There is a specific Law governing franchise agreements in Italy, Law n. 129/2004 (“Franchise Law”). Italian Franchise Law is mainly a disclosure law; it contains a number of mandatory rules protecting franchisees, as being considered the weaker party. Non-compliance with such rules can expose foreign franchisors to serious legal risks.
Although local courts will recognize a choice of foreign law in a franchise agreement, Italian mandatory rules contained in the Franchise Law apply in any case, on a merely territorial reason consisting in the pursuit of business in Italy.
According to the Franchise Law, franchisors must have tested their business concept or formula on the market, before establishing their franchise in the country. This obligation indeed applies to any Italian subsidiary of a foreign franchisor, as well as to a sub-franchisor under a master franchise relationship.
The Franchise Law provides for a duty of disclosure, according to which franchisors must provide candidate franchisees with information on a number of issues (such as the franchisor, its trademark, the franchise system, etc.) before signing the franchise contract, to enable them to make an informed decision about the proposed business. Special standard of disclosure are required for foreign franchisors who enter into business with Italian franchisee or Master franchisee.
Know-how to be transmitted to franchisees is one of the essential and distinctive features of any franchise agreement; according to the Franchise Law, it must be secret, substantial and identified. Therefore, it is crucial to verify that validity of such element according to Italian law.
A minimum three year duration of the franchise contract is foreseen by Franchise Law.
The advertising promotion of a franchise may expose franchisors to significant legal risks. Misleading advertising can be heavily sanctioned by the AGCM (Italian Competition and Market Authority), pursuant to Legislative Decree n. 145/2007 and Consumer Code, and can create serious risks of litigation with competitors, affiliates and consumers. Therefore, all advertising materials, including business plans, should be carefully designed and reviewed form a legal point of view, to avoid legal risks.
Consequences of non compliance with the Italian special regulations on franchising might be quite severe for foreign franchisors. Therefore, careful planning and adequate legal counseling is highly recommended.