What is a franchise agreement (commercial concession agreement)
How does franchising function in terms of Russian law? We will understand what exactly is understood by law as a franchise agreement or a commercial concession agreement.
From the point of view of imperfect Russian legislation, a synonym for franchising is concession. What exactly is meant by this term? There are several definitions of the concept of “concession”.
A concession is an agreement on the transfer by the state for operation to private entrepreneurs, foreign firms for a specified period of time of enterprises and other economic facilities, land plots with the right to extract minerals, build various structures, produce certain products, etc. The enterprise itself is also called a concession. based on such an agreement.
The comments to chapter 54 of the Civil Code of the Russian Federation indicate that commercial concession is an analogue of the concept of franchising. However, there are certain differences between the two terms. Concession involves an activity on behalf of the copyright holder, and franchising is an activity under the trademark of the copyright holder.
Article 1027 of the Civil Code of the Russian Federation refers to the most important official document in the franchise system – the commercial concession agreement, which has a number of significant differences from the ordinary agreement. If most model agreements regulate relations between the two parties for a certain period of time and at the end of this period they automatically lose their force (unless otherwise indicated in the document), then the franchise agreement is signed by the two parties for a long period. As a rule, each franchisee company has an established version of its contract, which includes determining the brand, image, trademark of the copyright holder.
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The contract stipulates all stages of development of franchising relations and all conditions of cooperation. A franchise agreement provides for the use of exclusive rights, business reputation and commercial experience of the copyright holder in a predetermined amount with or without indication of the territory of use in relation to a certain area of entrepreneurial activity. That is, the subject of the contract is the provision for a certain fee by the copyright holder to the user of the right to use a set of certain rights in their business activities. These include, for example, the right to “a trademark, a service mark, as well as rights to other objects of exclusive rights stipulated by the contract, in particular to a commercial designation, production secret (know-how)” (Article 1027 of the Civil Code of the Russian Federation).
In the previous version of the law, the transfer of “rights to the company name and (or) commercial designation of the copyright holder” was allowed. This was the main contradiction. According to paragraph 4 of Art. 54 of the Civil Code of the Russian Federation, a legal entity that is a commercial organization must have a company name, which is the name of the company with an indication of the form of ownership. A legal entity that has registered a company name in the manner prescribed by law has exclusive rights to use it. Today, the registration of a company name is carried out simultaneously with the state registration of a legal entity.
There is also such a thing as a commercial designation. By it is meant the well-known, but not registered name of the enterprise. Although the company name is the intellectual property of the copyright holder, it is impossible to transfer the rights to it to anyone, unlike the commercial designation. And although in the subsequent version of the provision on the contract of commercial concession there is no mention of the company name, this does not solve all the problems, because the commercial designation itself is not protected by our law.
In addition to the name, each company has commercial information, which, together with the entrepreneurial experience of the copyright holder, constitutes its trade secret protected by law. Information constituting a trade secret does not require special state registration and is protected on the basis of an agreement concluded between the user and the copyright holder.
There are also exclusive rights provided by the contract for a trademark and other objects. And here we are again faced with certain difficulties. According to Art. 1 of the Law of the Russian Federation of September 23, 1992 No. 3520-1 “On Trademarks, Service Marks and Appellations of Origin” (as amended by the Federal Law of December 11, 2002 No. 166-ФЗ “On Amendments and Additions in the Law of the Russian Federation “On Trademarks, Service Marks and Appellations of Origin of Goods”), a trademark and a service mark are designations.