Tag Archives: Intellectual Property

Franchising Proves Effective for Many Foreign Brands in Mongolia



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There are numerous tools a business may use to grow and expand, not just locally but also globally. Franchising is one of the many ways through which brand owners can rapidly grow their businesses and expand profits while delegating much of the cost and risk to a third party.

Franchising is commonly used in a wide variety of service oriented businesses, such as restaurants, hotels, health care, real estate and others, and is also used production and distribution of products. In Mongolia for example, over the last few years many global brands entered Mongolia via a franchise arraignment. Major brands to do so include Coca-Cola, Pepsi, Ramada Hotels, Shangri-La Hotels, Cosmopolitan, Re/max real estate, KFC, Burger King, Coffee Bean and Tea Leaf, Pizza Hut, Emart to name only a few. This strategy is chosen very deliberately due to the low risk of bankruptcy, and a higher chance of success for business to enter a franchising agreement. Research shows that an average consumer in the world spends one of every three dollars on product or service provided via a franchise model, demonstrating the economic significance of franchising.

In a franchise arrangement, the franchising party or Franchisor gives the Franchisee permission to not only use the Franchisor’s intellectual properties (trademarks, brand name, know how, goodwill, copyright, etc.) but also the Franchisor’s business operations system. In addition, Franchisees often benefit from the Franchisor’s distribution systems and marketing campaigns to sell the Franchisee’s products or services. In return, the Franchisee pays the Franchisor consistent fees and royalties, providing a steady stream of income for the Franchisor.

The franchise model provides several benefits for both the Franchisor and the Franchisee. Along with other benefits franchise agreements allow Franchisor companies to expand much more quickly than they could otherwise. A lack of funds and workers can cause a company to grow slowly. Through Franchising, a company invests very little capital or labor because the Franchisee supplies both. The Franchisor company experiences rapid growth with little financial risk.

The Franchisee also has numerous advantages that come from entering a franchising agreement. There is a low risk for the Franchisee due to the tried and tested formula. Franchisee gets the benefit of owning a proven business formula that has been tested and shown to work well in other locations. In addition, the Franchisee gets training and head office support from the Franchisor; this may be essential if the Franchisee is new to running a business and has no experience or business knowledge. And in a broader sense, global franchising is beneficial for the local government and economy as well, because jobs are created, and ownership remains local.

There are three major types of franchises – business format, product, and manufacturing – and each operates in a different way.

In business format franchises (which are the most common type), a company expands by supplying independent business owners with an established business, including use of its name and trademark. The Franchisor company generally assists the independent owners considerably in launching and running their businesses. In return, the business owners pay fees and royalties. In most cases, the Franchisee also buys supplies from the Franchisor. Fast food restaurants are good examples of this type of franchise. Prominent examples include KFC, Burger King, and Pizza Hut.

With product franchises, manufactures control how retail stores distribute their products. Through this kind of agreement, manufacturers allow retailers to distribute their products and to use the manufacturer’s name and trademarks. To obtain these rights, store owners must pay fees or buy a minimum amount of product for sale. In Mongolia there are several clothing retail stores that utilize this type of franchise, for example, United colors of Benetton stores, and Mango stores.

Through manufacturing franchises, a Franchisor grants a manufacturer the right to produce and sell products using its name and trademark. This type of franchise is common among food and beverage companies. For example, soft drink bottlers often obtain Franchise rights from soft drink companies to produce, bottle, and distribute soft drinks. For example, MCS Coca-Cola LLC obtained Franchise rights to produce, bottle and distribute soft drinks of the Coca-Cola company in Mongolia.

There are four basic types of franchise agreements: single-unit, multi-unit, area development and master franchising agreements.

A single-unit franchise agreement is the most common and is simply where a Franchisor grants a Franchisee rights to open and operate one single Franchise unit. In Mongolia, explicit examples are Caffé Bene, a coffeehouse chain, or Re/max, a real estate agency. All single units of these chains use the same trademark and same utilize the business operations system of the Franchisor. However, every single unit in Mongolia is owned by a different local company.

A multi-unit franchise agreement is where a Franchisor grants a Franchisee rights to open more than one franchise unit. For example, Tavan Bogd Foods LLC has multi-unit franchise rights to operate KFC restaurants in Mongolia, and Max Center LLC has multi-unit franchise rights to operate Burger King restaurants.

An area development agreement allows a Franchisee the right to open multiple units over an agreed amount of time within a specified geographic location and/or to own rights to their specific territory and earn money on each franchise sold in their territory through sharing of the franchise fee and ongoing royalties.

A master franchise agreement, also referred to as sub-franchising, gives a Franchisee the same rights as an area development agreement but also gives that Franchisee rights to establish franchises arrangements with other individuals or entities within the specified territory. A Master Franchisee assumes many of the tasks and obligations of the Franchisor such as training and support and receives a portion of the franchise fee and royalties. While technically there are significant differences there are times that master franchising and area development are used interchangeably.

The regulation of franchising varies country to country. While some countries have adopted separate franchising laws, many countries do not have a separate law that regulates franchising in its entirety. In most countries franchising is regulated in their commercial laws, commercial codes or civil codes, and in some countries it falls under regulation of several laws. In Mongolia franchise arrangements are regulated via Articles 333 – 338 of the Civil Code. The Civil Code provides the definition of a Franchise Agreement, and outlines the legal obligations and liabilities of the parties, terms of agreement, and non-competition terms. Intellectual property related aspects of a franchise agreement shall be regulated by relevant intellectual property laws.

It seems clear that franchising model in Mongolia is poised to continue to grow, as several global brands have announced their opening in Mongolia in the near future. Of course, prior to any franchise arrangement in Mongolia, a foreign business should seek out qualified advice from their Mongolian lawyer.

Mongolia to Amend Law on Patents



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Law on Patent was adopted initially in 1993 to facilitate the legalization of the ownership rights of the industrial design, the patent, the utility models and the certificate holders; to regulate relations arising out of their use; and to facilitate them into economic circulation. The Law on Patent was amended in 1996, 1999 and revised in 2006 in connection with social and economic reform.

With the development of technological developments, innovation of Industrial designs, utility model and patent and their scope of applications are growing rapidly.

Thus, innovators and entrepreneurs are keen to produce value-added products, as well as to focus on foreign markets and business development.

In Mongolia, the number of patent applications is steadily increasing, with 70% of 1555 applications filed for patent the last 6 years (2010-2016), 94% of 1817 applications for industrial designs, and 80% of 1065 applications for utility models have been issued.

Patents grant with exclusive rights in the territory. In Mongolia, 16 patents were filed under Patent Cooperation Agreement in 2008-2016

However, in practice, the enforcement of laws is inadequate due to failure of regulations that need to be regulated by law, conflicting regulations, as well as renewing needs to meet with international treaties in which Mongolia ratified.

In other words, there is only one standard regulated by laws regardless the difference between the 3 objects of the invention, the industrial design and the utility model, regulation in connection with the filing and examination process is not appropriate in practice, as well as the use of a compulsory license of the patent that violates the rights of the owners. In addition, there is no financial support, tax and fee discount policy that supports creators, and the process of international application relating to the patent regulated by laws do not meet the standards and requirements of international agreements ratified by Mongolia.

Guidelines for improvement Mongolian legislations until 2020 states that the Patent Law is aimed at improving the protection of patents based on global trends and agreements with World Intellectual Property Organization based on the views of the World Intellectual Property Organization.

In addition, the Government’s Action Plan for the 2016-2020 was obliged to the Ministry of Justice and Home Affairs in order to draft a law on amendments to the Patent Law to submit to the State Great Hural.

As a member of the World Intellectual Property Organization, Mongolia obliges to comply with the fundamental principles set forth in international treaties and conventions which ratified.

Law on Patent expects to be amended based on abovementioned requirements.

Tracking Manufacturer of Imported Counterfeit Product in Mongolia



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A client recently asked our firm’s Mongolian intellectual property lawyers for assistance regarding counterfeit products which were being sold in Mongolia. It seems the details of the manufacturer’s identify and contact information as listed on the packaging were false, so the client needed our assistance in identifying the actual importer and manufacturer. Records of the importer would be kept by Mongolian customs, but these records cannot be accessed by everyone. We presented with their options for gaining access to this information.

 If there is an officially appointed distributor in Mongolia for the authentic products which are the subject of the counterfeit, this official distributor may approach Mongolia Customs, provide the contract granting it authority to distribute the relevant products in Mongolia, and request that Customs provides the name and information of the importer. This is the simplest and most straight forward course of action, but requires an existing distribution contract with an authorized Mongolian importer.

Once information on the importer is obtained from Customs, a complaint on the counterfeit goods and trademark may be made to the Mongolian Intellectual Property Office, and to Customs. The IP Office will conduct its own investigation, and will issue a report as to the suspected infringement. Assuming the report of the IP Office finds infringement and counterfeit goods, the Customs Office will stop import of the fake goods at the border. Requests may also be made to the IP Office and to Customs that they provide the authentic goods manufacturer with the officially registered name of the manufacturer to allow us to independently pursue legal actions.

However, authentic manufacturer does not have an official distributor for its products in Mongolia, the stores which are selling the counterfeit products in question must be identified, and evidence of the counterfeit goods compiled. Then a report on the counterfeit products and stores selling the goods must be submitted to the IP Office, which will then initiate an investigation and will issue a report. As above, the report of the IP Office may be shown to Mongolia Customs in order to have them stop import of the counterfeit goods.

One other option for identifying the true identity of the manufacturer will be to contact local sellers of the counterfeit products in Mongolia directly. As can be imagined this may be a long process without a real guarantee the sellers would cooperate to provide the information requested. These sellers can be presented with the legal consequences for their failure to cooperate. If the seller only knows the identity of the local Mongolian distributor, the distributor will have to be approached for information in the same way.

We will not here that Mongolia does not have a reliable “private investigator” sector so any investigative inquiries at the local stores and distributors will need to be made by an attorney.

Proposed New Mongolia Laws Promise Reform in 4 Key Areas



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Parliament has just issued a list of draft laws to be considered during the fall session in 2017. This list includes drafts in relation to State Budget 2017 and number of completely new proposed laws. There are also several proposed amendments to existing laws that look to be very interesting going forward.

The following are the newly initiated draft laws:

  • Amendments to Constitutional law
  • Law on National System of Payment
  • Law on Development of the Ger District
  • Law on Investigating and Resolving Infringements
  • Casino law
  • Law on Mongolian Foreign Relations
  • Law on Safety of Information
  • Law on Encouraging Development of Youth
  • Law on Food Supplements for Infants and Toddlers
  • Law on Health of Livestock and Animals
  • Law on Resource of Livestock Genetics
  • Law on Enriched Food
  • Law on Responsibility of Elected or Appointed State High Officials
  • Law on Protecting Critic’s Rights

The Mongolian Lawyers at LehmanLaw Mongolia are particularly interested in the proposed Law on National System of Payment.  There is huge potential for reform and modernization in this area and we are excited and looking forward to significant changes under a new law.

We expect the proposed Law on Investigating and Resolving Infringements to be very interesting to foreign businesses seeking greater protection for Intellectual Property rights in Mongolia, including Copyright, Trademarks and Patents. We hope the new law will provide a clear system for enforcement of protected intellectual property rights in Mongolia.

Two proposed laws appear to target Mongolia’s growing agricultural sector.  Mongolia is ripe for increased foreign investment in the agricultural sector and an improved legal framework in this area will be sure to increase interest. We will monitor related developments

It also looks like there will be a proposed law regarding establishing norms of official behavior, which appears to be an effort to increase anti-corruption measures among government officials; a very positive development which we will explore more fully as details are available.

Intellectual Property Protection in Mongolia



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Mongolia may be a relatively small market, but global brands are increasingly seeking to protect and enforce intellectual property rights in the country. Our firm works directly with global brands as to trademark and patent registration in Mongolia, cancellations of prior registrations, and IP enforcement matters.

Enforcement is difficult. Due to the relatively small population in Mongolia (about 3 million people in the whole country with about half in one City, Ulaanbaatar), many local lawyers and law firms are often unwilling to pursue intellectual property enforcement actions or litigation in Mongolia. The small interconnected population means many lawyers are unwilling to proactively advocate on behalf of clients, for fear of making enemies. Most trademark and patents providers will simply file registrations. When they do file an enforcement action it is more  “proforma” and less proactive advocacy.

One thing missing in Mongolia is a strong sense of the value of branding, and a clear understanding that brands deserve protection via copyright. The firm is acting on behalf of a group of brand owners who seek to create a new organization with the goal of raising awareness of the importance of intellectual property in Mongolia. The key to better protection is awareness.

By any other Name, Would Champagne Taste as Sweet?



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So what does it mean to be made in Mongolia? Or anywhere else for that matter? In Mongolia the protection of Geographical indications is governed by the Law on Trademark and Geographical Indication which has taken effective on July 25th, 2010. Under the law, “geographical indication” refers to any geographical indication of a product’s manufacturing country, area and territory where quality, reputation and other characteristics are defined by factors relating to the nature of the territory, climate condition or local practice.

Forms of geographical indication are expressed in single geographical names of territory that determine the origin of the goods and products, or a combination of the name of the goods and products with a territory. However, general names for goods and products of a territory within Mongolia are not considered as geographical indicators. Moreover, geographical indications are tools for protection of local industry by creating the suggestion that similar goods produced in other geographic regions will not have the same characteristics or quality. Champagne is only champagne, if it is from Champagne, France, otherwise it is sparkling wine.

Under Mongolian law, a community, association or organization of unified manufacturers of goods and products of a local region apply for geographical indication protection in writing as specified in regulation set by the Intellectual Property Office. The Intellectual Property Office examines the application within six months of filing the application. This term may be extended up to six months if required. If the Intellectual property office decides to register a geographical indication, that geographical indication shall be entered in the State register and a Certificate of Geographical Indication shall be issued. The protection of geographical indication is not limited for definite periods and is valid from the filing date of the application.

Mongolia has several traditional products that originate from its nomadic culture and its extremely continental climate. There are over 20 products which have been protected by geographical indications in Mongolia, for example dairy products, meat products, pure water and sea buckthorn. A few years ago, Champagne, the famous French drink received protected in Mongolia as a geographical indication. Accordingly, Champagne is protected against misrepresentation or infringement. This demonstrates that foreign geographical indications can be duly protected in Mongolia.

Mongolia Hosts Annual Trilateral Intellectual Property Conference



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The 4th Trilateral Intellectual Property Conference between Mongolia, Russia and China was held in Ulaanbaatar on 6 September, 2016. The theme of the conference was, “Protecting intellectual property rights; bringing intellectual property to the market; and encouraging innovation, technology, and SMEs.” Participants included the Head of the State Registration and Intellectual Property Rights Office of Mongolia R. Sodhuu, the Commissioner of the State Intellectual Property Office of the People’s Republic of China Shen Changyu, the Director General of The Russian Federal Service for Intellectual Property Grigoriy Ivliev and around fifty other intellectual property officials and representatives from all three countries.

Mongolia ranks 55th on the innovation index and the State Registration and Intellectual Property Rights Office of Mongolia representative G. Sarnai noted that although Mongolia conducts a great deal of research, little is being done to patent the research abroad and more needs to be done to bring the intellectual property to the market.

The Commissioner of the State Intellectual Property Office of the People’s Republic of China Shen Changyu noted new policies adopted by State Council in regards to intellectual property development and protection of innovation, highlighted China’s focus on bring new intellectual property to the market in addition to promoting new effective measures for guarding against infringement of Intellectual property.

The Director General of The Russian Federal Service for Intellectual Property Grigoriy Ivliev indicated that Russia also is increasing the investment for research and innovation, and pointed to positive results including new legislation for copyright protection Russia is also focused on decreasing the infringement of intellectual property online.

The conference is an important indication of the regions dedication to promoting Intellectual Property development and legal protection. The conference allows senior officials to share experiences and practical knowledge as regarding effectively promoting intellectual property development and legal protections. A key goal of the conference is to promote commercialization of intellectual property in all three participating countries through technology and innovation support centers and small and medium-sized factories. The conference is organized regularly each year.