The franchise agreement, at its root, is a licence agreement. The word franchise itself, however, does not connote the same meaning as its Anglo-French origin suggests, with the word 'franc' meaning 'free'.
The relationship between the franchisor and the franchisee will be governed by ordinary contract law principles and is supplemented by statutory rights and obligations where appropriate. In general, all franchise agreements must comply with Cypriot competition Law, contract law and intellectual property law. As regards the applicable law in relation to the franchise agreement, the EU Regulation (EC) No 593/2009 on the Law Applicable to Contractual Obligations ("Rome I Regulation") Article 4, (which is directly applicable in the Republic of Cyprus since 17 December 2009), states that the applicable law in the absence of choice for a franchise contract "shall be governed by the law of the country where the franchisee has his habitual residence."
Franchise agreements are considered vertical agreements and thus fall in the ambit of competition law block exemptions, which can be granted under Section 5(1) of the Protection of Competition Law of 2008 (13(I)/2008), as amended by Law (41(I)/2014), under which the Council of Ministers may issue a relevant order. An example of such an order, although superseded, is the order with No. 3239 of 30/4/1998. This order provided the definition of a Franchise as:
"the sum of intellectual property rights which relate to trademarks and tradenames, shop signs, standards, designs, copyrights, know - how or patents, for resale use of the products or services to the end users".
It is important, however, to note that no legislation dealing specifically with franchise agreements is currently in force. Nevertheless, as stated above, a franchiser wishing to expand to Cyprus will have to abide with the laws of competition law, contract law and intellectual property law.
In general, there are essentially three major types of franchises in use today:
- the business format franchise,
- the product franchise,
- the manufacturing franchise
Taking in consideration the most common type of franchise, that of the business format, as is often the case, this type of franchise goes beyond the authorized use of intellectual property, in that the franchisee may be granted access to the franchisor's goodwill, trade secrets, dress code, operating manuals, special training, quality control methods and marketing strategy. The franchisee is effectively integrating every crucial aspect of the successful business model of the franchisor. In return, the franchisee pays fees and royalties.
In this context, it is of vital importance that the provisions embodied in the agreement safeguard the interests of all parties concerned by offering a clear view of their respective rights and obligations in relation to:
- the licence,
- the fee structure and royalty payments,
- the contract duration,
- termination issues,
- disclosure and confidentiality, and
- intellectual property.
Therefore, particular care should be given to the drafting of the franchise agreement by both parties.
The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Agis Charalambous, Associate, at firstname.lastname@example.org
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.