The legal framework: a codified franchise regime

Lithuania belongs to the small group of European Union Member States that regulate franchising in the civil code itself. Lithuanian regulatory framework lays down a dedicated regime for the franchise agreement, and it is considerably more detailed than what most Western European systems offer, since those leave franchising almost entirely to general contract law. Licensing, by contrast, is the subject of no dedicated chapter at all and is governed primarily by the rules applicable to the relevant intellectual property rights.

Lithuanian law defines the franchise agreement as a commercial agreement under which one party (the holder of the rights) undertakes to transfer to the other party (the user) the right to use for business purposes a complex set of exclusive rights belonging to it, in return for remuneration. Such complex set of exclusive rights may include trademarks, trade names i.e. the right to a business name, protected commercial or industrial information known as know – how, business methods and other intellectual property. Additionally, the Civil code foresees that the agreement covers the use of the franchisor’s business reputation and commercial experience, and that it may define the territory or the field of business in which the package is to be exploited.

The Civil Code does more than set out a general framework. It regulates the form of the agreement and the registration of its conclusion, the obligations of each party, the restrictions the parties may agree, the franchisor’s liability towards customers, and the consequences of renewal and termination. Several of these rules are unusual by European standards, and they are most easily understood against the market for which they were written.

That market was very different from the present one. The franchise provisions of the Civil Code were drafted in the late 1990s and entered into force on 1 July 2001, when franchising in Lithuania was still a novelty. The sector then consisted of a small number of imported formats, largely in fuel retail and fast food, and of domestic entrepreneurs with no experience of operating a business model developed by someone else. The rules accordingly assume a considerable imbalance between the parties. A quarter of a century later the position has changed: mature international networks operate in retail, catering, fitness and services, and a growing number of Lithuanian brands use franchising to expand abroad. The provisions themselves have nevertheless remained essentially unchanged, which explains much of what surprises foreign franchisors.

A franchise agreement must be concluded in writing, and failure to observe this requirement renders it invalid. In addition, the agreement may be relied upon against third parties only after the fact of its conclusion has been registered in the register of legal entities in which the franchisor is registered; where the franchisor is registered abroad, registration takes place in the register in which the franchisee is registered. Where the subject matter includes an industrial property right, the conclusion of the agreement must also be registered with the authority maintaining the relevant industrial property register. The same requirement extends to amendments, to termination, and to the expiry of an individual right forming part of the package.

This requirement is not always observed. Because non-registration does not affect the validity of the agreement between the parties and limits only its effect towards third parties, the step is easily omitted, particularly where a Lithuanian franchisee joins an international network on the franchisor’s standard documentation. The omission becomes relevant in insolvency, in enforcement against a defaulting franchisee, in disputes involving sub-franchisees, and in due diligence preceding the sale of a network. It is best treated as part of the structuring exercise rather than as an administrative formality.

The Civil Code also limits what the parties may agree. It permits only such restrictions of competition as competition law does not prohibit, and it expressly declares void any clause by which the franchisor fixes the prices at which the franchisee sells or restricts the categories of purchasers to whom the franchisee may sell. Resale price maintenance in a Lithuanian franchise agreement is therefore not only a competition law infringement but also a nullity under contract law, and the latter consequence applies without any need to establish an appreciable restriction of competition or an effect on trade between Member States. A clause that would elsewhere merely lose the benefit of a block exemption is void here.

A further feature concerns responsibility towards customers. The franchisor is subsidiarily liable for claims brought against the franchisee in respect of the quality of goods sold or services supplied under the franchise, and jointly and severally liable where the franchisee sells goods manufactured by the franchisor. The franchisee, for its part, must inform customers in the most evident manner available that it operates under a franchise and uses the franchisor’s name and marks. Lithuanian law therefore does not permit a brand to be licensed without any accompanying responsibility for what is sold under it, and franchisors accustomed to a strict separation between the legal persons in a network should take this into account.

The end of the relationship is regulated in comparable detail. A franchisee that has duly performed the agreement is entitled to conclude a new agreement for a further term on the same conditions; the franchisor may refuse only if it undertakes not to grant analogous rights in the same territory for three years or compensates the franchisee. Agreements of indefinite duration may be terminated on six months’ notice unless a longer period has been agreed. The agreement terminates automatically once bankruptcy proceedings are opened against either party, which requires attention where a network relies on step-in or continuity arrangements. Where the franchisor changes or loses the licensed name or mark, the franchisee may either terminate and claim damages or continue at a proportionately reduced fee.

Licensing arrangements are generally more flexible, and the applicable rules follow from the instrument protecting the right concerned. Within those limits the parties may agree on exclusive or non-exclusive licences and determine the territory, duration, scope of permitted use, sublicensing rights and other commercial terms. Licences of registered rights should be recorded with the State Patent Bureau for national rights both for effect against third parties and because an unrecorded licence is a frequent finding in due diligence.

For both franchising and licensing, intellectual property protection is fundamental. In practice, particular attention should be given to the registration and ownership of trademarks and other relevant intellectual property rights before entering a long-term commercial arrangement, and to confirming that those rights are held by the entity that is granting them, which in group structures is not always the case. The agreement should clearly establish which rights are being granted and for what purposes. It should also settle the position on domain names, application store accounts, social media profiles and customer databases, which in Lithuanian practice give rise to more post-termination disputes than the licence itself.

Competition law is another important element of the Lithuanian framework. Franchise and licensing arrangements may contain territorial restrictions, exclusivity obligations, customer restrictions, non-compete provisions and resale-related restrictions.

The Lithuanian Competition Council may investigate conduct that restricts competition, while EU competition law may apply where an arrangement affects trade between EU Member States. Its practice in distribution is directly relevant to franchise networks. Agreements used in Lithuania should therefore not be assessed solely from a contractual perspective, the more so because one and the same clause may attract a fine and, under the Civil Code, be void.

Lithuania therefore provides an environment that is better described as layered than as flexible. The absence of a single dedicated Franchise Act means that parties must carefully combine the applicable contractual, intellectual property, competition and sector-specific rules when structuring their relationship and must do so against a statutory chapter that allocates risk in a manner most international franchise documentation does not anticipate. A further difficulty is the scarcity of published Lithuanian case law on the franchise chapter. Disputes of this kind are usually settled or resolved in arbitration, with the result that several of its most significant provisions remain untested.

Three priorities before signature

Structure the relationship before drafting the agreement

The first step should be to determine whether the proposed relationship is in substance a franchise, a licence, a distribution arrangement, an agency relationship or a combination of several models. This distinction is particularly important in Lithuania because different legal rules may apply depending on the actual substance of the relationship. Characterisation as a franchise brings with it the requirements of written form and registration, the nullity of price and customer restrictions, the franchisor’s subsidiary liability towards customers and the franchisee’s right to a further term; characterisation as commercial agency brings the agency rules of the Civil Code and the compensation that may follow termination. The courts assess the substance of the relationship rather than the label chosen by the parties.

Clients should therefore identify at the outset:

• what intellectual property and know how will be provided;
• what business activities the other party will perform;
• whether exclusivity will apply;
• how the parties will be remunerated;
• who will bear operational and regulatory responsibility; and
• how the relationship can be terminated.

The agreement should reflect the actual commercial model rather than attempt to fit the relationship into a predetermined contractual template.

Protect the intellectual property and clearly define the licence

For many franchise and licensing arrangements, the underlying intellectual property is the principal commercial asset. Before entering into an agreement in Lithuania, clients should verify ownership and registration of relevant trademarks and other intellectual property rights. The agreement should then clearly define the rights granted to the counterparty.

This should include the territory, duration, permitted uses, exclusivity, sublicensing rights, quality requirements, recordal of the licence, and the consequences of unauthorised use or of continued use after termination.

Particular attention should also be given to know how and confidential information, which is usually the part of the package least protected by registration. Where the business model relies heavily on proprietary know how, the operations manual, supplier terms, specifications and training materials should be identified as trade secrets within the meaning of the legislation implementing Directive (EU) 2016/943, the reasonable protective measures that legislation presupposes should be in place, and confidentiality and post-termination obligations should be drafted so as to survive the agreement.

Test the restrictive provisions against competition law before signature

Franchise and licensing agreements often contain provisions that are commercially understandable but may raise competition law concerns. This may include restrictions on territory, customers, online sales, pricing, sourcing and competition after termination.

Clients should therefore assess these provisions before the agreement is signed. This is particularly important where a Lithuanian franchise or licence forms part of a wider European network and the same agreement is used across several jurisdictions.

A contractual provision should not be assumed to be acceptable merely because it is commonly used in international franchise agreements. Fixed or minimum resale prices, restrictions on passive online sales, absolute customer restrictions and open-ended post-term non-compete obligations are the clauses that most often survive transfer from one market to another, and in Lithuania they carry both a competition law risk and the risk of nullity under the Civil Code.

Threats and opportunities over the next twelve months

For businesses operating in Lithuania, one of the key challenges will be the increasing interaction between traditional franchise models and digital business.

Many franchise networks now operate through websites, online marketplaces, mobile applications and social media. This creates questions regarding online sales, territorial restrictions, digital marketing, customer data and the allocation of responsibility between the franchisor and franchisee. Two developments are worth noting in this context. The EU Data Act has applied since 12 September 2025 and gives users of connected products rights of access to the data those products generate, which in a franchised outlet includes point-of-sale terminals, refrigeration and kitchen equipment and other connected devices, and raises the question of who within a network controls operational data. In addition, the Competition Council has supervised the Platform to Business Regulation since 1 January 2025, which is relevant to networks whose franchisees depend on intermediation platforms.

Another important development is the increasing use of artificial intelligence. Businesses should consider whether existing franchise and licensing agreements adequately regulate the use of AI tools, including the use of licensed content, trademarks, software, databases and confidential know how.

Intellectual property protection is likely to become increasingly important as businesses seek to commercialise brands, software, technology and proprietary business models through licensing. The reform of EU design law, which began to apply on 1 May 2025 under Regulation (EU) 2024/2822, is of particular interest to franchise systems, since it modernises the protection available for the visual identity of a network, including store layouts, interiors and digital assets, a form of protection that has so far been underused.

At the same time, there are significant opportunities in Lithuania. Lithuania’s position within the EU single market makes it an attractive jurisdiction for businesses seeking to develop franchise networks in the Baltic region. Lithuanian companies with established brands and business models can also use franchising and licensing as relatively capital efficient mechanisms for international expansion.

The regional dimension deserves a note of caution. Franchise rights for this part of Europe are frequently granted for the Baltic states as a single territory, yet the three legal systems differ. Latvia regulates franchising in its Commercial Law and Estonia in a small number of provisions of the Law of Obligations Act; neither requires registration, and Estonian law does not require written form. A single master franchise agreement covering the three states therefore has to satisfy three different mandatory frameworks, of which the Lithuanian one is the most formal and the most protective of the franchisee.

The technology sector provides another area of opportunity. Lithuanian technology companies increasingly develop software, platforms and other intellectual property that can be commercialised through licensing arrangements rather than direct market entry.

We also expect increasing demand for more sophisticated contractual structures that combine franchising, licensing, distribution and agency elements. Such hybrid arrangements can provide greater commercial flexibility but require particularly careful legal structuring.

How we work with franchise and licensing clients

Our approach to franchise and licensing matters is based on combining Lithuanian legal expertise with a clear understanding of the client’s commercial objectives.

We do not treat a franchise or licensing agreement as a standalone legal document. We first seek to understand how the client’s business operates, what rights need to be protected and how the commercial relationship is expected to function in practice.

This allows us to identify legal risks at an early stage and structure the agreement accordingly. We also focus on practical advice. Clients generally do not need an abstract explanation of every possible legal issue. They need to understand which issues are material, what risks they face and what options are available to them.

For international clients entering the Lithuanian market, we also place particular emphasis on explaining how the Lithuanian legal framework interacts with their existing international contractual structures. An agreement developed for another jurisdiction may require significant adjustments before being used in Lithuania.

Clear drafting is another important element of our approach. Franchise and licensing agreements can be lengthy, but their key commercial mechanisms should remain clear and predictable. Rights, obligations, payment mechanisms, intellectual property rights, compliance requirements and termination consequences should be drafted in a way that minimises uncertainty.

What clients value is advice that is legally sound, commercially realistic and capable of being applied by the people who run the business from day to day.

Technology in franchise and licensing practice

Technology is increasingly affecting franchise and licensing relationships in Lithuania. Artificial intelligence and automated contract analysis tools can assist lawyers and businesses in reviewing complex agreements, identifying inconsistencies and comparing contractual terms across multiple franchises or licensing arrangements.

For businesses operating franchise networks, digital contract management systems can provide greater control over renewal dates, royalty payments, territorial rights, compliance obligations and termination provisions.

Technology can also improve intellectual property management. Businesses can use digital tools to monitor trademark portfolios, track licensing arrangements and identify potential unauthorised use of intellectual property. AI is creating new legal questions that should be addressed contractually. Businesses should consider who owns AI-generated materials, whether third party intellectual property may be incorporated into AI-generated outputs and whether confidential know how or personal data may be processed through external AI systems.

For Lithuanian businesses expanding internationally, technology can also make franchise and licensing networks easier to manage across multiple jurisdictions. Standardised digital systems can help businesses maintain consistent contractual and compliance processes while adapting agreements to local legal requirements. However, technology should complement rather than replace legal analysis. Automated tools may identify contractual inconsistencies but cannot always assess whether a particular provision complies with Lithuanian competition law, intellectual property law or mandatory statutory requirements.

The principal benefit for clients is therefore greater efficiency in administration and earlier detection of problems. Technology allows businesses and their advisers to process larger volumes of information and to monitor contractual obligations more effectively, but the assessment of whether a particular clause is valid under Lithuanian law remains a matter of legal judgement.

Conclusions

The Lithuanian legal environment provides a flexible framework for franchise and licensing arrangements, but it requires businesses to navigate several areas of law simultaneously.

The absence of a single comprehensive Franchise Act means that the legal structure of a franchise or licensing arrangement must be assessed on the combined basis of contract law, intellectual property law, competition law and, where relevant, consumer protection and sector-specific regulation. More significant, however, is the absence of any franchise-specific pre-contractual disclosure duty. Lithuania has not followed France, Italy, Spain, Belgium or Sweden in requiring a franchisor to provide prescribed information before signature. What the Civil Code provides instead is a general obligation to act in good faith in pre-contractual relations and to disclose information of material importance for the conclusion of the contract. In the franchise context, where the franchisee’s investment decision depends almost entirely on information held by the franchisor, that obligation may well perform a comparable function, although it has not so far been applied in that way.

For international businesses, Lithuania offers opportunities to establish and expand franchise networks within the Baltic and wider EU markets. For Lithuanian businesses, franchising and licensing can provide effective mechanisms for commercialising brands, know how, technology and other intellectual property in international markets.

The key legal challenge over the coming period will be to ensure that traditional franchise and licensing structures remain suitable for increasingly digital, technology-driven and cross-border business models. Businesses that address intellectual property protection, competition law, digital operations and the mandatory features of the Lithuanian franchise chapter at the structuring stage, rather than after a dispute has arisen, will be better positioned to take advantage of the opportunities offered by the Lithuanian market.