Among the various legal instruments available in order to obtain the collaboration of third party undertakings for the distribution of commercial products on the market, franchising has always presented distinctive features and specific advantages.

Even though no specific statutes exist so far in Italy with regard to domestic franchising regulation, the possible advantages of choosing a franchising solution in our country are even further enhanced by Community regulations concerning competition law, first in case law (see the well-known Pronuptia decision), then in EEC legislation. In particular, the entry into force of the EEC Commission Regulation no. 4087/88 which exempts globally franchising contracts in accordance with Art. 85 of the Treaty of Rome, substantially weakening the rules prohibiting the contractual clauses aimed to restrict the free competition in the common market (e.g., prohibiting selective distribution, territorial exclusivity, price fixing of sale goods, obligations to sell exclusively to consumers or to buy exclusively from agreed suppliers, etc.) and thus making it in general no longer necessary for agreements of this kind to be notified to the Commission as the competent authority to grant individual authorisation. A franchising network allows in other words a control of the market which is similar to that permitted by direct distribution supported by a network of agents, mostly conserving the advantages (for example the partial transfer of the entrepreneurial risk) of employing independent distributors.

It is of course crucial to recognise the characteristics which are indispensable in order for a contract to enjoy the above mentioned exemption, it obviously not being sufficient for the parties just to use the term franchising in the text of the contract.

The essential requisites are as follows:
a) a clause granting the franchisee the use of distinctive signs (trade marks, etc.) pertaining to the franchiser;
b) the transfer on the part of the franchiser, for the purpose of the performance of the contract, of elements of technical and commercial know-how which must be secret (i.e., not in public domain), substantial and identifiable.
c) an obligation on the franchiser to provide commercial and technical assistance for the whole of the duration of the contract.
Even though these requisites may be interpreted widely, it is of prime importance that the text of the contract be written in such a way as to astutely emphasise the presence of such elements in the relationship between the parties, independently from the existence of an actual interest of the parties in the related clauses.

The regulations distinguish furthermore the different types of franchising contract, with the purpose of providing more precisely the extent of its application: in the classic tri-partition of franchising of production, franchising of services and franchising of distribution; it should in fact be noted that the franchising of production remains excluded from the exemption. In substance this last type of franchising is regarded as analogous to "agreements between producers" (the strong similarity between the two types can be seen considering for example the case in which the franchisee must sell the totality of its production to the franchiser, a contractual agreement which in reality is clearly beyond the scheme of franchising, as it consists merely of a simple sub-contracting agreement.

For the so-called industrial franchising, Regulation no. 2349 may instead usefully be applied, which deals with licensing of patents, or no. 556/89 on know-how, which are about to be unified and confirmed. Related to this last provision, and excluded on the other hand from the abovementioned regulation, are, in particular. franchising of wholesale goods, i.e. the relationship in which the franchisee finds his market outlet at a retailer level.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.