Franchising and Commission-Affiliation

Franchising and commission-affiliation are two distinct legal systems that allow a company to develop their business in a network.

The franchise

Franchising is a commercial and legal agreement between merchants in which the franchisor grants the franchisee the right to exploit its concept, including its identification signs(brand, slogan, logo, sign, graphic charter…) and its know-how(creations, processes, recipes, methods, formulas…).

This authorization is generally granted on an exclusive basis for a geographical area reserved for the franchisee, in return for the payment of an entry fee and then a percentage of the sales or profits made by the franchisee (the choice of the method of calculation for the fixing of the price being freely fixed by the parties).

The franchisor and the franchisee are legally independent of each other and bound only by the franchise agreement.

This contract is not expressly defined in French law and is not subject to any formalism. It can therefore be concluded in writing or orally.

The franchise contract is not defined by law and its legal regime is essentially based on the contractual provisions established by the parties.

Notwithstanding the above, the combination of certain provisions of the Commercial Code, Regulation (EU) No. 330/2010 of April 20, 2010 and case law provide a framework for the franchise agreement and impose obligations on the franchisor, namely:

• In accordance with the terms of article 330-3 of the Commercial Code, the franchisor is required to provide the franchisee with a pre-contractual information document (DIP):

“This document, the content of which is set by decree, specifies, in particular, the seniority and experience of the company, the state and development prospects of the market concerned, the size of the network of operators, the duration, the conditions for renewal, termination and transfer of the contract as well as the scope of exclusivities.” ;

• The franchisor must allow the franchisee to use all the signs of identification of the network, which constitute tools for rallying customers(brand, slogan, logo, sign
  graphic charter, decoration of points of sale, etc.).

Thus, franchise agreements necessarily include an intellectual property rights licensing component;

• The franchisor must make its know-how available to the franchisee.

This is defined in Article 1 (g) of Regulation (EU) No 330/2010 as a secret, substantial and identified body of non-patented practical information resulting from the supplier’s experience and tested by the supplier;

• On the commercial level, the franchisor also has an obligation to support the franchisee, at the time of the integration of the network by the latter, but also on an ongoing basis once the franchisee’s activity is set up.

This assistance can be materialized in different forms (training, commercial assistance, provision of software and hardware necessary for the implementation of the activity…).

The affiliate commission

The commission-affiliation is a method of distribution of products whose regime is defined in articles L.132-1 and following of the Commercial Code.

Like the franchise contract, the commission-affiliation contract is concluded between two independent merchants, namely the principal (network head) and the affiliated commissionaire (distributor of the products).

In addition, in a manner comparable to a franchise agreement, the affiliated commissionaire has a right to use the principal’s trademark.

However, the particularities of the commission-affiliation and the main differences with the franchise contract system are the following:

• This type of contract can be exclusively for the distribution of products, with the exception of services;
• The principal is not obliged to pass on know-how to the commission agent-affiliate;
• The affiliated commission agent is not the owner of the product stocks, which remain the property of the principal until they are sold to the final consumer.

In both the franchising and the commission-affiliation context, the intellectual property rights, and especially the trademark, occupy a fundamental place in that they are the sign of identification of the merchant that attracts customers.

Moreover, both the franchise contract and the commission-affiliation contract include a license of intellectual property rights(trademark license, copyright license, designs and models…).

It is therefore essential for trademark owners who plan to develop their concept in a network to first ensure the validity and scope of protection of their intellectual property rights.

In addition, once these rights have been secured, it is equally essential to put in place an effective monitoring and defense strategy to preserve their value.

Point of jurisprudence

Since no formalities are imposed on the franchise agreement, the absence of a written agreement is not sufficient to exclude the existence of such an agreement. 

CA Colmar, Chamber 1 a, July 12, 2021, n° 19/02486

Point on the proof of the franchise agreement

The franchise contract being a legal act, unless its value is less than 1500 euros, the proof of its existence will have to be reported by a writing under private or authentic signature 

(art. 1359 al. 1 of the Civil Code and its decree of application)

However, since the parties to the contract are generally merchants, commercial law will apply in such cases, so that the franchise agreement may be proven by any means (art. L.110-3 of the Commercial Code)

The Bouchara Law firm assists you in particular in :

• The audit of your intellectual property rights prior to a development in a franchise network or in the form of a commission-affiliation;
• Drafting and/or verification of intellectual property clauses in franchise agreements, commission-affiliation agreements and, in general, all distribution agreements;
• Protection and defense of your intellectual property rights.