The Franchise Agreement under Italian Law
Under Italian law, the franchise is defined as a commercial cooperation agreement between two financially and legally independent parties, where one party (the franchisor) grants to another party (the franchisee) the right to market goods and services under a specific trademark.
The agreement may be limited to some particular location or to a specified duration in time.
It can be used in any sector of economic activity. It may concern the distribution of goods, their production, the distribution of services or even all of them simultaneously.
In Italy, the franchise is used mainly in the clothing sector, in the distribution of oil products and also in the mere provision of services.
In Italy, the franchising contract is ruled by Law 129/2004 and it has statutory definition, hence economic and legal elements are predefined, and they cover every business relationship between the parties.
The agreement must be in writing form under penalty of nullity and may be for an indefinite or fixed term, but with a minimum term of at least 3 years. In addition, it must expressly contain the conditions for renewal, termination and assignment.
Obligations of the franchisor
The practical result of the franchise agreement is the identification of the franchisee with the franchisor within the application market. For this reason, certain guarantees are provided to protect the franchisee.
Firstly, the franchisor has the duty to previously test its business model on the market, in order to guarantee safer franchising to the franchisee.
Secondly, there is a general duty of disclosure of the franchisor, according to which he shall provide, at least 30 days before the contract execution, a copy of the agreement and the necessary information to let the franchisee assess the business model.
Furthermore, the franchisor has to reveal the current number of active franchisees, the lasts financial reports, possible legal disputes, etc.
Obligations of the franchisee
On the other side, the franchisee has also specific duties. He must keep the activities of the franchisee (e.g. know-how) strictly confidential, even after the contract has been terminated. In addition, the franchisee must always use the distinctive signs of the franchisor and comply with the operating models of the franchisor (advertising, conditions of sale, etc..).
Under Italian Law, Courts may recognize foreign judgements on franchise agreements.