Were you going to start your own business, but February 2022 turned the cards upside down? Some entrepreneurs, in order not to give up their plans, changed the focus of the idea: instead of building a business from scratch, they decided to purchase a franchise. The choice is clear: it will be possible to save on advertising, because the brand is already recognizable, to reduce risks, because the franchise has already been tested in the market. But are there any pitfalls in this scheme?
Lawyers of LLC Stepanovsky, Papakul and Partners. Legal Services” Nadezhda Shakel and Alina Kushnerova told “About Business” how to draw up a franchise agreement in order to protect yourself from possible problems and an unscrupulous license owner.
Franchise agreement: to register or not?
A franchising agreement (complex business license) is a convenient form of interaction in the field of commercial turnover, therefore it is becoming increasingly popular.
In 2021, the NCIS registered 113 franchise agreements: almost 2 times more than in the previous one, and the most for the entire period of such a procedure.
According to the requirements of the Civil Code (Article 910), a complex business license agreement, or franchising, is subject to registration with the patent authority – the National Center for Intellectual Property (NCIP).
Due to the fact that the franchise agreement in the vast majority of cases is concluded with a non-resident, in practice there are questions about in which country the agreement should be registered.
It is generally believed that if the franchise will operate on the territory of Belarus, then it must be registered with the NCIS.
You can also focus on the place of conclusion of the contract, since, as a general rule, the form of the transaction is determined by the place where it was made. In this case, it is necessary to take into account the requirements of the legislation of a foreign state, where in general there may be no need to register franchises.
If you nevertheless decide to register a franchise agreement with the NCIS, then the next step is to check it for compliance with the requirements for it in order to successfully complete the registration procedure.
We draw up a document: territory of action, language, subject of the contract
The requirements are given in the Decree of the Council of Ministers of the Republic of Belarus No. 346 dated March 21, 2009, as well as instructions on the procedure for registering license agreements, agreements on the assignment of rights to objects of industrial property rights, agreements on the pledge of property rights, certified by a certificate for a trademark, service mark, and agreements complex business license (franchising).
Based on the requirements of legislation and law enforcement practice, NCIP offers you the following check list. The contract must:
- Be drawn up in two or more copies. For registration, it will be necessary to submit two copies of the contract (originals).
- Be drawn up in Russian or Belarusian or in a foreign language and Russian/Belarusian (bilingual contract). It is possible to submit an agreement in a foreign language for registration, but in this case, two copies of its translation into Russian or Belarusian, certified by the party (parties) or its (their) representatives, are additionally provided.
Important! In the contract, all foreign names of counterparties are provided with transliteration in the Russian / Belarusian version (for example, the name of the foreign counterparty is Corporation Ltd., transliteration into Russian is Corporation Ltd.).
- Strictly define the subject of the contract. The subject of the agreement is stipulated as the provision (license) of a licensed complex, which necessarily includes trade name and undisclosed information. May include other intellectual property.
Here you need to be careful when concluding a franchise agreement with a counterparty from Russia. The regulation in this area is significantly different, and a commercial concession agreement (the equivalent of a franchising agreement in Belarus) involves the provision of a different license complex.
According to the legislation of the Russian Federation, the license complex includes trademarks, service marks and other objects of intellectual property.
- Have a description of the transmitted undisclosed information, including production secrets (know-how). It is not required to disclose the essence of such information, however, you should make sure that the transmitted undisclosed information really is such (for example, it is not easily accessible, does not represent an object of exclusive rights to the results of intellectual activity).
- Describe the trademark indicated in the subject (when the trademark is included in the license complex). It cannot be changed, only minor changes in colors are allowed that do not affect distinctiveness.
The license complex is transferred for use in the user’s business activities. The contract must contain a condition on the use of the provided complex of exclusive rights in a certain area of business activity (for what actions the franchise is intended – production, manufacture, sale, provision of services, etc.).
Entrepreneurial is an activitycarried out in civil circulation on its own behalf, at its own risk and under its own property responsibility and aimed at the systematic receipt of profit from the use of property, the sale of things produced, processed or purchased for sale, as well as from the performance of work or the provision of services, if these works or services are intended for sale to other persons and are not used for their own consumption (Article 1 of the Civil Code).
- Specify a condition on the volume of permissible use of the licensed complex with the establishment of a minimum and (or) maximum volume of use (for example, at least 50 copies per year).
- Name the condition on the territory of its operation.
- Have provisions on the responsibility of the franchisor for the requirements of the consumer to the user of the franchise. Article 910 of the Civil Code imposes subsidiary and several liability on the franchisor in certain situations.
- Indicate measures to avoid misleading the consumer. This usually means the obligation of the franchise user to inform buyers in the most obvious way for them that he uses the licensed complex on the basis of a franchise agreement.
Legal powers, duties and grounds for refusal
The obligation of the franchise user is to ensure that the quality of goods (works, services) produced (performed, rendered) by the user on the basis of a franchise agreement, the quality of similar goods (works, services) produced (performed, rendered) directly by the right holder.
The contract cannot be concluded by an individual. The parties may be commercial organizations and individual entrepreneurs.
If objects of industrial property rights (trademarks, inventions, industrial designs, etc.) are licensed under a franchising agreement, then the designation of such objects is as specific as possible. You should also check validity security documents and Availability at the franchisor legal authority license the use of such facilities.
The text of the agreement or its annexes must contain information from the relevant titles of protection, for example, the designation of a trademark (verbal, alphabetic, digital, pictorial, etc.), the registration certificate number, and other information that allows the object to be identified.
You should be careful about the text of the entire contract. In accordance with civil law, participants in civil legal relations are free to establish their rights and obligations on the basis of an agreement and to determine any terms of an agreement that do not contradict the law.
However, the presence in the agreement of provisions that contradict the requirements of the current legislation is the basis for refusal of registration.
Also, the agreement should not contradict the previously concluded and already registered agreements in respect of the same objects of intellectual property in relation to the type of transfer of rights, the scope of transferred rights, the term and territory of the agreement.
Checking the requirements for registration
Next, we check the documents required for registration. Your portfolio should include:
- Properly completed application. An approximate form was developed by the NCIS.
- When submitting documents through a representative – a power of attorney indicating the appropriate authority to submit documents for registration.
- Patent fee paid and document confirming it. The patent fee is 10 base units. If industrial property objects registered in the Republic of Belarus are licensed under a franchise agreement, an additional 5 basic units are paid for each patent and certificate.
Important! The fee is paid for consideration of the application for registration. Therefore, in case of a negative decision of the NCIP, the patent fee is not refundable.
- Applications, if they are provided for by the contract. They must be attached to the documents, meet the requirements for translation, etc.
- If the application and the contract are not signed by the immediate head of the organization, acting on the basis of the charter, then all necessary documents confirming the authority to sign must be collected and submitted.
We would like to remind you that all submitted documents are in Russian or Belarusian. If the documents are drawn up in a foreign language, they are accompanied by a translation into Russian or Belarusian, certified by the party (parties) or its (their) representatives. Transliteration of foreign names of the parties must also be provided.
The parties to the franchise agreement should take into account that information on registered agreements, including the state registration number of the agreement, type of agreement, names of the parties to the agreement, the duration of the agreement, and other information are published in the official bulletin of the NCIS.
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