Franchisor's Fabricated Financial Data Ruled as Fraud: Key Takeaways for Trademark Licensing

WISECODE Take

The Sichuan High People's Court ruled in case (2020) Chuan Zhi Min Zhong No. 405 that a franchisor committed fraud by fabricating operational data, such as "daily revenue over 30,000 RMB," in its 2018 promotional materials. Many business owners mistakenly believe that franchise advertisements are mere marketing fluff and exempt from information disclosure obligations. The court emphasized that franchisors hold core resources, creating an information asymmetry; without financial records to prove claims like "selling 700-800 portions," such promotions are deemed intentional deception. For honest franchisors, this ruling poses no threat, but for those expanding via trademark licensing, Zidian's trademark portfolio health check can ensure compliance. Franchisors should take two actions. First, retain actual financial records for any revenue claims made in pitches. Second, specify in contracts that external promotional materials not explicitly written into the contract do not constitute contract terms. In the arena of brand licensing, authentic operational data is your safest legal shield.