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Franchising Opportunities in Cambodia: How To Get Started

01 Nov 2019 - Cambodia has a rapidly growing economy with a sustained impressive growth rate of 7.7% between 1995 and 2018 (World Bank, Cambodia Overview). During that time, Cambodia has transitioned from being classified by the World Bank as a low-income country to a lower-middle-income country. In addition, a sizable middle class has developed, particularly in Phnom Penh. Along with economic growth, an expanding middle class, and a welcoming investment framework, Cambodia has witnessed the entrance of a number of international franchises and other global brands, including Burger King, Carl's Jr., Circle K, Cold Stone Creamery, Domino's Pizza, Krispy Kreme, L'Occitane, Levi's, Lotteria, Pandora, and Starbucks, among others.

Cambodia has not enacted any comprehensive franchise laws; therefore, franchising is largely governed by laws of general application that implicate franchise issues. While the Ministry of Commerce is in the midst of developing a Law on Commercial Contracts, which purportedly contains a section on franchise agreements, there is no clear timeline for the enactment of this law. In the meantime, franchising is primarily governed by the following laws:

The Civil Code
The Law Concerning Marks, Trade Names and Acts of Unfair Competition (Trademark Law)
The Notification on the Recordal of License Contracts and Franchise Contracts, dated March 12, 2015 (Franchise Contract Notification) For franchise agreements prepared in a foreign jurisdiction, franchisors should carefully localize the following provisions to ensure they are enforceable in Cambodia:

Dispute resolution clauses
Intellectual property provisions
Guarantee provisions
Non-compete obligations
Real estate provisions
Tax-related clauses
In particular, under Article 19 of the Trademark Law, any license agreement for trademarks, including a franchise agreement that contains a trademark license, must impose on the licensor an obligation to effectively control the quality of the goods or services in connection with the mark, otherwise, the contract will not be valid.

In theory, the Trademark Law requires all trademark license agreements to be registered with the Department of Intellectual Property Rights (DIPR). However, in practice, it is only necessary to register a trademark license agreement, or a franchise agreement that contains a trademark license, if the licensor wants to allow the licensee the right to enforce the agreement against third parties (e.g., persons in Cambodia infringing the licensor's trademarks).

Disclosure and misrepresentation
While Cambodian law does not require pre-contract disclosure, all information provided in a franchise agreement must be accurate. Under the Civil Code, if a party enters into a contract on the basis of another party's misrepresentation, that party is entitled to rescind the contract and seek damages from the party that made the misrepresentation. In addition, under the same legislation, a personal guarantee is invalid if the guarantor was not fully informed of all material information regarding the guaranteed obligation at the time the guarantee was signed.

Intellectual property
Franchisors typically grant franchisees the right to use trademarks, systems, logos, advertisements, and know-how in connection with the franchised business. Registration issues related to the grant of rights in trademarks, patents and industrial designs, and copyrights are discussed below.