Franchise in Lithuania
Successful business model or brand may be leased to another party for limited amount of time, this practice is regarded as franchising. For lessor, otherwise known as franchiser, franchising opens an opportunity to increase the notoriety of the brand, while the lessee (franchisee) gains the access to know-how and exclusive rights without having to invest in development of the brand. The contract of franchise has specific regulation in Lithuania which is provided in this article.
Concept of franchise
Under a contract of franchise, one party which is called franchiser undertakes to grant to the other party (franchisee) the right to use in the business activity of the franchisee a complex of exclusive rights which belong to the franchiser (right to the firm name, right to the trade or service mark, right to protected commercial (industrial) information, etc.), while the other party shall be obliged to pay for that the remuneration determined in the contract.
Complex of exclusive rights, business reputation and commercial experience of the franchiser shall be used to a determined extent, the minimum and maximum amount of use may be established in the contract. A contract of franchise may also determine the territory of use applicable to the above mentioned rights. It shall be noted that only enterprises (entrepreneurs) may be parties to a contract of franchise.
Form of a contract of franchise
A contract of franchise must be concluded in written form. Failure to comply with the requirement of the written form shall render the contract null and void. It is important to know that a contract of franchise may be invoked against third parties only if the fact of forming a contract of franchise is registered in the Register of Enterprises. If the franchiser was registered in a foreign state, the fact of forming a contract of franchise must be registered in the same register of legal persons where the franchiser was registered.
Where the subject matter of a contract of franchise is protected by the laws of industrial property, the fact of forming a contract of franchise shall be also in the institution effectuating registration of objects of industrial property rights and the rights thereto.
Remuneration under a contract of franchise
The franchisee shall be obliged to pay to the franchiser the remuneration determined in the contract. Remuneration may be payable in the form of a fixed lump sum and/or in instalments or calculated in another way specified in the contract of franchise.
Obligations of the franchiser
The franchiser shall undertake the following obligations:
- Transfer the franchisee technical and commercial documentation as well as other information necessary in order to implement the rights granted to the franchisee under the contract. Likewise, the franchiser shall train the franchisee and his employees with regard to the questions related with the implementation of the transferred rights;
- Issue the franchisee licenses provided by the contract and ensure their formalization in accordance with the established procedure.
- Unless otherwise provided for by the contract of franchise, the franchiser shall also be obliged to:
- Ensure the registration of the contract of franchise;
- Render to the franchisee permanent technical and consultative assistance;
- Execute control of the quality of goods produced by the franchisee, work performed or services rendered by the franchisee under the contract of franchise.
Obligations of the franchisee
Taking into account the character and peculiarities of the activity performed, the franchisee shall be obliged to:
- Use the name, trade and service mark of the franchiser in the manner specified in the contract of franchise;
- Ensure the quality of the goods produced, work performed or services rendered under the contract of franchise;
- Comply with the directions and instructions of the franchiser in respect of the use of the rights, external and internal designing of the business premises of franchisee, as well as to any other conditions of activity specified in the contract of franchise;
- Render to purchasers (customers) any additional services which they could reasonably expect in acquiring goods (work, services) directly from the franchiser;
- Not divulge to other persons any commercial (industrial) secrets or any other confidential information received from the franchiser;
- Conclude a contract of sub-franchise in the event of such duty thereof being provided for in the contract of franchise;
- Inform purchasers (customers) that the franchisee is acting under a contract of franchise and is using the firm name, trade and service mark of the franchiser or any other symbols of individualization thereof.
Limitation of rights of the parties
Parties to a contract of franchise may provide for only such conditions for limiting competition which are not prohibited by the competition law. In addition, the contract of franchise may establish the following limitations of the rights of the parties:
- Obligation of the franchiser not to grant to other persons analogous complexes of exclusive rights for the use thereof on the territory consolidated for the franchisee, or refrain from own analogous activity on the same territory;
- Obligation of the franchisee not to compete with the franchiser in the territory specified in the contract in the business activity carried out by the franchisee and related with the use of the exclusive rights granted to him;
- Prohibition to the franchisee to receive under a contract of franchise analogous exclusive rights from competitors (potential competitors) of the franchiser;
- Obligation of the franchisee to agree with the franchiser the location of the business premises determined in the contract, as well as the external and internal designing thereof.
- It shall be noted that conditions of a contract of franchise prohibited by the Competition law shall be invalid, in particular such conditions by virtue of which:
- The franchiser shall have the right to determine the prices of the goods produced or work fulfilled, or services rendered by the franchisee (this includes the right to determine minimal price of goods or services);
- The franchisee shall have the right to sell goods, fulfil work or render services exclusively to a certain category of purchasers (customers) or exclusively to purchasers (customers) residing on the territory determined in the contract of franchise.
Jovita Valatkaite, lawyer of the Gencs Valters Law Firm in Vilnius
Practising in fields of Franchises and Franchising Law in Latvia, Lithuania and Estonia.
T: +370 52 61 10 00
F: +370 52 61 11 00