This article will explain key legal components of franchising in Turkey. It is widely recognized that franchising began in the United States. Though, it is beyond doubt that the franchising system is very useful to do business for foreign corporations within the jurisdiction of Turkey. There has been an increasing interest in the Turkish franchise sector.
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What are the Main Legal Instruments Applicable to Franchising in Turkey?
It is interesting and problematic that currently there is no specific Turkish legislation stipulating the scope of franchise agreements. What is more, the Block Exemption Communiqé on Franchise Agreements No:1998/7 was abolished with the entry into force the Block Exemption Communiqué on Vertical Agreements (No:2002/2). Hence, the franchise agreement is deemed as a "sui generis" type of contract. It is alo instrumental to stress that relevant articles of a number of norms on contracts apply to the franchising in Turkey:
- Turkish Code of Obligations (Numbered 6098),
- Turkish Commercial Code (Numbered 6102),
- Law on the Protection of Competition (4054).
For instance, it is widely accepted that a franchising contract is a typical type of vertical agreement. Where articles of the franchising agreement contain the prevention, distortion or restriction of competition, Article 4 of the Protection of Competition Act (Numbered 4054) should be applicable for the concerned franchising agreement. Additionally, the Competition Authority may also take targeted measures in restricting competition and abuse of dominant position.
What is meant by franchising in Turkey?
Undoubtedly, the absence of any regulation in the franchising system causes a wide variety of problems in practice. From that sense, there has not been an accepted definition of franchising within the context of Turkish regulations. It is noteworthy, however, that Turkish Franchising Association makes a great contribution to the definition of franchising in declaring that
Franchisee undertakes the right and obligation to use Franchisor's trade name and / or service mark, know-how, business and technical methods, system and other industrial and/ or intellectual property rights for a direct or indirect cost. It shall undertake the commercial and technical support to be continuously received within the period and scope of the written Franchise Agreement signed between the Parties for this purpose.
What are the main forms of franchising in Turkey?
Generally speaking, franchising systems can be categorized in two groups from application origin and applicable law point of view: national or international franchising. Foreign franchise market in Turkey consists of global brands such as Sturrbucks, Monkey Donuts, McDonald's, Domino's Pizza, Burger King or local brands such as Simit Sarayi, Koton and LC Waikiki.
What are key elements of a franchising agreement in Turkey?
It is significant to reiterate that since there is no legislation directly dedicated to franchising systems. Accordingly, foreign investors have the same procedural conditions with local investors. Besides, the principle of freedom of contract applies to franchising agreements. The principle of freedom of contract means freedom of parties to choose the type, subject and terms and conditions of the franchising contract within the context of limited restrictions prescribed by law. Article 27 of Turkish Civil Code of Obligations (Numbered 6098) articulates three invalid forms of agreements:
- firstly, agreements violating the law and imperative provisions of the law,
- secondly, agreements violating morality and public order,
- thirdly, agreements violating individual rights.
What are the fundamental rights and obligations arising from a franchise agreement?
Franchising provides a long-term business relationship between two independent parties. Despite the lack of a legislative product on the franchising system, the Turkish judicial authorities play a primary role in fulfilling this gap. The established case-law of the Court of Cassation makes a reference to core components (rights and obligations) of franchising, as will be discussed below. According to the Court, "franchise agreement" grants the franchisee;
-the right to market a product or service by using the franchisor's trademark or trade name,
-the right to market a product or service by using the franchisor's operation methods (more specifically know-how).
As a response to the exercise of such rights, the franchisee had the obligation to pay for a royalty fee. (See among others, Judgment of 25 June 2001, 19th Civil Chamber of the Court of Cassation (E:2001/819 and K:2001/4917).
In addition to royalty fee, franchise fee and fee for advertisement are paid by franchisee in practice.
Besides, according to the Court of Cassation, the franchising agreement imposes two main obligations upon the franchisor;
- firstly, the provision of know-how or license a trademark,
- and secondly the support of the franchisee. (See among others, Judgment of 25 June 2001, 19th Civil Chamber of the Court of Cassation (E:2001/819 and K:2001/4917)
What is the main objective of a franchise agreement?
Having regard to the aforementioned discussions on the duties and rights of franchisor and franchisee, it is clear to put forward that the fundamental aim of the franchising contract is to protect the intellectual property rights of the franchisor. Therefore, every article of franchising agreement must be compatible with the franchisor's trademark rights.
What are legal requirements for the franchising?
Is there any special rule for the conclusion of a franchise agreement such as the registration of the agreement/rights?
In the absence of any regulation on franchising agreements in Turkey, there are not any registration duties prescribed by the law for franchise agreements. It is however important to bear in mind that other legal requirements for any contract must be met.
To sum up, this paper provides a brief outline of the franchising system under Turkish legal framework. Recently, there has been a sharp growth in the franchise sector. This paper is intended to advance a legal approach on the role of the franchising system in Turkey. Franchising practitioners and lawyers face significant challenges because of the lack of any official norm on franchising systems. It is worth remembering that the absence of any franchising regulation causes a broad range of concerns. Therefore, this paper highlights the importance of long term strategic guidance in the field of franchising.
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.