LICENSING

AND
FRANCHISING AGREEMENTS
 LICENSING AGREEMENT

The exporter who owns a patent trade mark or

other form of intellectual or industrial property in
relation to goods may exploit such ownership
abroad through “licensing” another to exploit
that property overseas
 Advantages of licensing

1. Licensor avoids the necessity of providing the

capital needed in the designated territory to
exploit property.

2. Licensor avoids the commercial risk of the

transactions carried out in relation to the goods.
 Drawing up agreements


Quality control

 The question of taxation

 Impact of European Community

 Other relevant laws

Franchising agreements
Where it is desired that licensee operates under
corporate image already established by the
licensor franchising, a particular form of
licensing , may be adopted.
Under this arrangement the licensee will carry on
the licensed business under the franchisor's
name ,style , get up , etc. and indeed in
accordance with a system already developed by
the franchisor.

Such as Subway, Mc Donald's, 7-eleven, Dunkin

Donats.
Except in the US and China, where there are
explicit laws covering franchise, most of the
world recognize 'franchise' but rarely makes
legal provisions for it.

Where there is no specific law, franchise is

considered a distribution system, whose laws
apply, with the trademark covered by specific
covenants.
 In Europe

Franchising has grown rapidly in recent years, but

the industry is largely unregulated. Unlike US , the
EU has not adopted a uniform disclosure policy .
Only 5 countries have adopted it
France(1989) , Spain(1996), Romania(1997),
Italy(2004), Belgium(2005)
Even though there is no specific law, because it is
a growing and large industry there may be
franchising association whose members will
subscribe to The Code of Ethics which was
established by the International Franchise
Association.
The International Chamber of Commerce(ICC)
has produced a Model International Franchising
Contract with a detailed commentary to potential
franchisors may take reference.
 Payments in Agreement

To franchisor:

(a)a royalty for the trade-mark management

(b) reimbursement fee

(c)fee for disclosure

 Types of Franchising

Distribution Franchise :The franchisee sells specified

goods in an outlet bearing the franchisor’s name.

 Service Franchise: The services are offered in this

case under same name or mark,typically restaurants and
hotels cleaners or travel agents are often concerned.

 Manufacture Franchise:the recipient of the franchisee

is the producer of some product in this case. Principal
examples are agreement in the beverage industry, such
as Coca-cola.
 Article 81

Territorial issues:
- Not to sell contract goods to somebody, who would resell it
in the located area(obligation for both franchisor and
franchisee)
- Not to sell contract goods dealers outside the franchising
framework / not to include new franchisee in located area
- Not to change the location of shops
 Article 81

Price Issues:
- Sell at (minimum) prices laid down by franchisor

Direct competition:
- Not to sell competing goods (or in certain extend)
- Not to work in competing business after end of franchising
agreement
 Case study

The case of Pronuptia de Paris GmbH v

Schillgalis.
 Restrictions

This agreement included several

competition restrictions on both her and
Pronuptia:

a) Franchisee had exclusive right to use the trade mark for

marketing purposes (in Hamburg, Oldenburg and
Hannover)
b) Pronuptia won’t open other shop or provide goods in that
territory to the third parties
c) Franchisee gets assistance regarding marketing/ education
etc.
 Restrictions

In return Mrs. Schillgalis accepted a large number

of restrictions, which included following

a) To sell wedding gowns under the trade mark Pronuptia de

Paris (in especiallydesigned shops)
b) To purchase 80 per cent of goods (wedding dress) from
Pronuptia or approved partners, use only approved
marketing tools
c) To pay entry-fee and royalty fees (15 000 DM and 10%
turnover)
d) Not to compete (refrain from competition) in any way with
Pronuptia.
 Agreement is void?

In previous decisions
The ECJ held that:
In principle, a franchising
agreement whose purpose
it was to protect the
franchisor's know-how or
the identity and reputation
of the distribution network
did not infringe Art 81(1).
Clauses, however, which resulted in a division of
markets between franchisor and franchisee or
between franchisees could restrict competition
contrary to Article.

In particular, the clause which prohibits the sale of

Pronuptia goods or offerings Pronuptia services
on premises other than those specified, might
be restrictive because it would prevent the
respondent from opening a second retail outlet
in her district
 Block Exemption

Regulation 4087/88
-applied only to industrial franchises involving the
manufacturing goods
-contained list of restrictions of competition
-set out white list/ black list clauses
Regulation 2790/99
-applies to exclusive distribution, non exclusive
distribution, exclusive purchasing, franchising
selective distribution
-does not apply to production franchises
-no limited white list
 The Guidelines on Vertical Restrains

This provision does not provide many specific

provisions which relate to franchisees.

However, The Guidelines on Vertical Restrains

address franchising agreements in more detail.