Franchising is a form of organizing entrepreneurial activity through which one company grants another the right to use its trademark, trade name, business experience, and other intellectual property objects under the terms specified in the contract. Franchising allows entrepreneurs to operate under an already established business model and a recognizable brand. At the same time, such cooperation is associated with legal and financial obligations that need to be assessed before signing the contract.
Aylex Law Firm provides legal support in Armenia regarding the signing, execution, modification of franchising contracts, and the resolution of disputes arising from them.
Legal Regulation of Franchising in Armenia
Franchising relations in the Republic of Armenia are regulated by Chapter 53 of the RA Civil Code, titled "Comprehensive Entrepreneurial Activity Permit (Franchising)."
According to Article 969 of the Civil Code, under the comprehensive entrepreneurial activity permit contract, one party, the rights holder, is obliged to grant the other party, the user, the right to use the complex of exclusive rights belonging to the rights holder in its entrepreneurial activity for remuneration.
These rights may include:
- The right to use the trade name.
- The right to use trademarks and service marks.
- The use of commercially protected information.
- The use of business experience and reputation.
- Rights to use other intellectual property objects specified in the contract.
The parties to a franchising contract can be commercial organizations and individual entrepreneurs.
Signing and Registration of Franchising Contracts
According to Article 970 of the RA Civil Code, the franchising contract must be concluded in writing. Failure to comply with the written form of the contract results in its invalidity; such a contract is null and void. If the franchising contract grants the right to use an intellectual property object that is protected and for which the rights holder has been granted the appropriate license or certificate in accordance with the law, the rights granted by the contract, as well as its termination, are subject to state registration. In such cases, registration is carried out by the authorized state body responsible for the registration of inventions, industrial designs, and trademarks.
The code also provides for legal consequences for failing to comply with the registration requirement, including the nullity of the contract.
Therefore, when signing a franchising contract, it is necessary to clarify what intellectual property rights are granted and whether the right to use them is subject to state registration.
What to Check Before Signing a Franchising Contract
A franchising contract may contain numerous obligations that directly affect the profitability of the entrepreneurial activity and the possibilities for further development.
Before signing the contract, it is especially important to examine:
- The rights of the rights holder concerning the relevant trademark and other intellectual property objects.
- The duration and territory of the franchising grant.
- The scope of rights granted by the contract.
- One-time and periodic payments, including royalties.
- The terms of supply and acquisition of goods.
- The requirements for advertising, marketing, and brand usage.
- The quality standards set for goods and services.
- The obligations for the protection of confidential information.
- The conditions for contract extension and early termination.
- The liability for breach of contract.
- The applicable law and dispute resolution procedure.
Particular attention should be paid to contracts in which a foreign company grants a Armenian company the right to use its trademark or business model. In such cases, it is necessary to examine both the mandatory requirements of Armenian legislation and the applicability of the chosen foreign law in the contract.
Rights and Obligations of the Parties Under the Franchising Contract
Articles 973 and 974 of the RA Civil Code regulate the main obligations of the parties to the franchising contract.
The rights holder is obliged to provide the user with the technical and commercial documents, information, and relevant permits necessary for the implementation of the rights specified in the contract. Under the law and the terms of the contract, the rights holder may also be obliged to provide technical support, employee training, and quality control of goods or services.
The user, in turn, is obliged to comply with the requirements for the use of the trademark, quality, protection of confidential information, and other requirements specified in the contract.
Restrictions Provided by the Franchising Contract
Franchising contracts often include restrictions on competition, the area of operation, the use of other trademarks, or the organization of commercial activities.
Such conditions must comply with the legislation of the RA.
Article 975 of the RA Civil Code provides for the permissibility of certain contractual restrictions, but at the same time establishes conditions that are null and void. In particular, null and void are those conditions under which the rights holder reserves the right to determine the prices or upper and lower limits for the goods sold, works performed, or services rendered by the user. The law also provides for restrictions regarding the exclusive servicing of certain groups of buyers or buyers located in a specific area.
Therefore, the legality of the restrictions included in the franchising contract should be assessed in the context of the requirements of the RA Civil Code and the legislation on the protection of economic competition.
Disputes Related to Franchising Contracts
Disputes in franchising relations may arise from non-fulfillment of contractual obligations, payments, use of trademarks, supply conditions, termination of the contract, or violation of exclusive rights. International franchising contracts, where one of the parties is a foreign company, are of particular significance.
In such contracts, it is important to clearly define the applicable law, the competent authority for dispute resolution, and issues related to the enforcement of relevant decisions.
Services of Aylex Law Firm
Aylex Law Firm provides legal support to both franchising companies and entrepreneurs operating under franchising contracts.
Our services include:
- Drafting franchising contracts.
- Legal examination of franchising contracts.
- Assessment of the compliance of foreign franchising contracts with RA legislation.
- Legal study of trademarks and other intellectual property rights.
- Assistance with the registration of rights granted by contracts.
- Conducting negotiations on contract terms.
- Legal support for the modification and termination of franchising contracts.
- Extrajudicial resolution of contractual disputes.
- Judicial and arbitration representation.
If you plan to start a business in Armenia under an international trademark, expand your company's activities through franchising, or are already involved in a legal dispute related to franchising, you can contact Aylex Law Firm for legal consultation and representation.