France: Franchise & Licensing

Since the 1970s, the influence of franchising has grown considerably in France. However, there is no legal definition of franchising in France, nor even a specific statute governing the franchise contract.

The European Code of Ethics for Franchising, drawn up by the French Franchise Federation (FFF), has attempted to give a definition but it has no normative or binding value. It is ‘a system of marketing products and/or services and/or technologies, based on close and continuous collaboration between legally and financially separate and independent enterprises, the franchisor and its franchisees, in which the franchisor grants its franchisees the right, and imposes on them the obligation, to operate a business in accordance with the franchisor’s concept. The right thus granted authorises and obliges the franchisee, in exchange for a direct or indirect financial contribution, to use the trade name and/or trademark of the goods and/or services, the know-how, and other intellectual property rights, supported by the continuous provision of commercial and/or technical assistance, within the framework and for the duration of a written franchise agreement concluded between the parties for that purpose.‘

In French law, franchising can be defined as the agreement by which one company, the franchisor, grants to another, the franchisee, in exchange for direct or indirect remuneration, the right to exploit a concept and a brand according to predefined and uniform standards with a view to marketing specific types of products and/or services, with the know-how and assistance of the franchisor.

Franchising thus enables the franchisee to replicate the commercial success of the franchisor, through (i) the provision of a trademark or trade name, (ii) the transmission of know-how and (iii) ongoing technical or commercial assistance.

In France, the franchisor must provide the prospective franchisee with a pre-contractual information document. This document contains the essential information that the franchisee needs to make an informed decision to enter into a franchise. The franchisor must provide truthful information in order to ensure the free and informed consent of the franchisee.

This document specifies in particular the identity and seniority of the franchisor and its company, its experience, its financial results, the licensed brand, the operating network, the state and development prospects of the market concerned, as well as the main clauses of the contract such as the duration, the conditions of renewal, termination and transfer, the exclusivities granted and the financial obligations (Articles L.330-3 and R.330-1 et seq. of the Commercial Code resulting from the Doubin law of 31 December 1989).

The pre-contractual information document allows the future franchisee to make his own analysis and compare the brands that interest him, an essential step before taking the plunge and choosing to join a franchise network.

It must be submitted with the draft contract at least 20 days before the date of signing the franchise agreement or a franchise reservation agreement and/or the payment of any money for it.

Failure to provide this pre-contractual information document may result in a criminal fine of up to €1,500 and up to €3,000 in the event of a repeat offence.

In civil law, the failure to provide a pre-contractual disclosure document in accordance with the law or the provision of inaccurate or incomplete information may result in the franchisor being held liable for fault, leading to the award of damages to the franchisee. The nullity of the franchise agreement may also be pronounced if it is shown that the franchisee’s consent has been vitiated.

In France, there are no specific registration requirements for franchisors and/or franchisees.

However, all French companies must be registered with the Registre du Commerce et des Sociétés (RCS) and will be subject to official requirements, such as the filing of annual accounts.

In addition, as the trademark is an integral part of the franchise, the franchisor must protect it by ensuring that it is registered with the National Institute of Industrial Property (INPI).

In France, the provision of a pre-contractual information document is mandatory when a person makes a trade name, trademark or sign available to another person and requires a commitment of exclusivity or quasi-exclusivity for the exercise of its activity (Article L. 330-3 of the Commercial Code).

This requirement is not specific to franchising and may also apply to brand licensing or commercial concession agreements.

The pre-contractual information document (DIP) is communicated at least twenty days before the conclusion of the franchise agreement and must be written in French. If the future franchisee is a foreigner, this document may also be sent in the language of the latter.

This document must contain information on the franchisor’s company (date of creation, bank address, nature of the activity, address of the company’s registered office, identity of the person running the company, etc.), the licensed trademark (date and registration number in particular), the network of operators (list and contact details of the franchisees), as well as a presentation of the general and local state of the market for the products or services that are the subject of the franchise and the prospects for the development of this market. The duration of the proposed contract, the conditions for renewal, termination and assignment, and the extent of exclusivity must also be indicated. The DIP also specifies the nature and amount of the expenses and investments specific to the brand or trade name that the franchisee will have to make before the start of its activity (Article R.330-1 of the Commercial Code).

If a franchisee concludes a franchise agreement with a master-franchisee, the latter will be obliged to submit such a document, as it is acting towards the franchisee as franchisor.

In case of renewal of the franchise agreement, the pre-contractual disclosure document must again be delivered to the franchisee and updated if the information in the document has changed.

Failure to provide this pre-contractual information document within the time limit may result in a criminal fine and/or civil damages (see question 2).

In addition, in the case of inaccurate or incomplete information, the franchise agreement may be cancelled if the franchisee can demonstrate that his consent has been vitiated. If the contract is cancelled, the parties will revert to the situation they were in before the contract was concluded, which means that the franchisor will be obliged, among other things, to return the entry fee and the royalties received.

In France, a franchisee may operate several outlets of the same franchise network. He then becomes a multi-franchisee.

A single franchise agreement can be drawn up when the outlets are operated by the same legal entity. It is also possible to draw up several franchise agreements for each outlet, with different conditions.

If the franchisee intends to use a special purpose vehicle (SPV) to operate each franchised outlet, new legal entities will be created and run as separate organisations. In this context, the signing of a franchise agreement with each individual SPV will have to be considered and the delivery of the pre-contractual information document to each individual SPV franchisee will therefore have to be ensured under the conditions described above.

In French law, the notion of good faith is very important. According to Article 1104 of the Civil Code, “contracts must be negotiated, formed and performed in good faith; this provision is of public order”. Good faith in contract law requires that the contracting party behave in a loyal and cooperative manner; the contracting party must not harm the other party.

Mis-selling by the franchisor can be analysed as a breach of the duty of good faith and may justify termination of the contract for breach of contract and/or an award of damages to the franchisee. In this case, the disclaimer will be ineffective because the principle of good faith is a matter of public policy.

On the other hand, if it is shown that the franchisor has used fraudulent manoeuvres to obtain the franchisee’s consent, the contract may be declared null and void. In this case, the disclaimer cannot be invoked by the franchisor who has engaged in serious conduct involving negligence or gross negligence.

Under French law, it is possible to issue a franchise agreement on a non-negotiable basis. In this case, the franchise agreement is referred to as a contract of adhesion, defined as “one that includes a set of non-negotiable clauses, determined in advance by one of the parties” (Article 1110 of the Civil Code).

This situation is justified by the need to ensure equal treatment between franchisees of the same network and to guarantee the homogeneity and coherence of the entire network. This will be the case, for example, for clauses relating to entry fees and royalties.

However, this does not mean that nothing can be negotiated. The franchisee has the freedom to discuss specific points of the franchise, such as the area of exclusivity or the duration of the contract.

It is also important to note that the clauses of the franchise agreement, which are non-negotiable and determined in advance by the franchisor, must not create a significant imbalance between the rights and obligations of the parties, or they will be deemed unwritten (Article 1171 of the Civil Code).

To be protected in France, the franchisor’s trademark must be registered with the Institut National de la Propriété Intellectuelle (INPI), which is responsible for promoting and protecting intellectual property rights in France. The registration of a trademark gives its owner a property right for a period of 10 years, renewable indefinitely. For more extensive protection, for example in the European Union, a Community trademark must be registered with the European Union Intellectual Property Office (EUIPO).

As regards know-how, this is a package of non-patented practical information, resulting from experience and testing by the supplier, which is secret, substantial and identified (Regulation (EU) 2022/720 of 10 May 2022 relating to categories of vertical agreements ). Protection of know-how is not possible as such. As such, the franchisor must ensure the protection of its know-how by means of a contractual clause defining it, delimiting the scope of its use and providing for its evolution as well as the sanctions in case of non-compliance by the franchisee. It is also possible for the network head to protect its know-how with regard to its employees by inserting a contractual and post-contractual confidentiality clause in their employment contract in return for financial compensation.

Business secrecy is defined as any information that is not generally known or easily accessible, that has an actual or potential commercial value and that is subject to reasonable protective measures to preserve its secrecy (Article L.151-1 of the Commercial Code resulting from Law No. 2018-670 of 30 July 2018). The business secret is protected against any unlawful obtaining, disclosure or use by its legitimate holder resulting from unauthorised access to any document, object, material, substance or digital file containing the secret or resulting from unfair behaviour contrary to commercial practice (Article L.151-4 et seq. of the Commercial Code).

In the case of a franchise, trademark law and design law may be used to protect the trademark, the name of the products, the graphic or figurative representations of the trademark or the architectural concept. The franchisor may also use copyright to protect his graphic charter, logos, slogans, but also the know-how manual, certain commercial documents or the franchisor’s contractual documents. The scope of copyright is wide and many elements of the franchisor’s business concept can be protected, provided they are original.

In France, there are no franchise specific laws that govern the on-going relationship between franchisor and franchisee.

However, common contract law applies to the franchise agreement. As such, the parties must perform the contract in good faith and respect their mutual commitments with loyalty until the end of the contract.

Several specific regulations may also apply to franchising, such as intellectual property law, distribution law, competition law, restrictive practices, criminal law, etc.

Finally, the European Code of Ethics for Franchising sets out the fundamental good practices and ethical principles that govern the franchisor-franchisee relationship. It is binding on the members of the French Franchise Federation.

Competition law applies to franchise agreements, whether under French or European competition rules. This includes both the law of restrictive practices and the law of anti-competitive practices.

As regards restrictive practices, the franchisor may be held liable when a clause in the contract creates a significant imbalance in the rights and obligations of the parties or hinders the freedom of the franchisee. The franchisor may not impose minimum resale prices for products or services on the franchisee. The franchisor may also be held liable in the event of a brutal breach of the franchise agreement (Article L.442-1 of the Commercial Code).

In terms of anti-competitive practices, the franchise agreement may have an impact on competition on the French and European market. The question of the anti-competitive nature of a franchise agreement containing exclusivity clauses (territorial, supply, activity, etc.), pre-emption and approval clauses, and recommended price clauses may arise. However, if it is shown that the clauses contained in the franchise agreement are directly linked to the provision of know-how, the use of the brand and, in general, the preservation of the network’s identity and reputation, then these clauses will not be considered anti-competitive (Article L.420-1 of the Commercial Code + Article 101 TFEU).

Thus, franchising as a vertical agreement may benefit from exemptions under the conditions provided for by the new European Regulation 2022/720 of 10 May 2022 applicable to categories of vertical agreements and concerted practices.

For example, the franchisor may prohibit active sales by the franchisee outside the exclusive territory granted to it, but it may not prohibit passive sales in that territory. Nor can the franchisor impose minimum resale prices on the franchisee or prohibit the use of online sales. On the other hand, the franchisor may establish criteria to control the franchisee’s use of the Internet by means of a graphic charter to be respected, thus guaranteeing the brand image and uniformity of the network. The franchisor may also prohibit the franchisee from using certain online sales platforms with the same objective of preserving the brand image and uniformity of the network.

In franchising, the main clauses limiting the franchisee’s freedom of enterprise are the non-competition clause and the non-reaffiliation clause. These clauses are enforceable if certain conditions of validity are met.

The non-competition clause prohibits the franchisee from carrying on a similar activity to that of the network to which he belongs or which he leaves, whether through another franchise or commercial organisation, or through his own operation. The non-competition clause can therefore be applied during and/or after the end of the franchise agreement.

The non-reaffiliation clause is a post-contractual clause frequently stipulated in franchise agreements. It prohibits the franchisee from creating or joining a network competing with that of the franchisor at the end of the contract. The franchisee remains free to carry on an activity similar to the one he carried on within the network, but on condition that he does so under his own name and brand without joining a competing network. He cannot therefore join another franchise.

To be valid, post-contractual non-competition and non-reaffiliation clauses must be limited in time (one year after the end of the contract) and to a specific geographical area (premises and land), and relate only to the goods and services defined in the contract (the clauses may sometimes be limited to part of the business). They must also be proportionate to the legitimate interests of the franchisor.

The non-competition clause and the non-reaffiliation clause are only valid when there is really know-how to protect, which is essential to safeguard the identity and reputation of the franchisor’s network. Otherwise, the clause may be challenged and deemed unwritten in the event of a dispute.

With regard to the non-solicitation clause, a distinction must be made between the staff non-solicitation clause, whereby the contractor of a company undertakes not to solicit or hire, during a given period, the employees and/or collaborators of its co-contractor, and the customer non-solicitation clause, which prohibits the employee from canvassing the customers of his employer.

The customer non-solicitation clause is a type of non-competition clause. It prohibits the canvassing of the former franchisor’s customers, but does not prohibit the exercise of a professional activity.

The relationship between the franchisor and the franchisee is not subject to consumer protection laws.

However, in the course of its business, the franchisee is subject to consumer law with regard to its customers, if they are considered to be consumers. In this context, the franchisee must comply with all consumer protection rules. The franchisee shall not engage in deceptive or unfair commercial practices, contrary to the requirements of professional diligence, which alter or are likely to alter in a substantial manner the economic behaviour of the normally informed and reasonably observant and circumspect consumer.

Under French law, all contracts must be negotiated, formed and performed in good faith (Article 1104 of the Civil Code). This implies that the franchisor and the franchisee must perform their contract in good faith, i.e. they must behave loyally towards each other. This is a fundamental principle of French contract law, qualified as public order, which means that the parties cannot derogate from it.Under French law, all contracts must be negotiated, formed and performed in good faith (Article 1104 of the Civil Code). This implies that the franchisor and the franchisee must perform their contract in good faith, i.e. they must behave loyally towards each other. This is a fundamental principle of French contract law, qualified as public order, which means that the parties cannot derogate from it.

The franchise contract is not subject to anu employment or labour law considerations, as the franchisee is an independent trader. As such, he manages his own business and assumes the risks associated with his activity.

However, the franchise contract implies that the franchisor can impose on the franchisee the respect of norms and standards of exploitation of the concept, the respect of the brand image, the feedback of information, etc. These constraints are in line with the franchising principle, which is to replicate exactly the franchisor’s success model, as long as they do not affect the independence of the franchisee.

There is a risk that the franchise agreement will be reclassified as an employment contract if it is proved that there is a relationship of subordination between the franchisor and the franchisee, if the franchisee has been subjected to the authority of an employer, in this case the franchisor, who has the power to give orders and instructions and to sanction breaches.

To avoid this risk of requalification, the clauses of the franchise agreement must respect the independence of the franchisee as to the organisation of his activity and his employees. The franchisor may strictly control the use of his know-how and trademark, but he must not interfere in the management and control of the franchisee’s business.

Under French law, a commercial agent is an independent agent responsible, on a permanent basis, for negotiating and possibly concluding sales, purchase, rental or service contracts in the name and on behalf of the company he represents (a principal), in return for payment of commissions (Articles L.134-1 et seq. of the Commercial Code).

The commercial agent does not have the status of a trader, as he does not build up his own clientele but acts as an agent. At no time does the agent acquire ownership of the goods intended for the end customer.

There is therefore no risk that a franchisee could be deemed to be the commercial agent of the franchisor. The franchisee does not act on behalf of the franchisor. He operates independently and owns his business and his customers.

The nature and terms of payment of royalties are determined by the parties in the franchise agreement. In France, there are no legislative or regulatory provisions that have an impact on the payment of royalties to a foreign franchisor.

However, in the case of cross-border flows, the contract must include appropriate clauses and the tax treatment of the contract must be anticipated. In some cases, it may be necessary to take into account and neutralise the effect of duties, taxes or withholding taxes due on royalties or other financial flows between the franchisee and the franchisor (net income clause or gross-up clause).

The franchisor may contractually provide for the possibility of imposing penalties on its franchisee in the event of a breach of its obligations (confidentiality, non-competition, etc.). In French law, this is the penalty clause.

The penalty clause is classically defined as the clause in a contract by which the parties evaluate in advance the compensation to which the non-performance of the contracted obligation will give rise. The amount of this penalty must be provided for in the contract and no amount above or below this amount may be awarded. If the amount is excessive or, on the contrary, derisory, the court, when seized by the penalized party, may increase or reduce the penalty ex officio (Article 1235-1 of the Civil Code).

The implementation of the penalty clause in the franchise agreement presupposes a breach by the franchisee of its obligations, who must be put on notice by the franchisor. The franchisee will then have a certain period of time to perform its obligation in order to correct its breach. After this period, if the franchisee is still in default, the franchisor may impose the sanction without having to prove the existence of a prejudice, the simple non-performance being sufficient to implement this sanction.

In France, there is no specific tax regime for franchising. Franchising is a way of operating a business; the applicable tax regime depends on the legal form used by the entrepreneur to set up the business.

However, there are some financial specificities linked to the franchise system which concern the entry fee and the royalties.

The entry fee is a fixed and unique sum of money paid by the franchisee to the franchisor at the time of signing the franchise agreement. The amount of the entry fee is generally proportional to the size and reputation of the network. Its purpose is to reimburse the franchisor’s investment in setting up the network and integrating the franchisee. In this case, the entry fee is treated as an operating expense. It can also be capitalised as an intangible asset if the franchise agreement has provided for certain conditions in a specific clause.

Royalties are the fees paid by the franchisee to the franchisor throughout the duration of the franchise agreement, in return for all the services provided by the franchisor (supply of equipment, products, know-how, technical and commercial assistance, training, etc.). The royalties are considered as operating income for the franchisor and are therefore subject to income tax or corporation tax at the normal rate. For the franchisee, the payment of royalties must be expensed. VAT is recoverable under the usual conditions.

In France, the rules applicable to e-commerce mainly concern relations between professionals and consumers.

As regards the relationship between franchisor and franchisee, in theory there is nothing to prevent a franchisee from creating a website to distribute his products if he can prove that this site is one of several means of selling the said products or services.

Thus, the franchisor cannot prohibit its franchisees from using online sales. On the other hand, the franchisor is entitled to regulate the use of this sales channel in order to preserve its brand image and to guarantee the uniformity of the network.

In this respect, the franchisor may make the opening of the franchisee’s website subject to compliance with a pre-established graphic charter, or even to its prior approval. The franchisor may also impose quality standards or prohibit the franchisee from using online marketplaces to sell its products in order to pursue the same objective of preserving the brand image of the franchise network (Regulation (EU) 2022/720 of 10 May 2022). The franchisor can even oblige his franchisee, wishing to use online sales, to use a “sub-site”, which will allow him to centralise the offer on a single web page.

However, the franchisor’s control and the way in which the franchisee’s website is set up must not make it impossible for the franchisee to use this sales channel in practice.

In France, personal data is protected by the provisions of Law No. 78-17 of 6 January 1978 on information technology, files and freedoms (known as the “Loi Informatique et Libertés”), as amended by Law No. 2018-493 of 20 June 2018, and by the provisions of Regulation (EU) 2016/679 of 27 April 2016 (known as the “GDPR”) on the protection of natural persons with regard to the processing of personal data and on the free movement of such data.

A franchise network’s understanding of this regulation on the protection of personal data will depend on its organisation, the determination of the roles of the franchisor and the franchisee in the collection and processing of personal data, and the identification of data flows.

With regard to the determination of roles, a distinction is made between the controller, the processor and the joint controllers. The situations vary between franchise networks. In some networks, it is the franchisee who is the data controller because it owns its customer file and its file of prospects. On the other hand, some networks prefer to keep control over the personal data of their franchisees and customers; in this case, they declare themselves data controllers. And more and more franchise networks are now opting for joint responsibility.

Depending on the case, personal data may be collected by the franchisor (customer contracts, promotional operations, employee data, etc.) or by the franchisee (feedback, loyalty programmes, commercial partners, commercial prospecting, etc.).

The complexity of franchise networks therefore calls for caution in terms of personal data protection. It is essential that the franchisor and the franchisee define in the franchise agreement the respective obligations of each party, the characteristics of the processing and the responsibilities.

The franchise agreement is a contract concluded « intuitu personae », i.e. in consideration of the person of the franchisee, who has been selected by the franchisor to join its network.

In this context, the franchisor may have to restrict the transfer of the contract by putting in place control mechanisms governed by the following clauses in the franchise agreement

• the approval clause, by virtue of which the transfer of the franchise agreement to a third party is subject to the prior authorisation of the franchisor; or
• the preference clause, by which the franchisee undertakes, in the event that he wishes to transfer his franchise agreement, in particular in the context of a transfer of his business, to offer it as a priority to the franchisor, who has a contractual right of first refusal which must be exercised under the conditions proposed by a third party.

The validity of the inclusion of such clauses in franchise agreements is constantly accepted by the case law.

As the end of the franchise agreement approaches, if the parties wish to continue their relationship, the franchisee may have the choice of extending the agreement, renewing it or signing a new agreement. In this respect, it is advisable to systematically refer to the contract, which alone will define the practical terms of implementation (notice period or termination of the contract, request for renewal, tacit renewal, etc.).

However, there is no “right to renewal” for either party. The franchisee does not have the right to renew the franchise agreement and the franchisor is not obliged to give reasons for its decision not to renew or to compensate the franchisee, regardless of the duration of the contractual relationship.

The franchisor’s decision not to renew the contract is only liable in case of abuse of rights, the proof of which lies with the franchisee. This implies that the franchisee must show that the franchisor committed an intentional fault by, for example, making him believe that his contract would be renewed or by having induced him to make important investments shortly before the end of the contract.

Under French law, perpetual contracts are prohibited (Article 1201 of the Civil Code). In the case of a perpetual contract, either party may terminate it at any time, provided that the contractually agreed period of notice or, failing that, a reasonable period of notice is observed (Article 1211 of the Civil Code).

The length of the reasonable notice period is assessed on a case-by-case basis, taking into account the duration of the relationship or by reference to commercial practice. Three months’ notice is a minimum and eighteen months’ notice is considered sufficient (Article L.442-1 of the Commercial Code). The party that does not respect a reasonable notice period may be ordered to compensate the other party for the damage suffered by the other party, as a result of the brutal termination of established commercial relations.

Furthermore, it should be noted that depending on the seriousness of the behaviour of a contracting party, the other party may have the possibility to unilaterally terminate the contract without any formality or notice.
The seriousness of a party’s conduct may justify unilateral termination at its own risk, without being obliged to give prior notice to the offending party to comply with its obligations, or to justify a situation of urgency, or to respect the procedure attached to a termination clause.

This is the case, for example, when the seriously illicit and illegal acts committed by the franchisee, in addition to the economic risk, have a truly negative impact on the entire network and may be prejudicial not only to the franchisor but also to other franchisees of the same brand.

Finally, the franchise contract is a contract concluded intuitu personae, i.e. in consideration of the person of the contractor, his skills, qualities and/or technical, financial or other characteristics. In this case, the death of the contractor terminates the contract.

The franchisee is an entrepreneur who operates independently. He is therefore the owner of his business and all its assets and he assumes the risks alone.

However, the franchisee has decided to develop his business by applying the franchisor’s commercial formula and by using the franchisor’s brand to which the clientele is particularly attached. When the franchise agreement expires, for whatever reason, most of the attraction of the franchisee’s business will revert to the franchisor (trademark, sign, know-how, equipment, etc.).

Even if the national clientele remains attached to the franchisor’s brand, it is accepted by the French courts that the local clientele results from the elements belonging to the franchisee, such as the business or the commercial lease.

“If a clientele is attached to the franchisor’s brand at the national level, the local clientele only exists because of the means used by the franchisee, in particular the tangible elements of his business, the equipment and stock, and the intangible element constituted by the lease, this clientele being itself part of the franchisee’s business since, even if the franchisee is not the owner of the trademark and sign made available to him during the execution of the franchise agreement, it is created by his activity, with means that, contracting in a personal capacity with his suppliers or lenders, he implements at his own risk” (Cour de cassation, Chambre civile 3, 27 March 2002, 00-20. 732).

Similarly, upon expiry of the franchise agreement, for whatever reason, the franchisee remains the owner of the commercial lease.

With regard to personal data relating to customers, which may either be the exclusive property of the franchisee, or shared with the franchisor, or given to the franchisor, the provisions of the European Regulation 2016/679 of 27 April 2016 on the protection of personal data, known as the RGPD, as well as Law No. 78-17 of 6 January 1978 relating to information technology, files and freedoms, as amended, prevail.

Before entering into a franchise relationship, the franchisee must ensure that the franchise he/she is considering is viable. The franchisee can only make a commitment with full knowledge of the facts, which implies having analysed the pre-contractual information document provided by the franchisor.

It is also strongly recommended that the franchisee carry out a complete market study, contact the franchisees in the network and check the information provided, particularly the registration of the trademark.

Finally, the franchisee should carefully read the draft franchise agreement provided by the franchisor in order to anticipate the validity and consequences of certain clauses and the possible associated risks.

The franchisor, on the other hand, enters into the franchise agreement in return for the franchisee. This means that the franchisor must ensure the suitability of the candidate franchisee’s profile so that the latter can repeat the commercial success of the concept, guarantee the homogeneity of the network and finally preserve the brand image of the franchise.

In some cases, a fixed-term area reservation contract may be signed by the parties. This allows the future franchisee to benefit from territorial exclusivity, while waiting for the finalisation of his project to become a franchisee of the brand, without committing to sign a franchise contract. The franchisor undertakes to help the candidate in his or her efforts (help in finding a location, help in obtaining a loan, etc.) and undertakes not to seek new candidates for the area reserved by the candidate franchisee. At the end of the area reservation contract, the final franchise contract will be signed if the steps and conditions foreseen have been carried out and if the parties so wish.

France is the country in the European Union where franchising is the most widespread. With more than 50 years of existence, franchising plays a crucial role in the French economic landscape by creating jobs and added value in the territories where it is established.

The 18th annual survey on franchising 2021 carried out by the Fédération Française de la Franchise (FFF) shows that franchising remains very popular with future business creators.

The franchise model reassures future entrepreneurs, thanks to the support and training provided at the start-up and the possibility of benefiting from the reputation of a brand.

The desire to undertake franchising is also part of a desire for professional reconversion with a modern and winning development strategy. Future entrepreneurs see the advantage of support and autonomy, combined with risk control.

The most active sectors in the field of franchising in France are food, home furnishings, fast food and household equipment.

The Fédération Française de la Franchise – French Franchise Federation (FFF) organised franchising in France by drawing up the Code of Ethics for Franchising in 1972. Under its impetus, this Code became the European Code of Ethics for Franchising, which came into force on 1 January 1991.

For over 50 years, the FFF has been the voice of franchising. It is a professional federation that brings together nearly 190 French and foreign franchise networks operating in France. Its members represent almost 45% of the franchisees in France. Membership of the FFF is not compulsory.

There are two types of members and the admission criteria are very strict:

• Franchise networks: All networks that develop in franchising, provided that they have at least 2 franchised outlets, that their concept is of high quality and that they respect the European Code of Ethics for franchising, can join the FFF.
• Councils, franchise experts: All Councils, natural persons, who have proven their competence in the application of their professional practice to franchising, are eligible to join the College of Experts of the FFF.

For franchise networks, membership of the FFF allows them to be assisted in the development of their network in France and abroad (legal advice, training, experience sharing, etc.), to benefit from the FFF’s communication to promote their network, to position themselves in relation to other professionals thanks to the FFF’s “label” (banks, insurance companies, etc.) and to take part in lobbying on franchising. The cost of membership in the FFF is €3,200 for the entry fee and an annual fee that varies according to the number of franchised outlets.

For consultants, franchise experts (lawyers, jurists, accountants, communication consultants, management consultants, organisation consultants, network development consultants, etc.), membership allows them to join the FFF College of Experts, provided they have been sponsored by FFF member franchisors and after a rigorous selection process. The cost of membership includes an entry fee of €5,000 and an annual subscription of €2,020.

The missions of the FFF are the following

• to promote the franchise model,
• to defend and perpetuate the franchise model,
• to federate the ecosystem of franchisors, franchisees, institutional and financial partners, local authorities…
• to create the tools and environment necessary for the development and performance of franchise networks.

The FFF actively lobbies public authorities, governments and members of parliament, at national and European level, to defend the franchise model. It created the European Franchise Federation in 1972.

Generally speaking, French law does not distinguish between domestic and foreign-owned companies.

A company with its head office abroad can choose between different forms of establishment depending on its desire to penetrate the French market and the degree of autonomy desired in relation to the parent company (liaison office, branch, subsidiary).

The subsidiary is the most successful formula for penetrating the French market as it constitutes a legal company in its own right. Although it is majority controlled by the foreign parent company, it has its own assets and acts in its own name. The subsidiary must be registered in the Trade and Companies Register and be set up under one of the legal statutes existing in France (SARL, SAS, SA, etc.). It is subject to French regulations with the same tax, social and accounting consequences as all French companies.

In France, there is no legal or regulatory obligation for the parties to a franchise agreement to make payments in the local currency. It is even possible to issue invoices in a foreign currency, provided that it is internationally recognised and convertible into euros.

However, in the case of a contract concluded outside the European Union, it will be essential to find out what exchange regulations apply, who is responsible for carrying out the formalities and, in some cases, to provide appropriate payment guarantees to reduce the risk of recovery abroad.

The parties to a franchise agreement are free to choose the applicable law.

However, the exercise of this freedom is regulated to avoid any fraudulent use of the law. Thus, the parties may not disregard the rules of domestic and international public policy that may apply to their contractual relationship; nor may they disregard the application of public policy laws.

In the absence of a choice by the parties in an international franchise agreement, the rules of international law will designate the law applicable to the agreement. In the case of franchise and distribution agreements, the applicable law, in the absence of a specific contractual stipulation, is the law of the country where the distributor has its habitual residence.

In the event of a dispute between a franchisor and a franchisee, several dispute resolution procedures are available to the parties: amicable agreement, mediation, arbitration or litigation.

In the first instance, the parties to the franchise agreement try to settle their dispute amicably, agreeing on the means and timeframe for doing so.

If the parties fail to reach an amicable settlement despite their best efforts, they may resort to a mediation process to resolve their dispute, before any legal action is taken. The mediator is a professional third party, generally recognised and trained in mediation. The role of mediation is to achieve, through dialogue, the emergence of a suitable solution to the conflict.

Once conciliation or mediation procedures have been exhausted, it is necessary to go before the judge. Each franchise agreement contains a clause specifying the competent court. Most of the time, disputes arising from a franchise agreement are dealt with by the commercial court expressly designated by the parties or, where applicable, with territorial jurisdiction.

The franchise agreement may also contain an arbitration clause allowing the dispute to be submitted to arbitration. This procedure is an alternative to the state court. The arbitration award is binding on the parties and has the same value as a court decision. The arbitration procedure, although relatively quick, is nevertheless costly.

The class action, introduced in France by Law No. 2014-344 of 17 March 2014 on consumer affairs, is a collective action procedure that allows people who have suffered the same damage from a professional to bring a collective action before the courts in order to obtain compensation.

Initially provided for in consumer law, class action is now also applicable in the field of health, in the presence of discrimination (particularly in the workplace), in environmental law and concerning personal data protection.

A class action can therefore be opened in the case of a distribution or consumer services franchise. It will be brought by an approved consumer association against a franchisee, vendor or service provider.

On the other hand, a class action brought by an association of franchisees raises legal questions, in particular as to the capacity and legitimacy of the association to bring an action and as to whether the interests defended will be individual or collective. These considerations are leading more and more franchisors to create a representative body within their network, in order to avoid the creation and intervention of an association of franchisees only in case of a dispute with the network head.

The choice of the language of the contract lies with the parties. The principle of freedom of contract, which allows the content of the contract to be freely determined, applies to the language in which the parties intend to draft it.

In the franchise sector, no legal or regulatory provision imposes the use of the French language, even if some major principles emerge regarding the choice of language.

• Articles L.330-3 and R.330-1 of the Commercial Code, relating to the pre-contractual information document (DIP), do not indicate in which language the information must be provided, but simply state that the document provided must enable the applicant to “make a commitment in full knowledge of the facts”.
• Article 5 of the European Code of Ethics for Franchising states that contracts given to a franchisee must be in the official language of the country in which the franchisee is established or in a language which the franchisee declares that he or she formally understands.

The franchisor must ensure that the franchisee understands the language in which the information and the contract are offered. The contract and disclosure documents may therefore be written in a foreign language, if necessary.

However, signing a contract in a foreign language will, in the event of a dispute being brought before the French courts, imply translating the document into French, which may involve a risk of interpretation in the event of an inaccurate or imprecise translation.

In this case, it is preferable to provide for the possibility of drawing up a contract in several languages, provided that it is determined beforehand which version is authentic between the parties.

The electronic signature has the same legal value as a handwritten signature in France as in the rest of the European Union, since the year 2000, and it has been reinforced by the eIDAS Regulation which sets the rules for the legal use and recognition of electronic signature processes in all Member States (EU Regulation 910/2014 of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market).

The eIDAS Regulation has been transcribed into French law in Articles 1366 and 1367 of the Civil Code. These articles establish the legal value of the electronic signature in France. They include the rules of use and the principle of non-discrimination established by the eIDAS Regulation.

In France, the Agence Nationale de la Sécurité des Systèmes d’Information (ANSSI) is the reference body for electronic signatures. It identifies and controls trust providers to ensure their compliance with the eIDAS regulation.

Reserved only for trust providers qualified and controlled by the ANSSI, the electronic signature must have the following characteristics

• authentic: the identity of the signatory must be traceable
• unforgeable: a person cannot usurp the identity of another person
• non-reusable: the signature is part of the signed document and cannot be moved to another document
• unalterable: once the document is signed, it cannot be altered
• irrevocable: the person who signed it cannot contest it

At a time when all types of documents, particularly legal documents, are being dematerialised, the electronic signature offers franchisors a number of practical, legal and technical advantages.

The literal proof of the identity of the signatory, the content of the document transmitted and the date of its signature is provided by this simple electronic signature. Thus, once the DIP has been signed electronically, the future franchisee can no longer contest the date of issue or the existence of the information contained in the document issued.

Article 1379 of the Civil Code, as drafted by the Order of 10 February 2016 reforming contract law, provides that “a reliable copy has the same probative value as the original”.

This Article 1379 of the Civil Code greatly simplifies the process of digitising legal documents in that it secures them, provided that the conditions laid down by law are met. In concrete terms, the legal or corporate representative will have to store his copies on a cloud offering a qualified time-stamp within the meaning of Article 42 of the eIDAS Regulation, which guarantees the integrity of the document. This document should also be signed with an advanced electronic signature. Thus, the integrity of the copy resulting from an electronic reproduction process is attested by an electronic fingerprint which ensures that any subsequent modification of the copy to which it is attached is detectable.

Once these conditions are met, the document will be a reliable copy within the meaning of Article 1379 of the Civil Code and will have the same evidential value as the original. However, this does not exempt the company from keeping the paper originals for the duration of the mandatory retention period, because if the original still exists, its presentation may still be required. If it no longer exists, the copy signed with a so-called “qualified” process and stored on a secure cloud is presumed to be reliable, and it is up to the opposing party to challenge it and provide proof.

Furthermore, evidential archiving refers to all the technological and organisational measures used to record, store and archive electronic documents. Evidentiary archiving is a process with legal value which makes it possible to give an indisputable value to the veracity of digitised documents. It allows unlimited amounts of information to be stored over the long term, at a much lower cost than physical data storage.

In France, there are no recent legal developments that seem likely to have an impact on the franchise regime.

However, at the European level, the new Vertical Block Exemption Regulation 2022/720 of 10 May 2022 has become effective and it will have an impact on franchise agreements.

Against all expectations, the European regulation does not provide any definition of franchising, which could have been identified as a specific distribution system and no longer as a model borrowing from exclusive or selective distribution, as it has been the case for the last 20 years. Nevertheless, franchising still enjoys relatively favourable treatment.

The central element of this favourable regime is the know-how that the franchisor develops and passes on to his franchisees. Know-how is still defined by the Regulation as “a secret, substantial and identified body of practical information” and thus legitimises exclusive supply and non-competition clauses throughout the duration of the contract and after its termination.

The EU Regulation also clarifies dual distribution, which is now very common in franchise networks where franchisors sell products or services on their website (or in their own outlets) and thus compete with their franchisees.

During the COVID-19 crisis, franchisors reacted widely to act and help their franchisees. They informed their franchisees about the different governmental measures and aids available; they took advantage of this period to reinforce the training of their franchisees, to make their concept evolve and to develop the animation of the network.

Franchisors have also focused on digital investment during the COVID-19 crisis, both to accentuate external digital communication and to strengthen the digitalization of internal processes by optimizing the digital tools available to franchisees to communicate with their customers.

Through this dynamic, the French Franchise Federation considers that the franchise model has more than ever demonstrated its strong resilience in times of crisis.