , or seen as merely conditions to an authorisation or form of donation donation not of the software, but of the non-exclusive rights to use them.

    Doctrine in Spain generally holds that copyright licenses are contracts 48 , although there may be scope in Spanish law for arguing against the need to prove the requisites of a contract, and merely defend the instrument as establishing the conditions to be applied to the authorisation to use the software breach of which gives rise to a mere breach of copyrights.

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    In case of several co-authors, the situation may be more complicated, and the question as to with whom the licensee reaches a contract depends on the mutual agreement between the co-authors Often, a FOSS program will be the work of several authors who did not work in joint collaboration. In so far as each new author makes an original contribution to the work, a derivative work is produced The licensee of the eventual work will need to have the consent of every author in the chain who made an original contribution to the final work, starting with the author of the first work or version.

    This consent can be direct, or indirect by giving consent in the FOSS license to the next author to modify and distribute the work verbatim or as modified. Most FOSS licenses solve this by creating binding conditions between the licensee and all authors in the chain. In this way the user of the software obtains a license of all authors in the chain. This chain of licenses is valid under Spanish law, and it is argued that it must be this way, as non-exclusive licensees the intermediate creators, in the chain are not entitled to relicense or sublicense the original work.

    Contract in Spanish law require an offer and acceptance of the offer by way of a manifestation of a consent to be bound by the terms of the offer These methods to reach a licensing agreement have been sufficiently tried and tested and, at least between commercial parties, are generally considered to be valid Having to click and confirm every time could in some cases interfere with the use of the software In addition, the Open Source Definition opposes demanding explicit agreement with the license conditions with the aim of confirming the agreement between licensor and licensee The question is double: whether in these cases a valid license has be entered into, and what are the applicable terms.

    The answer to the first question must be affirmative. The reason is that the user of a copyright protected work needs to be able to indicate the grounds on which she is authorised to use the work. This implies that everyone who wants to use software which they find via the internet, needs to actively look for a license. If the user cannot prove she has a license 57 , she must refrain from using it. Against this, the licensor would generally argue that, in the absence of proof to the contrary, the FOSS license conditions are the only terms under which he or she licenses the FOSS, and thus if the user now disagrees to any of the terms, then the licensor has granted no license to the licensee and any use of the software is thus a breach of copyright.

    Furthermore, Spanish courts would look, in the professional sector, at the uses and customs in the sector to determine if sufficient opportunity was granted to read and accept the terms, and it is now fairly well established that free software licensing terms are available to be read in the source code or on the project website, and most software developers know and apply this custom.

    Accordingly, as regards professional developers who are FOSS licensees, it would be very difficult to argue that there was no binding license between the parties, or that the terms are unknown As we have noted above, it is doubtful whether any user would benefit from disputing the existence of a FOSS license except with regard to disclaimers, for which see below.