By Alberto Crivelli, Attorney at Law, Partner at AMTF Avvocati
In the restaurant industry, franchising is an attractive option for entrepreneurs wishing to start a business in the sector, as it represents a useful model of collaboration between companies. Before being regulated by Law No. 129 of May 6, 2004, the franchising (or "commercial affiliation") contract was classified as an atypical contract, governed by the general principles of civil law. Case law, which has repeatedly intervened to define its nature and content, has gradually highlighted the need for a complete typification, which was then implemented with the enactment of the aforementioned law, which in Article 1, paragraph 1, defines it as "the contract, however named, between two legally and economically independent legal entities, on the basis of which one party grants the other, in return for consideration, a set of industrial or intellectual property rights relating to trademarks, trade names, signs, utility models, designs, copyrights, know-how, patents, technical and commercial assistance or advice, incorporating the affiliate into a system consisting of a plurality of affiliates distributed throughout the territory, for the purpose of marketing goods and services." Paragraph 2 also states: "The commercial affiliation agreement may be used in any sector of economic activity." Paragraph 3 goes on to identify the following in the commercial affiliation agreement: "a) know-how: a wealth of unpatented practical knowledge deriving from experience and tests carried out by the franchisor, which is secret, substantial, and identified [...], b) entry fee, a fixed amount, also related to the economic value and development capacity of the network, which the franchisee pays at the time of signing the commercial franchise agreement, c) royalties, a percentage that the franchisor requires from the franchisee commensurate with the turnover itself or as a fixed amount [..] and d) franchisor's assets, the assets produced by the franchisor or according to its instructions and marked with the franchisor's name." The parties to the relationship will therefore be the franchisor, i.e., the manufacturer or reseller of goods or provider of services, and the franchisee, i.e., the distributor of such goods or services. The aim pursued by the parties through this type of contract is clear: to expand their distribution network, expand commercially, and increase their ability to penetrate the market. Ultimately, it is a formula designed to bea "win-win" situation, in which the franchisee benefits from the goodwill, recognition, and operational effectiveness of an already established brand, while the franchisor has the opportunity to consolidate and extend its presence in the territory, increasing visibility and obtaining economic returns through the concept of royalties. Precisely in line with this logic and the rationale behind franchising, the law has established a series of obligations for both parties, both from a formal point of view—such as the written drafting of the contract—and in terms of content, establishing rights, duties, and responsibilities to protect a balanced and stable relationship. Consequently, it is essential that the franchisor has tested its business formula within the market. They must also indicate the amount of investment to be made by the franchisee and the costs of entering the business, the method of calculating and paying royalties, the geographical area within which the franchisee may operate, the specific know-how provided by the franchisor, the characteristics of the services offered, and the conditions for renewal, termination, or possible transfer.
Turning instead to the obligations that the franchisor and franchisee are required to observe, it suffices to refer to Articles 4 and 5 of Law 129/2004. Pursuant to Article 4, the franchisor must provide the franchisee with a complete copy of the contract , accompanied by a series of attachments , at least 30 days before the contract is signed . These attachments include: i) information about the franchisor ( company name and share capital) and a copy of the financial statements for the last three years, if specifically requested by the franchisee; ii) an indication of the trademarks used in the system, specifying whether they are registered or filed, whether the franchisor is the owner or licensee, or providing documentation proving their actual use, a description of the identifying features of the business, identification of the franchisees operating in the franchisor's direct points of sale , and an indication of the change in their number, year by year, with their relative location. As for the franchisee's obligations , Article 5 imposes a twofold obligation: the obligation not to change the location without the prior consent of the franchisor, except in cases of force majeure, and the obligation of confidentiality, which must also be observed by the franchisor's collaborators even after the termination of the contract, regarding the content of the activity that is the subject of the commercial affiliation. Both during the term of the contract and during the pre-contractual phase, the franchisor and franchisee must observe behavioral obligations based on the principles of loyalty, fairness, and good faith. As for the franchisor, fairness and good faith must inspire them to provide the franchisee with all information useful for the conclusion of the contract, unless it is confidential or protected by third-party rights. In case of refusal, they are required to provide adequate justification. The franchisee, in turn, must communicate all information necessary or appropriate for the conclusion of the contract, even if not expressly requested by the franchisor.
This approach explains the huge success that franchising has enjoyed in the restaurant sector, particularly in the fast food industry. It is, in fact, a flexible contractual formula, which on the one hand allows the franchisee to enter an already established and recognized business on the market, reducing business risks; on the other hand, it allows the franchisor to transfer their know-how, expand the brand, and reap economic rewards, all while maintaining control over standards and quality so as not to compromise the brand's image.
