How franchising is regulated in Italy

There is a specific Law governing franchise agreements in Italy: Law n. 129/2004. The Italian Franchise Law is mandatory: it applies to all franchisors, whether Italian or foreign, notwithstanding any possible different foreign law applicable to the franchise contract. Italian Franchise Law provides for a duty of disclosure, according to which franchisors must provide candidate franchisees with specific information on a number of issues, at least 30 days before signing the franchise contract. Special standard of disclosure is required for foreign franchisors who enter into business with Italian franchisee or Master franchisee, by Min. Decree n. 204/2005. Apart from the disclosure obligations, Italian Franchise Law contains a number of provisions concerning franchise agreements. other general rules apply to franchising agreements, such as the rules provided for by the Italian Civil Code. Such general rules must be taken into consideration when the franchise agreement is subject to Italian Law. There are also special rules that apply to franchise agreements, such as those provided for by the Legislative Decree n. 145/2007 and the Consumer Code on advertising and promotion. Finally, franchise agreements used in Italy should be drafted carefully and accurately, in accordance with Italian legal drafting and practice.

1. The Italian Franchise Law

There is a specific Law governing franchise agreements in Italy: Law n. 129/2004 (“Italian Franchise Law”). To receive an unofficial English translation of the Italian Franchise Law, please contact us 

The Italian Franchise Law is mandatory: it applies to all franchisors, whether Italian or foreign, notwithstanding any possible different foreign law applicable to the franchise contract.

In other words, although local courts will recognize a choice of foreign law in a franchise agreement – for all aspects not regulated by the Italian Franchise Law, apart from issues such as labor and consumers’ rights – the rules contained in the Italian Franchise Law apply in any case, on a merely territorial reason consisting in the pursuit of business in Italy.

2. The franchise disclosure document 

Special standard of disclosure is required for foreign franchisors who enter into business with Italian franchisee or Master franchisee, by Min. Decree n. 204/2005.

You can review the official italian version of the Min. Decree  here. To receive an unofficial English translation of the Min. Decree, please contact us.

Italian Franchise Law provides for a duty of disclosure according to which franchisors must provide candidate franchisees with specific information, in Italian language, on a number of issues (such as information about the franchisor, its trademark, the franchise system, the number of franchisees, litigation etc.) at least 30 days before signing the franchise contract, to enable them to make an informed decision about the proposed business.

Italian franchise disclosure law is similar to other franchise disclosure laws in force in other countries; however, the franchise disclosure document provided for by Italian Franchise Law is not identical to other legislations; therefore, such document must be drafted very carefully, under the supervision and advice of an Italian franchise lawyer, in order to avoid serious legal risks.

In addition, according to Italian Franchise Law, foreign franchisors must provide aspiring franchisees, at least 30 days before signing the franchise contract, with the complete franchise contract to be signed, containing all clauses and annexes. Although the franchise agreement needs not to be in Italian by Law – differently form the disclosure information – it is common practice in Italy that also such agreement is drafted in Italian language.

3. Other provisions contained in the Italian Franchise Law

Apart from the disclosure obligations, Italian Franchise Law contains a number of provisions concerning franchise agreements.

First of all, according to the Italian 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.

Secondly, Italian Franchise Law regulates the Know how to be transmitted to franchisees is one of the essential and distinctive features of any franchise agreement. According to the Italian Franchise Law, Know-how must be secret, substantial and identified.

Therefore, it is crucial for foreign franchisors wishing to expand their franchise in Italy to verify if their know-how is valid according to Italian Franchise Law, in order to avoid serious legal risks.

Finally, Italian Franchise Law provides for a minimum three year duration of the franchise contract. This means that the franchisor cannot withdraw from the agreement before the end of the first 3 years, unless there are some important reasons (such as, for example, if the franchisee is in breach of the agreement or ho goes bankrupt).

4. General provisions applying to franchise agreements

Apart from the Italian Franchise Law, other general rules apply to franchising agreements, such as the rules provided for by the Italian Civil Code. Such general rules must be strictly taken into consideration in all cases when the franchise agreement is subject to Italian Law (as it should be always the case as far as franchise agreements in Italy are concerned, for a number of reasons that will be explained in another article).

This means that all clauses and obligations contained in the standard foreign franchise agreement should be carefully revised and adapted to Italian Law, in order to be valid and applicable in Italy.

In fact, a number of important clauses contained in a standard foreign franchising agreement,that is usually drafted,  written according to a Law different from the Italian one, should be carefully revised and adapted, such as:

• clauses regulating the obligations of the franchisor and the franchisee;
• clauses regulating the  duration of the agreement and its renewal;
• clauses imposing restrictions on the franchisee (in relation to the transfer of the agreement, the sale of assets, the sale of the shares, prices to the public, etc.);
• clauses regulating the termination of the agreement and its consequences;
• clauses regulating indemnities and guarantees;
• clauses regulating the resolution of the disputes,

etc.

5. Special rules on promotion

There are also special rules that apply to franchise agreements, such as the rules provided for by the Legislative Decree n. 145/2007 and the Consumer Code on advertising and promotion activities.

To view the official Italian version of the Legislative Decree n. 145/2007, please click  here. To recieve an unofficial English translation of the Legislative Decree n. 145/2007, please contact us.

Such rules apply to all information used by franchisors for marketing purposes, such as business plans, messages on social networks, brochures, etc.

Non compliance with such rules may expose franchisors (including foreign franchisors) to significant legal risks. In particular, misleading advertising is heavily sanctioned by the AGCM (Italian Competition and Market Authority) and can create serious risks of litigation with competitors, affiliates and consumers.

To view the official Italian version of the Italian Consumer Code, click here. To receive an unofficial English translation of the Italian consumer Code, please contact us.

Therefore, all advertising materials, including business plans, should be carefully designed and reviewed from a qualified Italian franchise lawyer, to avoid legal risks.

6. The adaptation to Italian commercial practice

Finally, franchise agreements used in Italy should be drafted carefully and accurately, in accordance with Italian legal drafting and practice, in order to protect the franchisors’ needs. In fact, there is a standard regarding franchise agreements in Italy, that it is usually different from foreign countries.

For example, franchise agreements in Italy are not usually so long and detailed as in other countries (such as common law countries). And of course, the economics connected with a franchise agreement (entry fees, royalties, prices, costs etc.) can be quite different. The adaptation of the foreign franchise agreement to Italian commercial and business practice is very important, as it can deeply influence the franchisors’ successful expansion in Italy.

Consequences of non compliance with the Italian Franchise Law might be quite severe for foreign franchisors. Therefore, careful planning and adequate legal counseling from a local law firm is highly recommended.

To receive any information about the Italian rules on franchising, or explanations on the above, please contact us.

                                                                                                           

Avv. Valerio Pandolfini 

For other in-depth articles on issues relating to franchising: visit our blog.

---

The information contained in this article is of a general nature and is not to be considered an exhaustive examination of the various issues, nor is it intended to express an opinion or provide legal advice. Specific legal advice must be provided with regard to individual cases.