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, 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 by Min. Decree n. 204/2005. Italian Franchise Law also contains provisions concerning franchise agreements. Other general rules apply to franchising agreements in Italy, such as the rules provided for by the Italian Civil Code and the rules 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.
The Italian Franchising Association has also adopted a Code of Ethics. Such Code was originally modelled on the Code of Conduct of the European Franchise Federation and has been subsequently updated to make it compliant with the Irtalian Franchise law. The Code, however, has no legal force and is binding only on the members of the association. This means that violations of the Code by members can only lead to their exclusion from the association.
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.
It is important to consider that the rules contained in the Italian Franchise Law on disclosure are mandatory, i.e. they apply irrespective any other law chosen by the parties in the agreement. In other terms, even if the franchise agreement is regulated by a foreign law that does not contain any provision regarding disclosure obligations, the rules contained in the Italian Franchise Law will be applied in any case.
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
Apart from the Italian Franchise Law, other general rules apply to franchising agreements. Such general rules should 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).
First of all, the rules provided for by the Italian Civil Code apply to franchise agreements. Such rules regulate important aspects, such as the conclusion of the agreement, the cases when the agreement can be considered as void, the cases when the agreement can be terminated, etc.
In particular, according to the Italian Civil Code, the franchisor must act in accordance with goodwill, fairness and good faith at all times during the whole process of negotiation with the prospective franchisee, as well as the franchise agreements is in force.
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.
Other general rules provided for by the Italian law can be applied to franchise agreements, such as:
- Law n. 392/78 on lease agreements (applicable if the franchisor owns the premises on which the franchisee shall operate);
- Employment regulations;
- Tax regulations;
- IP rules (mainly contained in the Legislative Decree n. 30/2005, Code of Intellectual Property);
- general rules on retail sales (such as rules concerning the supply of food to consumers, rules concerning alcoholic beverages licenses, etc.).
A specific rule that can impact heavily franchise agreements is art. 9 of Law n. 192/1998, which prohibits abuse of economic dependence, including arbitrary or unfair termination of the contractual relationship. Although such law was originally specifically targeted at subcontracting, it has been subsequently interpreted by the case law as to include franchising. Recently, the Italian Antitrust Authority (AGCM) has applied such rule to some important franchise chains, such as Benetton, McDonald’s and Original Marines.
It should be carefully considered that, although the parties can choose the law applicable to the agreement, mandatory provisions of Italian law (such as employment rules) prevail. Therefore, legal advice by an experienced Italian law firm is highly recommended.
Finally, EU general rules apply to franchise agreements, such as the EU Block Exemption Regulation (330/2010) on vertical restraints. According to such Regulation, resale price maintenance (RPM) illegal; however, section 4.1(a) of the Regulation nevertheless includes an exception for fixing a maximum price level, or recommending a certain price for products or services, provided that they do not amount to a fixed or a minimum sale price as a result of pressure from, or incentives offered by, any of the parties. Post-contract non-compete obligations are also regulated by the Regulation.
5. Special rules on the advertising and 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
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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.
