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Franchising legal framework - Italy -

Introduction

According to the definition of the “Associazione Nazionale Franchising” (the Italian sectoral organisation), franchising is a commercial affiliation aimed at the distribution of goods and services, based on a collaboration between an entrepeneur and one or more entrepeneurs, legally and economically independent from each other.

On the 6 th of May 2004 , the Senate of the Italian Republic approved Law 129 06.05.2004 “Rules on the regulation of franchising”, published on the 24 th of May on the Official Journal of the Italian Rebublic n.120 and came into force on the 25 th of May 2004 .

This legislative act contains a set of specific rules regulating the matter of franchising in Italy and it is now the unique source of law for the regulation of the matter.

Rules on the regulation of franchising

The content of Law 129 of the 06.05.2004 is hereby reported in English 1:

Article 1. Definitions

1. The franchise contract is anyhow named contract, between two legally and economically independent parties, whereby one party grants to another one, against consideration, a set of industrial or intellectual property rights, related to trademarks, trade names, shop signs, utility models, industrial designs, copyright, know how, patents, technical and commercial consulting and assistance, in view of having the franchisee joining a system constituted by a number of franchisees operating on the territory for the purpose of distributing specific goods and services.

2. The franchise contract can be adopted in any economic field.

3. In the franchise contract:

1. “know-how” means a body of non patented practical information, resulting from the experience and testing by the franchisor, which is secret, substantial and identified; “secret” means that the know-how, as a body of information or in the precise configuration and assembly of its components, is not generally known or easily accessible; “substantial” means that the know-how includes information which is of importance for the franchisee for the purpose of use, sale or distribution of goods and services identified under the agreement; “identified” means that the know-how must be described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality;
2. “entry fee” means a fix amount of money related to the economic value and to the potential development of the system, which is paid by the franchisee at the moment the franchise contract is signed;
3. “royalties” means a percentage required by the franchisor to the franchisee and related to the business turnover of the latter or consisting of a fix rate, to be paid even periodically in fix rates;
4. “franchisor's goods” means goods manufactured by the franchisor or according to his instructions and marked with the franchisor's name.

Article 2. Scope of the law

1. The provisions regarding the franchise contract, as defined in article 1, apply also to the master franchise contract, whereby an undertaking grants to the other one, legally and economically independent from the former, against a direct or indirect consideration, the right to operate a franchising for the purpose of stipulating franchise agreements with third parties; the provisions regarding the franchise contract apply to the corner franchising, whereby the franchisee in an area at his disposal, fits out a space exclusively dedicated to the commercial activity mentioned in article 1 paragraph 1.

Article 3. Form and content of the contract

1. Regardless of the market share held by the parties, the franchise contract must comply with European and national competition law foreseen by articles 81 and 82 of EC Treaty and law nr. 287 of October 10, 1990 and must be stipulated in writing, otherwise it is null and void.

2. To set up a franchise network, the franchisor must have tested his commercial formula on the market of any State of the European Union for a minimum period of two years and with at least two outlets, possibly in different towns, half of which operated by pilot franchisees. The principles of the present law apply during the testing period.

3. If the contract is defined for a limited term, the franchisor shall guarantee the franchisee a minimum term which would allow the latter to amortize his investments, and in any case not lower than three years, except in the case of earlier termination of the contract due to one of the parties not fulfilling his contractual obligations;

4. The contract must also expressly mention:

1. the amount of investments and other possible entry fees that the franchisee shall bear before the beginning of his activity;
2. the way of calculating and paying the royalties, as well as a possible indication of minimum takings to be reached by the franchisee;
3. the possible exclusive territorial rights accorded both to other franchisees of the network, or to sales channels and outlets run directly by the franchisor;
4. the details of the know how provided by the franchisor to the franchisee;
5. the eventual criteria to acknowledge the contribution of know-how by the franchisee;
6. the details of the services offered by the franchisor in terms of technical and commercial assistance, point of sale specifications, training;
7. the conditions for the contract's renewal, termination or assignment.

Article 4. Obligations of the franchisor

1. At least 30 days before the stipulation of a franchise contract as defined under art. 1, paragraph 1, the franchisor must provide the prospective franchisee with a complete copy of the contract to be signed, with the following annexes, except those for which objective and specific confidentiality requirements exist, which however shall be mentioned in the contract:

1. relevant information concerning the franchisor, including corporate name and corporate assets and, if the prospective franchisee asks for it, a copy of the franchisor's balance sheets for the last three years or since the beginning of his activity, if operating from less than three years;
2. indication of the trademarks used in the system, including essential data relating to their registration or deposit, or to the license granted to the franchisor by the third party who should own the trademarks, or any documentation proving the concrete use of the trademark of the franchise;
3. a synthetic description of the elements characterizing the activity of the operating franchise;
4. a list of the franchisees currently operating in the network as well as a list of the franchisor's direct outlets;
5. indication of the variation, year by year, of the number of franchisees, including their addresses in the last three years or from the date of setting up the franchisor's business, if this was from less than three years before;
6. a short description of any judicial or arbitral proceeding raised in relation to the franchise system against the franchisor closed during the last three years, promoted both by franchisees and private parties or public authorities, in compliance with privacy law in force;
7. a business plan forecast based, if possible, on the experience of franchisees in a similar position; such forecast cannot be considered a guaranty or promise of results, without prejudice to the application of civil and criminal protection for the franchisee, should the forecast itself turned out being elaborated with fraud or gross negligence.

Article 5. Obligations of the franchisee

1. The franchisee cannot transfer its registered office, if mentioned in the contract, without the prior consent of the franchisor, except in case of force majeure.

2. The franchisee commits himself to respect and have respected by his own personnel and collaborators, even after the contract termination, the strict confidentiality on the content of the activity operated in the franchise.

Article 6. Pre-contractual Behaviour Obligations

1. The franchisor must behave towards the prospective franchisee according to the standards of loyalty, fairness and good faith and timely provide the prospective franchisee with any data and information the latter should held as necessary or useful for the purposes of stipulating the franchise contract, unless in case of objectively confidential information or if a disclosure would violate third parties rights.

2. The franchisor must justify to the prospective franchisee any possible failure in disclosing the information and data that had been requested by the franchisee.

3. The prospective franchisee must behave towards the franchisor in compliance with the standards of loyalty, fairness and good faith and provide the franchisor, timely and in a fair and complete way, with any information and data, awareness whereof is necessary or appropriate for the purposes of the stipulating the franchise contract, even if not expressly requested by the franchisor.

Article 7. Conciliation

1. In case of litigation over the franchise contracts, the parties can agree that before addressing the case to the courts or to arbitration, they must carry out an attempt of conciliation through the Chamber of Commerce where the franchisee's registered office is located.

Article 8. Annulment of the contract

1. If one party has provided false information, the other party may ask for the annulment of the contract according to art. 1439 of the civil code, as well as for damages, if due.

Article 9. Provisional and final regulations

1. The provisions of the present law apply to any franchise contract operating on the territory of the State at the date of entering into force of this law.

2. Franchise agreements anterior to the entering into force of the present law, when not stipulated according to article 3, paragraph 1, shall be formalized in writing according to the provisions of the present law within one year from the aforesaid date. Within the same delay also anterior written agreements shall be put in conformity with the provisions of the present law.

3. The present law enters into force on the day following its publication on the Official Bulletin.

1. Unofficial translation issued on the Web site of the Italian National Association of Franchising – Assofranchising - www.assofranchising.it/english/legislative_information.htm [indietro]