Italy: Distribution and/or Franchising

Last Updated: 10 November 1996
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.

The possible advantages of choosing a franchising solution 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 industrial franchising, Regulation no. 2349, which deals with licensing of patents, or no. 556/89 on know-how may instead usefully be applied. Related to this last provision, and excluded on the other hand from the new regulation, is, in particular. franchising of wholesale goods, i.e. the relationship in which the franchisee finds his market outlet at a retailer level.

-After years of projects and discussions the Council of the European Community approved the Directive 93/13/EEC of the 5th of April, 1993, concerning burdensome clauses contained in the general conditions pre-established by the stronger party in standard contracts, i.e., "by adhesion", now defined not by chance as "abusive clauses" by the Community legislator as it forbids such clauses tout court.

The practical consequences of the directive are in reality less extensive than what was thought to be the case. Not only in fact is its application, like the previous Italian national legislation, restricted to contractual clauses which have not been the object of specific negotiations, e.g., so-called general conditions and terms: so that an "abusive clause" survives whenever it has been the object of specific, individual covenants; but above all the directive is limited in its effectiveness to contracts concluded between "professionals" (that is to say, in the terminology of the Directive, an individual or a company which uses this type of contract in the course of his profession, typically a business) and a consumer (who may only be a physical person); so that all business-to-business relationships remain outside the scope of the Directive, even whenever they are vertical relationships, such as those of the supply of public services or those of wholesalers-retailers.

The directive should be implemented by the 31st of December, 1994 (and it should be noted that, even in the absence of formal implementation, this date signals the entrance into force of the rules, in so far as they are directly applicable, in the whole of the EEC), and is aimed at providing only a "minimum" protection expandable by the national legislator. It will, within the above mentioned limits, considerably modify and enlarge the scope of the Italian domestic legislation, which until now was restricted to the provisions of Arts. 1341, 1342, and, with regard to interpretation, 1370 of the Italian Civil Code. In particular, the present Italian domestic rules relating to the general conditions of the contract drawn up by one of the parties are limited on the one hand to establish that those clauses are interpreted against the party that has drawn them up and to declare them unenforceable when the other party is not aware or couldn't be aware with ordinary diligence of them at the time of the conclusion of the contract; on the other hand to require that the party who didn't draw up the contract must expressly approve certain clauses in writing in order for them to be valid. On the basis of the new EEC rules, on the contrary, the clauses are never binding on the consumer, being completely void, and the Member States should take the necessary steps to ensure that these kind of clauses are no longer inserted into standard contracts.

Yet, there is some uncertainty as the directive contains a list of typical clauses which, according to the original intention, should have formed a "black list" while in the present text they are presented only as clauses which are presumed to be abusive (a so-called "grey list").

Finally, it is worth mentioning the provisions that allow those persons and associations which according to the national law have an interest in protecting the consumers' interests to bring legal action for obtaining the removal of the clauses which are considered abusive. Those actions can also be brought against a plurality of subjects which operate using identical or similar general conditions (e.g., banks and insurance companies).

This makes possible preemptive intervention by private persons in order to verify the contents and the validity of this type of contract.

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.

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