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Franchising in Italy
In Italy, the offer and sale of franchises is regulated by Law No. 129/2004 of May 6, 2004 (Franchise Act) and Ministerial Decree No. 204/2005 of September 2, 2005 (Franchise Regulation). While the Franchise Act applies to all franchisors, the Franchise Regulation applies only to franchisors that have exclusively operated (whether through direct operation of outlets and/or franchising outlets) outside of Italy.
Minimum Content of a Franchise Agreement Under the Franchise Act
The Franchise Act sets forth the minimum content (in form and substance) of a franchise agreement, including the following:
- The franchise agreement must be in writing.
- If the franchise agreement is terminable, the term of the agreement may not be less than three years (subject to each party's termination rights (if any)).
- The franchise agreement must include the following terms:
(a) The amount of the investment and any initial fees to be paid to the franchisor;
(b) The method of calculation and manner of payment of royalties and any other fees to be paid to the franchisor;
(c) The minimum income to be realized by the franchisee;
(d) The scope of any territorial exclusivity granted under the franchise agreement in relation to both outlets operated by other franchisees and those operated by the franchisor;
(e) The specific know-how to be provided by the franchisor;
(f) Any possible mode of recognition of the contribution of know-how by the franchisee;
(g) The services and assistance provided by the franchisor; and
(h) The conditions for renewal, termination, and transfer of the franchise agreement.
While the Franchise Act expressly states that the franchise agreement may be voided if not in writing, failure to include any of the terms above may likewise subject the agreement to rescission on the basis of indeterminacy of the object or due to lack of negotiation in accordance with the general principles of nullity under Italian law.
Both the Franchise Act and the Franchise Regulation require the franchisor to provide, at least 30 days prior to the execution of the franchise agreement, a complete copy of the franchise agreement to be executed, as well as certain detailed information. Specifically, the franchisor must provide:
- Key data regarding the franchisor, including company name, share capital and, upon request by the franchisee, copies of the franchisor's balance sheets for the last three years or, if the franchisor has been in business for less than three years, balance sheets from the date of the franchisor's formation;
- Information regarding the trademarks used in the franchise system, including registration details or, if applicable, information regarding the license agreement between the franchisor and the trademark owner;
- A brief description of the franchise system;
- A list of current franchisees and company-operated outlets in Italy. If, however, the franchisor does not yet operate in Italy, the franchisor must provide a list by country of all current franchisees and company-operated outlets. In addition, if requested, the franchisor also must provide a list of at least 20 franchisees and their locations or, if there are fewer than 20 franchisees, such information for all current franchisees. While Italian law does not prescribe a minimum period in which the franchisor must have been in business prior to entering the Italian market, this requirement suggests that the franchisor must have some experience before offering franchises in Italy;
- The annual change in the number of Italian franchisees and their locations during the last three years or, if the franchisor has offered franchises for less than three years, from the date of the commencement of those franchising activities. If, however, the franchisor does not yet operate in Italy, this information must be provided by country for all franchisees; and
- A summary of any court or arbitration proceedings regarding the franchise system brought against the franchisor in Italy by franchisees, third parties, or public authorities and concluded in the past three years (in compliance with applicable privacy laws). If, however, the franchisor does not yet operate in Italy, the franchisor must provide a summary (including the names of the parties, the legal or arbitral authority, the claims and the decision/award) of court or arbitration proceedings regarding the franchise system that have concluded in a final judgment within the three years preceding the execution of the franchise agreement.
Failure to provide the proper disclosures may subject the franchisor to claims for rescission and damages.
No Franchise Registration
While Italy has a pre-sale disclosure requirement, there is no requirement to register the disclosure document or the franchise agreement with any government authority.
While it is generally understood that the parties to a franchise agreement may select the governing law of their choice, the provisions of the Franchise Act and the Franchise Regulation that are intended to protect franchisees, such as the those relating to the minimum content of a franchise agreement and pre-sale disclosure, may not be waived by agreement of the parties.
Nicoletta Colombo is a partner in the Milan, Italy office of Studio Legale Caneva e Associati. She acts for many Italian and international franchise systems and regularly advises about international expansion to Italy. Robert A. Smith is a partner and chair of the Franchise Group at Wiley Rein LLP. Maureen A. O'Brien is special counsel at Wiley Rein LLP.
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