by Aldo Frignani

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(chapter from the Encyclopaedia of International Franchising, Kluwer, 1997, forthcoming)

History of franchising

From an historical point of view, franchising first made its appearance on the Italian scene in 1970 and has enjoyed steady, and sometimes spectacular, growth ever since.

While franchising was originally conceived abroad as a means for small business of competing with large retail chains, in Italy the well-known chains themselves gave franchising its initial impulse. The franchising formula enabled them to overcome bureaucratic difficulties in assuring the operating permits required for the opening of new points of sale. On the other hand, small independent dealers, already possessing such permits, and operating in communities in which the chain store operators preferred not to open and manage directly company-owned outlets, were attractive targets for conversion franchising.

Since then many things changed, and Italian franchising is becoming more and more close to foreign patterns.

First of all, franchising has spread through the most varied categories of businesses, and is becoming most of all a means for introducing new products or commercial formulas, sometimes created by Italian entrepreneurs, sometimes already well-experienced abroad, in the Italian market. Franchised networks are now present in Italy almost in any field of businesses: e.g., famous chains are operating in the fields of clothing, fast-food, selling of computers and software, electrical household appliances, furniture, hotels, real estate, car rentals and every type of services.

Secondly, several franchised chains are made up only of franchised undertakings, with a few points of sale only directly managed by the franchisor.

In the absence of registration requirements, it is difficult to know with any degree of precision how many franchises are presently operating in Italy.

It has been estimated that there are no less than 393 franchise systems currently operating in Italy, with no less than 25.000 franchisees, and the number is growing. More or less 25% of such franchises are part of international networks (for statistics see the 8° Annuario Reti Dirette e Franchising, issued by SISIM Srl, 1996).

The general business climate for franchising is positive. Foreign franchisors with products or services favourably received in other EC countries should find the Italian economy an equally rewarding market, without prejudice or legal restrictions whatsoever against foreign business ventures. Finally, in the almost 30 years of development of franchising in Italy, remarkably little litigation involved parties to franchising agreements.

Finally, awareness of the economic and legal meaning of franchising is growing. Though after long and controversial debates, Courts and legal scholars reached a certain consensus regarding the definition of a “franchise” is, particularly after the issuing of EC block exemption regulation, whose definition is sometimes applied also in cases not involving antitrust issues.

Governmental policies and regulatory intentions

In Italy, no current specific regulation of franchise sales or the franchise relationship has been issued, nor it has been proposed or considered by the legislative body.Though a decade ago a political party threatened to present a bill on franchising, at the end of the day the draft did not even reach the Parliament.

No laws which may preclude or make it difficult for a foreign franchisor the access to the Italian market are present.

The only applicable rules are those regarding the general discipline of retail sales, which are applied to any retail dealer, be it Italian or foreigner, franchised or not, or those which may govern the specific field of activity in which the franchised network will operate (e.g., rules concerning the supply of food to consumers, rules concerning the alcoholic beverages licenses and so on).

For this reason the body of case law developed by Italian judges is of primarily importance (for a first review see A.FRIGNANI,Franchising under Italian Law.A Survey on Recent Case Law, in IIC,1992,234)

Under a general point of view, four main statutes come into play:

i) The Law of Commerce of 1971 (L. 11.6.1971, n. 426; implemented by Decree n. 375 of 1988) applies mainly to distribution franchising for the resale to the public (this will imply shops), comparable with “business format franchising”.

According to this statute, the franchisee must be admitted to the traders’ register (Registro Esercenti il Commercio - R.E.C.) subject to the passing of an exam. He must also have obtained a sales licence (or authorisation) which is granted for individual sets of goods (tabelle). Each licence (the number of licences which may be allowed by public authorities is not unlimited, but depending on presumed market demand) thus becomes a business asset vested in the licensee, who may dispose of it.

The utmost attention must consequently be paid to the framing of the non-competition clause at the termination of the contract, since this could amount to an undue restraint of freedom because the licensee cannot exercise the rights granted by the licence.

ii) The Law on Fair Rents of 1978 (L. 27.7.1978, n. 392), issued mainly to control the rate of housing leases, also applies to leases on commercial shops.

It provides for a minimum duration of the lease contract (6 years for commercial shops, art. 27) and for the payment of a certain amount of the monthly rate by the lessor - should he fail to renew the contract - in order to compensate the lessee for the loss of the lease and for the goodwill.

Anyway, it must be remembered that many issues and proposals of amending or even overruling such statute have been set forth during last years, and it is foreseeable that they could be approved by the legislator.As of now the only amendment come into force, by means of the law n.359 of August 8,1992, concerns the duration of the lease (reduced to two years) and the amount and adjustment of the lease rates.

iii) The Law on Commercial Goodwill of 1963 (L. 23.12.1987, n. 576, whose articles 6, 10 and 11 only are still in force; see also art. 34 of L. 392/78) may also be applied. This statute provides for the payment by the lessor of a certain amount of rent, although under different conditions.

iv) The Antitrust Law (L. 10.10.1990, n. 287). Antitrust issues will be discussed at length below.

Franchise association

The Italian franchising association is the Associazione Italiana del Franchising (also called Assofranchising or AIF), whose seat is in Milan founded in 1971.

Member of such association can be any franchisor, or potential franchisor (i.e. persons who are to set up a franchised net), but also enterprises who supply franchisors or potential franchisors with goods or services and any other person who is interested in the development and improvement of franchising.Franchisees are not eligible for membership.

Membership is available to foreign franchisor.

The main purposes of the association are to spread a wider knowledge of franchising in the business community, to offer members proper information and advice, also through specific studies concerning general or specific matters involving franchising and monitoring any statutory or case law development.

Moreover, the association carries on activities to protect the common interests of members towards any public administration, or public or private persons, as well as an activity of promotion of franchising in order to have it included in official events concerning national and international trade. Of course, all services furnished by the association are available to foreign members.

Repealing the lod one, in 1995 the AIF did issue a new tough code of ethics (Codice deontologico del franchising), whose violations by members may lead, if so is decided by the Board of Directors, to their exclusion from the Association (the Code is published in JIFDL,1995,24).

The code includes mainly provisions concerning disclosure duties of the franchisor (the perspective franchisee must be informed of all the relevant economic terms of the operation), and fairness of contractual terms. It must be remembered that the contract must be in writing, must provide for an adequate territory of exclusivity for the franchisee and for an adequate duration. Moreover, rules governing the termination of contract must be included, training must be ensured to the franchisee, who shall be entitled, moreover, to use the franchisor’s trademarks, names and so on.


Nature of relationship

In Italy, as in most of civil law countries, an important distinction should be drawn between contracts having a statutory discipline (or “type-contracts”), in the Civil Code or in special laws, and those which do not.

The reasons for this distinction are mainly historical: legislator issued a specific discipline for those contracts which were more diffused at the time (1942) the Code was laid down, believing, at the same time, that application by analogy of such rules would meet the need for discipline of the “new” contracts which the parties may create or that, if these rules were to show themselves as insufficient, special laws could have been enacted governing single contracts.

The franchise contract does not have any statutory discipline in Italy, neither the issuing of such a discipline has been formally proposed yet.

As a consequence, rules governing different “type-contracts”, and particularly the s.c. “mandatory rules” (i.e. rules which cannot be opted out by the parties) may sometimes be applied by the Courts to franchising.

Moreover, legal scholars usually agree that franchising ought to be considered as a contract for co-operation between enterprises, thus requiring, considered that such contracts usually do not find a statutory discipline, exception made for the mandate, the employment relation and the setting-up of companies, thus requiring a very diffusive description of what the parties expect from each other.

Among the different type-contracts under the Civil Code, some legal scholars maintain that the supply contract is the most suitable to franchising, and therefore adopt its rules (e.g. to regulate the right of first refusal, art. 1566; the exclusivity, arts. 1567 and 1568; for the quantities of goods to be supplied, art. 1560; for reasonable delay in termination, art. 1569 and so on). Sometimes, as we will better explain below, rules governing the supply contract are not suitable for franchising at all (this is the case, for example, of the bankruptcy of one of the parties while the contract is pending. In our opinion, rules applicable to franchising should be chosen, among those governing type-contracts, following a case by case approach.

Anyway, though franchisee and franchisor may in a great number of cases be linked by relationships such as buyer/seller, or lender/borrower, the reported case law in Italy shows that very rarely Courts have been called to solve disputes on the parties of a franchising agreement concerning the sale, borrowing or supply of goods (contracts which are both disciplined by the Civil Code, whose rules may be applied), other being the obligations usually claimed to be in breach of.

On the other hand, a borderline has been drawn by the Italian judges between a franchising agreement and an employment contract.

In the case Bratti v. Ges. Com. srl and Cipac spa, decided by the Palestrina County Court in 1987 (Pret. Palestrina, 14.2.1987, in JIFDL, 1987,38, with comments by A. Frignani), the Court pointed out that, though the terms of that specific franchising agreement were very burdensome for the franchisee, they did not constitute strong enough grounds for transforming an entrepreneurial business (albeit restricted by cleverly drawn up agreements to allow the franchisee to have a minimum of independence and income) into an employment contract.

Moreover, the Court stated that the rigid controls exercised by the franchisor were not to be viewed as evidence of an employment contract, but were, instead, inherent to franchise agreements. Indeed, the franchisee’s independence was such to enable him to organise and manage his business.

In the same line of thought, it is worth mentioning two parallel decisions of the Florence County Court of 1984, in the case Ottenio v. Istituto Sociopsicologico “L’Ideale” (Pret. Firenze, 25.6 and 11.11.1984, published in the Appendix to A. FRIGNANI, Il franchising, Turin, 1990, 385 ff.), where the judge decided that the turning of a franchise agreement into an employment relationship was unlikely.

In any case, it is advisable that franchising agreements should be structured quite carefully: for instance, they should stress what know-how is involved and transferred to the franchisee, in order to justify the limitations of the entrepreneurial independence which the agreement may cast on the franchisee in order to protect the know-how, and so on.

Sometimes, a fiduciary relationship may be considered as existing between the franchisor and the franchisee, but with exclusive regard to the termination of contract in case of such a breach, particularly by the franchisee, to infringe such relationship, without any effect on the parties’ liability towards third persons.

On the other hand, it must be underlined that sometimes the Courts may be disposed to consider the franchisee as an agent of the franchisor: the cases up to now decided by the Courts will be briefly reported infra, in the paragraph on liability of franchisor to third parties.

Though Italian law knows the concept of a “concealed” or “shadow” director of a company with the aim of piercing the vorporate veil, on which legal scholars quite unanimously agree, we do not know of any decision in which it was applied to a franchise contract.

Finally, dont forget that in any franchise some problems may arise because of industrial property rights. This matter will be better tackled below.

Good faith issues

As we have seen, general rules of the Civil Code on obligations and contracts may be applied to franchising.

With the theory of error and (civil) fraud it is possible to control the negative effects of misrepresentation, and hence satisfy the franchisee’s need for protection.

Art. 1337 comes into play; it state that, in conducting negotiations and in the drafting of a contract, the parties must conduct themselves in good faith.

Although less directly related to pre-contractual disclosure, the following provisions may be invoked: art. 1366, according to which contract must be interpreted in good faith, and art. 1375, according to which contract must be performed in good faith. These are, of course, very broad provisions, and allow the judges substantial discretion in determining what “good faith” means under specific circumstances.

The Februo v. Stefanel case (Trib. Chieti, 29.10.1987, in JIFDL, 1991,39) is a well-suited illustration of the possible applications of the culpa in contrahendo to franchising. The Chieti District Court so stated: “When negotiations have reached a certain advanced stage of conclusiveness, non-provision of a guarantee by the perspective franchisee (who had not previously been informed of such a prerequisite) is not a reason to justify withdrawal”.

In this decision, the Court held that the franchising contract was not entered into, owing to the lack of mutual consent to all the terms of the subject agreement.

Instead, the Court held that the defendant had broken the rule set forth in art. 1337 of the Civil Code, requiring a duty of good faith in negotiation and in drafting of a contract.

In the case in point, the Court alleged that inducement of the other party to take upon itself heavy charges and then investigate its economic reliability and finally require a guarantee to be given by such party is not good-faith behaviour.

Concerning contractual terms which franchisor may consider as non-negotiable, attention should be drawn on the distinction between “mandatory” and “non-mandatory” rules.

The function of “non-mandatory” rules is that of replacing the silence of the parties on given matters concerning a contract: consequently, they can be opted out by contractual clauses provided for by the parties at their free will.

“Mandatory rules”, on the other hand, cannot be opted out by the parties: in other words, they are concerned with particular aspects of a contractual “type” which, according to the legislator, cannot be the object of a different voluntary discipline set forth by the parties.

Therefore, mandatory rules governing some type-contracts may be deemed by the Courts to be applicable by analogy to franchising as well. Consequently, the franchisor should carefully check that non-negotiable terms of his contract do not infringe mandatory rules which the other party may claim to be applied.

Finally, it is highly recommended (though, of course, not requested by law), to take an advice from an attorney expert in the field.

Contractual issues

Though not required by law, it is advisable that at least one version of the contract should be written in Italian, eventually stating that the “official” version in the event of dispute is the one in foreign language.Worth to note, the use of foreign languages may lead to the need, in case of judicial dispute, of an interpreter to be appointed by the judge who will then apply, notwithstanding the contractual provision, an Italian version of the agreement.

The drafting of the contract also in Italian could be, anyway, a relevant matter in order to avoid claims concerned with good faith during negotiations and/or in the performance of the contract.

No specific formalities are required for the signing of a international contract.

Registration tax at variable rates is due on the required registration of written contracts or deeds.

Where a transaction requires the payment of VAT, registration of the contract is presently at the fixed rate of L ...

Such registration has the function of establishing legal proof of the date of the contract in the event of later controversy.

Guarantees of the owners of a company for the obligations of such companies are quite usually requested: it must be remembered, however, that, in the case of a private company, such guarantees may not be enforced, though considered as valid, until the winding up of the company, given that until that time the partners are already liable, without any limitation, for the obligations of the company.

Concerning the amount of such guarantee, it must be remembered that, according to the statutes governing bank guarantees, the maximum amount of the guarantee must be indicated when the guarantee is issued.

Finally, it must be remembered that, since franchisors usually apply adhesion contracts, franchisees find themselves in the weaker bargaining position.

The problem is dealt with by arts. 1341 and 1342 of the Civil Code (since arts. 1469-bis ff., implementing EC directiveon the abusive clauses in consumers’contracts, cannot be applied to franchising, whose parties are both businessmen). According to these articles, a clause contained in a form may be held against the signer if he was aware, or ought to have been aware, of it. Even if the clause is burdensome for him, it will maintain its validity, provided that previous specific written approval of the same has been given by the franchisee.


Franchisor revenues

More or less half of the franchisors already managing their nets in Italy ask for an entry fee. The amount of such fee may range from less than 20 million Lire up to more than 100 million Lire, depending on the field of activity, specific features and targets of the franchised net and so on.

Besides the entrance fee, franchisors can earn their revenue both in the forms of a royalty (a percentage of the turn over)and of a continuing licence fee (independant from the turn over). The first form is usually preferred. In some cases, the royalty may be hidden in the form of an increase of the prices of goods and services that are sold to the franchisee.

However Italian business practice is reluctant to pay an high entrance fee,due to the risk involved (unless the network is already notoriuous in the country, like McDonalds or Holiday Inn or Avis Rent a Car),and rather prefer to pay higher royalties on gross sales. For that reason almost half of Italian franchisors do not ask any entrance fee at all, and earn their income only from royalties or from selling goods and services to franchisees. In the last case, franchisees may be contractually bound be supplied by the franchisor exclusively.

Advertising contributions

In most cases, franchisors may ask franchisees a contribution for marketing or advertising purposes. Franchisees may be entitled to advertise their own business in their territory of exclusivity, at their own expenses, though the advertisement, bearing the franchisor’s trademark, is subject to approval by the franchisor himself.

Contributions by franchisees may be used by the franchisor both for supplying marketing facilities to franchisees, such as catalogues, brochures and so on, who will spread them in their territory, and for direct advertising, usually through media operating at a nationwide level.

Such contributions, or the creation of an advertising fund, do not create a fiduciary relationship, but in my opinion they may in some cases be considered by the Courts as an agency, of the in rem propriam type: anyway, the franchisor is contractually obliged to perform the advertising activity, and such obligation may, of course, be enforced by franchisees.

For tax and accounting purposes, such contributions may be considered as revenue of the franchisor.

Fee limitations

No legal limitation is cast on the amount of the initial or continuing fee that may be charged by a domestic or a foreign franchisor.


The Tribunal of Turin, in the decision of the case Istituto Ambrosiano Finanziario I.A.F. v. Fallimento Casamercato, issued on January, 11, 1995 (commented upon by G. Rossi, Bankruptcy of one of the parties during the lifetime of a franchising contract: applicable rules in Italian law, in JIFDL, 1995, ...) has dealt, for the first time in Italy, with the problem of determining which legal rules are applicable to the case of bankruptcy of one of the parties (in the specific matter, the franchisor), during the lifetime of a franchising contract.

This problem arises because the Italian Bankruptcy Act (R.D. n° 267, of March, 16, 1942) does not provide general rules to be applied to any contract whatsoever that may be pending, at the date of the adjudication in bankruptcy, between the insolvent enterprise owner and third parties, but states a series of particular rules, applicable to specific contracts, as defined and regulated by the Civil Code (e.g. sale, lease, supply, mandate, contract of works, and so forth), or by other statutes (e.g., contract of publishing), and to particular sub-categories of such contracts (e.g., lease of immovable things, deferred sale).

On the basis of such provisions, it is possible to enucleate three disciplines which may be applied to the contracts which are pending at the date of the adjudication in bankruptcy:

a) the performance of the contract is suspended, until the official receiver decides whether to replace the insolvent party himself, acting as a kind of an agent, or to discharge the contract (this is the case, for example, of the supply contract, according to art. 74 of the Bankruptcy Act);

b) the contract is automatically discharged, at the time of the adjudication in bankruptcy, and the insolvent party cannot be replaced by the official receiver (this is the case, for example, of the current account, of the mandate, and of the commission, according to art. 78 of the Bankruptcy Act);

c) the insolvent party is automatically replaced by the official receiver, as a direct effect of the adjudication in bankruptcy (this is the case, for example, of the bankruptcy of the lessor of an immovable thing, according to art. 80 of the Bankruptcy Act).

The discipline to be applied to those contracts, such as franchising, which are not defined and regulated by the Civil Code, nor by special laws, and to the contracts which have a statutory discipline, but are not expressly mentioned by the Bankruptcy Act, has to be selected, by means of interpretation and/or of application by analogy, among these three.

The Tribunal of Turin stated that the provision of the Bankruptcy Act on the supply contract (art. 74), and therefore the discipline above mentioned sub a), had to be applied to the franchising contract.

The reasoning for this statement is very brief: the Tribunal points out only that “after a careful analysis of the contract of franchising, ... it seems that it can be compared, as regards its structure, to the contract of supply, the only difference between these two contracts being that the franchisor supplies “services”, and not goods”. The franchising contract could be compared, then, with the supply contract, and not with the mandate or the commission, with whom it has in common only the feature of the intuitus personae.

This view does not escape various critiques.

First of all, it seems that the Tribunal used a wrongful technique in order to “qualify” the franchising contract, and, consequently, to choose the applicable rule, among those included in the Bankruptcy Act.

In fact, the Tribunal stated only that the franchising contract was “similar” to the supply contract, on the basis of an evaluation of the “importance” of the obligations of each party, and then, as a direct consequence, it automatically argued that any legal provision concerning the supply contract was applicable to the franchising as well.

On the contrary, when determining if statutory provisions concerning a given type of contract are applicable also to a different one, it is necessary to take into account the ratio of any single provision, in order to ascertain whether it is respected or not in the context of the new contract.

The provision (art. 74) of the Bankruptcy Act regarding the supply contract (and the sale with parceled deliveries) refers to the rule regarding the sale (art. 72, par. 2, 3 and 4): all of these contracts, in fact, are drafted in order to carry out an exchange of goods against money. The receiving officer is allowed the power to decide whether to discharge them or not, because it must be allowed to choose whether to acquire or not the ownership of given goods or money, in order to better satisfy the interests of the other creditors of the insolvent party.

Obviously, this discipline does not consider the interests of the parties in a contract, like the franchising, whose purpose is, on the contrary, the co-operation between the parties in carrying out their respective entrepreneurial activities.

The eventual carrying on of the contract after the bankruptcy of the franchisor, with the official receiver “replacing” the insolvent franchisor, is not compatible, then, with the structure of the contract of franchising: as pointed out by legal scholars, a relationship built upon the co-operation of two existing and operating undertakings cannot survive the bankruptcy of one of its parties.

This is even more true in the case of bankruptcy of the franchisee: of course the franchisor cannot be obliged to keep within the franchise net an overwhelmed undertaking, with the foreseeable great prejudices which may arise to the prestige and commercial image of the net itself.

According to Italian bankruptcy law, in most long lasting contracts, the official receiver has the option to replace (with the consent of the creditors and the authorization of the judge) the insolvent party in the business, but this possibility is excluded when the contract is stipulated intuitu personae. Therefore in drafting a franchising contract we suggest to emphasize that the contract is entered into in consideration of the personal qualities and reliance of the party, to the effect of an automatic termination in case the franchisee falls bankrupt.

Even outside the realm of banckruptcy law, it could be quite difficult for the franchisor to enforce its rights and to obtain payment of his credits. In Italy, as in many civil law countries, nothing as a sub poena is known: a party may not be compelled to declare what his goods are. Furthermore, in many cases it will not be easy to obtain by the judge a sequestration order, or another interlocutory measure, and sequestration cannot be enforced if the creditor does not indicate and list the goods of the debtor to be attached.

For such and more reasons, it appears sometimes correct to conclude that Italian jurisdiction favours debtors at the detriment of creditors.

Financial sources

Up to now in Italy no bank has developed any loan programs or schemes addressed specifically to franchising . Consequently franchisees usually have to address to normal bank loans and it is not excluded that banks request franchisors to guarantee for such loans, or to make any concession to the lender.


No specific financial or tax incentives are available for franchisors in Italy.


Trade mark/service mark protection

Italian law grants protection to both registered and unregistered trademarks or service marks ( r.d. 21.6.1942, n. 929 Trademark Act). Unregistered trademarks are protected only if they are used, and only in the territorial area in which they are used.

In 1959 with the law 24.12.1959, n. 1178 the protection was extended to service marks, which were previously protected only by the rules of the Civil Code concerning unfair competition. Nowadays, the same rules governing product trademarks are applicable to service marks,insofar as applicable given the different nature of the two kinds of trademarks.

It must be underlined that art. 3 of law n.1178 states that the provisions governing trademarks may be applied only to service marks which mark the activities of enterprises operating in the fields of “transports and communications, advertising, building, insurance and banking, entertainment, radio and television, processing of raw materials, and the like”.

As a consequence of such legislative provision, question may arise whether the trade mark of some franchisors may be protected or not. Anyway, the Courts usually give quite a wide interpretation of the above mentioned art. 3 (service marks concerning musical bands, hotels, loaning, setting up of moquettes, hair dressing, selection of recommended products manufactured by third parties, car races, sports have been up to now granted protection, among others).

A service mark for a retailing franchised network has been held to be valid in the Computerland case (Trib. Monza, 19.10.1988 ,in,1989,I,2,860).

The foreign franchisor may register his trademark in Italy on the same terms and conditions as an Italian citizen or company.

To remain in effect, a trademark must be used within five years of issuance. Trademark protection will also be lost in the case of interruption in its use for a period of five years.

Foreign language trademarks may be registered and allowed protection. It must be remembered, that protection will not be granted to marks consisting of foreign language words indicating the kind of product which bears the trademark (e.g. the word “Whisky” to mark a brand of whisky), when the meaning of such is generally known by the Italian consumers. In application of such principles, the Courts allowed protection as trademarks, e.g., to the word “Watch”, used as a trademark for watches (Cass., 15.2.1979, n. 1038, in G.A.D.I., 1979, 1132), or the word “Cynar” used as a trademark for an artichoke drink (Trib. Napoli, 14.2.1979, in G.A.D.I., 1979, 1168).

Many legal scholars pointed out that, with the improvement of the knowledge of foreign language by the Italians, such principles ought not to be further applied, and that foreign words meaning the kind of products they mark ought not to be granted protection as trademarks any more, unless the foreign language is a not generally known one (English or French, e.g., would be excluded).

Though not necessary, it may be advisable to register the Italian translation of the foreign words used as trademarks as a “defensive” trademark. Such translated forms need not be used along with the foreign language forms, first of all because s.c. “defensive” marks ought not to be necessarily used in order to be granted protection (see art. 42, par. 4, L. 929/42), given that the “protected” mark (in the matter we are dealing with, the foreign language form of the trademark), is used.

Moreover, Italian consumers usually do like foreign language trademarks, which do not need to be translated in order to meet their preference.

Effect of registration

Registration of a trademark gives the owner the right to file a suit against a subsequent user of the same or a confusingly similar trademark anywhere in Italy.

No territorial limitation is therefore set upon the territorial validity of the trademark.

On the other hand, the user of a trademark which has not been registered may continue to use it notwithstanding the latter registration of the same mark by another party, though such use will be limited to the territorial area in which the mark was used. Therefore, the owner of a registered mark will not be allowed protection against him who used such, or confusingly similar, mark before the registration, in the area in which the use of the mark had taken place.

According to Italian law, protection is granted to a registered trademark only against confusingly trademarks used for products which are included in the same category, or class of products for which the trademark was registered. Such categories of products (s.c.classi ) are statutorily determined, and they gather, generally speaking, with some relevant exceptions, groups of quite similar products.

The Italian Courts in some instances granted protection to well-known, or notorious trademarks also for categories of products for which they had not been registered. In 1992, in application of EC Directive, the Italian legislator amended the trademark act, granting such wider protection to “renowned” trademarks. The new provisions raised many questions as to which trademarks may be considered as “renowned”, and that their application may meet some difficulties. Subsequently, Italian trademark law was further amended with the law n.198 of March 19,1996 (by which the Marrakech agreement on TRIP’s, in particular art.16, was enforced in Italy). The new Art. 1 reads as follows:

“ The rights of the owner of a registered trademark consist in the right to the exclusive use of the trademark. The owner has the right to prevent third parties not having his consent from using:

a) a sign identical to the trademark for goods or services identical to those in respect of which the trademark hase been registered;

b) a sign identical or similar to the registered trademark for goods or services identical or similar, if, due to the identity or similarity of the signs and to the identity or similarity of the goods or services,there may arise a likelihood of confusion on the part of the public,which may consist also in the likelihood of association between the two signs;

c) a sign identical or similar to the registered trademark for non-similar goods or services, if the registered trademark enjoys a reputation in the State and if the use of the sign without justified cause allows to take unfair advantage of,or is detrimental to, the distinctive character or the reputation of the trademark”.

Such rule (particularly sub c) confers the so called “ultraproduct ”protection , that is the trademark with reputation expands its realm beyond the categories of products for which it has been registered and also beyond goods which are similar to those categories.

No immunity from challenges is provided for by the Italian trademarks law. A trademark may be challenged also after many years of registration.

Registration of a trademark is for 10 years and it is renewable for an unlimited number of times.

Registration procedure

Registration of trademarks may be effected at the Central Patents and Trademarks Office in Rome (Ufficio Centrale Brevetti e Marchi), or through the Chamber of Commerce in the province in which the applicant resides. If the applicant is a non-resident, he must appoint a representative in Italy to file the application.

The application must include a description of the trademark, a reproduction of the same, and the list of the products which will bear the trademark. This list, which must mention the identificative number of the class or classes of products or services, will determine the scope of protection, with regard to product classes, which the trademark will be allowed.

More specific documents may be requested for specific fields of activity.

The Patent Office will issue a certificate after an examination of the validity of the application, and after a summary decision on the validity of the trademark. Such decision will ascertain only that the trademark is not the word generally used to mean that kind of product, and that there are no generally known identical or very similar trademarks.

In the case when application is dismissed, the applicant may appeal to a Commission (Commissione dei Ricorsi) against its decision, a suit may be filed at the Court of Cassation.

Registration is deemed to be effective since the date the first application is filed; though the registration procedure could be quite long, as the employees of the Patent Office are quite few, and it works quite slowly, the applicant is therefore allowed interlocutory protection also before the issuing of registration itself.

The renewal of a trademark does not require particular formalities; a new examination is required only when modifications are made.

According to art. 36 trademark law, registration is subject to the payment of three fees, or taxes: the tax on the application for first registration, the tax on first registration, whose amount is determined following the Nice Arrangement for the International Classification of Goods and Services, as amended, and the tax for renewing, whose amount is determined in the same way.

Moreover, for international registration, a further tax on application will have to be paid, added to those provided for by international agreements.

All these taxes must be paid before application is filed. In the case it is dismissed, they will be reimbursed, exception made for the tax on the application.

Use of trademarks

As already mentioned, to remain in effect a trademark must be used within five years of issuance.

The expiry, or cancellation, of a registered trademark for violation of such rule (i.e., in the case the trademark has not been used) can take place only by virtue of an order of the Court uphelding the motion by a third party (e.g., the user of the same, or of a similar trademark). In other word, a judicial proceeding is requested, and the owner of the trademark, of course, must be a party to such proceeding.

Concerning the type of evidence necessary to establish the non-use, first of all the burden of such proof is cast upon the party who claims that the trademark should be cancelled because it has not been used, and not on the owner of the trademark.

The requested type and level of use may consist in placing into the market products or services “bearing” the trademark, but also, according to the dominant opinion, in using the trademark for advertising: the use, according to art. 42 of the trademark act, shall in any case be “effective” and not merely symbolic.


Following the EC directive Italian law in 1992 repealed the highly controversial old art.15 which linked the trademark license to the transfer of the business and required its exclusivity.According to the new art. 15, trademark licences can be entered into without any particular formality, such as registration. The only limits cast upon the parties are that in the case of non-exclusive licence, the licensee must be obliged to use the trademark only for products or services which are identical to those manufactured, or supplied, by the licensor, and that, in any case, the performing of the licence shall not involve deceptive effects for consumers.

Worth to note, according to paragraph 3 of art. 15, in case of breach by the licencee of his obligation, the licensor will be granted not only general remedies against breaches of contract, but also a suit for violation of his rights on the trademark.

Though not necessary, it is advisable that the contract of franchising should include a detailed discipline of trademark licences, in order to make it easier to the franchisor to grant protection to his trademarks against breaches by the franchisees.

As we have seen, written form is not required for the validity of a licence. The contracts, anyway, may be registered at the Central Patent Office: in the case that more exclusive licences for the same product and territory are granted to different parties, the one who first registered the contract will be preferred.

The Italian trademark act does not include any provision on sub-licensing. It is deemed that such contracts are valid, under the same conditions provided for by art. 15 for licences. Problems may arise in the case that the sub-licensor should seek for judicial protection of the trademark against the sub-licencee, given that the latter is not the owner of the trademark.

Attitude to trade dress/get up

No specific rules have been enacted up to now, in Italy, on the protection of the design characteristics of a retail store or other business (i.e.,a unique combination of functionale and/or non-functional design characteristics), which do not constitute a category of intellectual property on its own.

Anyway, single elements of such design may find protection under different categories of intellectual property law.

First of all, the shop name, or insignia, finds specific protection according to arts. 2563 and ff. of the Civil Code (see particularly arts. 2564 and 2568), different from that allowed to the trademark (as it was stated in the Standa I - Trib. Milano, 30.4.1982, and Standa II - Trib. Milano, 16.12.1986 - cases; both published in the Appendix to A. FRIGNANI, Il franchising, respectively pp. 378 ff, 395 ff.).

Moreover, specific parts of the dressing up of a shop may find protection as ornamental models or designs (modelli ornamentali), according to arts. 5 and ff. of r.d. 25.8.1940, n. 1141.

Finally, rules governing unfair competition may be applied.


Italy is a signatory to the Paris Convention of 1883, as amended, the Nice Arrangement for the International Classification of Goods and Services, the Madrid Convention for the International Registration of Trademarks of 1891, as amended and the Marrakech Agreement on TRIP’s of 15.4.1994.

Computer software

The Italian Copyright Act (L. 22.4.1941, n. 633) was recently amended by d. lgs. 29.12.1992, n. 518, which included computer software in its field of application.

Art. 2, n. 8) of the Copyright Act, as amended, expressly states that computer software “in any form, though original, which is the result of the intellectual creation of its author” will be granted protection. Are excluded from such protection only the “basic ideas” or “principles” which a specific software is based upon, or, in other words, the fundamental technical means which make it able to work. Object of protection, therefore, is the “intellectual” or “creative” aspect of the programme, and not its basic technical aspects.

No specific procedure is needed to obtain protection, which is granted since the actual creation of the work.

Arts. 64- bis and ff. include specific provisions on the extent of the awarded protection. The author has the exclusive right to reproduce, translate, modify, distributing to the public his software. People who acquire rights to use of the software are prevented from copying it, unless the copy is made for safety reasons, or other reasons expressly mentioned by the statute. Illegal copying and/or selling or distributing of protected computer software are subject to the penal provisions of art. 171- bis of the Copyright Act.

Know-how/confidential information

In Italy, as in most of the civil law countries, no specific discipline governing know-how and/or trade secrets had been issued before the Marrakech Agreement on TRIPs. Know-how, anyway, was allowed general protection applying the rules on unfair competition; furthermore, contractual obligations of non-disclosure, also included in broader contracts, such as know-how licences, were deemed valid, and in case of breaches general contractual remedies were granted to the owner of the know-how.

No distinction was generally drawn between know-how and confidential information; legal scholars sometimes tried to draw a line between know-how and trade secrets, without any significant result( for further information see A.FRIGNANI,Know-how and trade secrets (with special reference to franchising), in JIFDL,1996,59).

The recently issued d. lgs. 19.3.1996, n. 198, implementing the Marrakech Agreement on TRIPs, of 15.4.1994, amended the Italian Patent Act (r.d. 29.6.1939, n. 1127), to include in such act special provisions on the protection of trade secrets.

Art. 6-bis of the Patent Act is, more or less, the litteral translation of art. 39.2 of the Marrakech Agreement (the following quotations, than, are almost a “translation of the translation” ...). Therefore, know-how shall be granted protection as long as it is “secret”, “in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known or readily accessible to skilled persons operating in that field of activity”, has “a commercial value because it is secret” and is subject “to reasonable steps by the persons lawfully in control of the information, to keep it secret”.

Such rules have not yet been applied by the Courts, and therefore, it is not easy to foresee how such requirements will be interpreted by the judges.

Anyway, the remedies provided for by art. 6-bis are those made available by the general rules governing unfair competition (as art. 6-bis expressly refers to art. 2598 of the Civil Code, concerning unfair competition).

It is advisable, therefore, in order to ensure a better protection, that the contract should include specific clauses to protect the know-how. Some examples of generally used clauses follow.

First of all, the franchisee can be required “not to disclose to third parties the know-how provided by the franchisor” (using the words of EC Regulation 4087/88). This is an example of a s.c. “confidentiality clause”, which casts on the franchisee an obligation not to disclose the know-how which is communicated to him by the franchisor to persons other than those to whom it must necessarily be communicated (e.g. the franchisee’s employees or co-operators).

Moreover, the franchisee can be required “to communicate to the franchisor any experience gained in exploiting the franchise and to grant it, and other franchisees, a non-exclusive licence for the know-how resulting from that experience” (using one more time the words of EC Regulation 4087/88). This is a s.c. “grant-back clause”, a clause providing for a licence which the franchisee can be contractually obliged to grant the franchisor on developments and improvements of the know-how that may result from his own business experience.

“Field of use restrictions” are contractual clauses which oblige the franchisee not to used the know-how for purposes other than the managing of the franchised enterprise. Such a clause protects the franchisor from his know-how being used by the franchisee to set up an activity in competition with the franchisor.

In most cases, it may be quite difficult to prove whether or not a breach of these contractual duties can be considered as “fundamental”. In order to avoid this risk, I suggest the franchisor may ask the franchisee to declare, in the contract, that he learned all information included in the know-how directly from the franchisor. In other words, the franchisee must recognise that no piece of information included in the know-how was previously developed by himself.

If the know-how is completely and correctly identified, any violation of a contractual clause concerning the know-how will amount to a fundamental breach.

Many of the above restrictions may survive the termination of the contract.

Mention must first be made of the confidentiality clause. Problems may arise in the case when after the termination of the contract the know-how has become generally known or easily accessible. As a general principle, no obligation concerning the protection of know-how can be cast on anybody once it has fallen in public domain (this is the rule included in Reg. 4087/88). It must be observed, however, that know-how cannot be considered as having fallen in public domain if it is not known, or easily accessible, by persons who may use it for business purposes: the fact that somebody other than the licensee, or the franchisee, did acquire knowledge of know-how will not be sufficient for the obligation not to disclose secret information to be discharged. Additionally, it is not sufficient for the know-how to be considered as generally known, of course, if it has been communicated by the franchisor to other franchisees, or to the master-franchisee and their employees (in fact, such communication is not made to the public at large).

Furthermore, it must be said that the rule prohibiting post-term protection of generally available know-how cannot apply when the know-how has been made generally known by the franchisee himself, in breach of his contractual duty.

On the contrary, the franchisee cannot be prevented from using its self-developed know-how for its own purposes, even immediately after the termination of the franchising agreement.

Fields of use restrictions, on the other hand, may be generally extended after the termination of the agreement.

Another common post-term ban is the non-competition clause which obliges the franchisee “not to engage, directly or indirectly, in any similar business in a territory where it would compete with a member of the franchised network, including the franchisor; the franchisee may be held to this obligation after termination of the agreement, for a reasonable period which may not exceed one year, in the territory where it has exploited the franchise” (with the wording of art. 3.1 c of Reg. 4087/88; note that such a clause is not eligible for exemption in the exclusive distributorship agreements, under Reg. n. 1983/83).

Problems arise with reference to the precise identification of the territory, and particularly, it is doubtful whether or not the non-competition obligation includes the territory previously allocated to the former franchisee. It seems that this territory ought to be considered as included, because the franchisor’s interest in maintaining the commercial value of his franchise package in this territory and attracting new franchisees, must be protected.

Legal remedies

The owner of industrial property rights, whose exclusive right has been infringed by a competitor or by any other person, through misuse of such property, or through use of an identical or confusingly similar trademark, or through counterfeit or imitation, and so on, may file against such person a judicial suit.

The judicial proceeding may, in most of cases, require quite a long time. Therefore, statutes governing industrial property rights grant some interlocutory measures to the owner of industrial property rights, which may be awarded by the Courts after a summary proceedings, in some cases even before the other party is summoned and his arguments heard by the judge.

Among such measures, seizure of the counterfeiting goods and an injunction preventing the other party from further violations play the first fiddle.

Such interlocutory measures may be obtained by giving a summary evidence of the alleged violations. Whilst the fumus boni iuris consists in convincing the judge ,beyond any reasonable doubt,that the claimant is the owner of the right and that the counterpart has infringed it, the requirement of the s.c. periculum in mora (i.e. danger of prejudice for the rights of the plaintiff, if the measure is not granted), is considered in re ipsa (i.e. immediately met) in the case the judicial action is based on alleged violations of industrial property rights.

Once infringement is definitively ascertained by the Court, the owner of the right will be granted a final injunction, enjoining the other party from further violations.

Moreover, the destruction of the counterfeited product, or the removal from such products of the counterfeit trademark, may be ordered by the Court.

Finally, damages will be awarded to the owner of the right; some problems arise concerning the determination of such damages. According to art. 66 of the Trademark Act, e.g., damages may be determined by the discretionary judgement of the Court.

Anyway, the burden of proof of the damage is cast upon the damaged party: in some cases, such proof will be obtained through the examination by the Court of the infringer’s book-keeping, which he can be bound to show. Damages will therefore be determined in the amount of the infringer’s profit as resulting from his book-keeping.

A foreign franchisor (particularly from the USA) should be aware that the amount of damages he can obtain in Italy is quite low in comparison with his own standards: firstly, exemplary or punitive damages are unkonwn to Italian legal tradition; secondly non-patrimonial (i.e., non economically measureable) prejudice is only restored when it is the effect of a crime; thirdly damages must be proved and not only presumed.

Generally speaking, enforcement of intellectual property rights in Italy can be quite practical and not too expensive in the cases when it is possible to obtain interlocutory measures. In other cases, given that judicial proceedings may be very long (up to ten years if it goes up to the Court of Cassation), enforcing such rights may be very difficult.

Abuse of foreign marks

In Italy infringement of foreign trademarks is not a serious problem, provided they are registered or used in Italy.

Although in principle it is not prohibited for an Italian citizen to register prominent foreign trademarks and service marks, since Italy (along with most countries in the world) adheres to the territorial principle and requires only domestic novelty, the practice of such registration, particularly aimed at demanding payment or compensation to transfer such registration to the foreign owner, is almost unknown in this country. This might also be due to the rule which requires that registration of a trademark be open only to whom carries out or intends to carry out business (art.22) and will become ineffective if within five years it is not seriously used.

The legislative and judicial recognition of the category of “famous” or “world known” trademarks responds preferably to the “ultra-product” protection, than to the prohibition to register them.


Focused franchise laws

No specific rules have been issued up to now in Italy governing franchising, nor their issuing is foreseeable in the near future.


Competition law restrictions

Art. 2 of the Italian antitrust law, passed on October 10,1990, forbids agreements between undertakings whose object or effect is the restriction of competition in the national market, or a relevant part thereof; in a consistent manner; these agreements, according to art. 2.3, are null and void.

Art. 3, on the other hand, prohibits abuses of dominant position.

Both these articles are patterned upon the correspondent provisions of arts. 85 and 86 of the EC Treaty: moreover, art. 1.4 of the Italian antitrust law states that national antitrust rules must be interpreted following the legal principles of the EC rules on competition.

As a consequence, it is foreseeable that specific matters which have not up to now been dealt with by the Italian antitrust authority will be decided in application of such principles.

It must be noted that the first case of application of antitrust rules by the Authority to a franchising agreement was assessed under art. 3, instead of art. 2. Franchising then has not been considered as a potentially anticompetitive agreement between its parties, according to the opinion which had inspired both the EC decisions on the matter and Regulation n. 4087/88, but as a possible mean for the dominant enterprise in order to exclude the entry on the market of new competitors, through the setting and the carrying out of a network of particularly skilled dealers of its products, bound by exclusive supply clauses.

The first decision of the Italian antitrust Authority concerning franchising is that of the case Ducati/SIP of 24/3/1993 (in Boll., 6/93; already commented in A. FRIGNANI, Il divieto di abuso di posizione dominante (nei primi quattro anni di applicazione della legge n. 287/90), in Dir. comm. int., 1995, 43 ff). SIP (now Telecom Italia), marketed mobile telephone devices bearing its trademark through a network of franchised dealers (using the trademark “IN-SIP”). The franchising agreement included both an exclusive supply and an exclusive resale clause cast upon the franchisees. In other words, the franchisees ought to market in their shops only the franchised products, which they could buy from the franchisor only.

The Authority stated that such clauses had the effect of foreclosing the access of the competitors of SIP (which was, at the time, a monopolist in the field of mobile telephone services), to the most qualified and skilled dealers of mobile telephone devices. On the other hand, dealers were strongly attracted in entering the IN-SIP network because of the high market share of SIP, and because of the monopoly which SIP held in the market of mobile telephone services, which would induce consumers to buy devices bearing its trademark (which acted as a kind of a quality-test of the device).

The Authority did recognise that exclusive supply and resale clauses included in franchising agreements may have positive consequences on the market structure, but the presence of those consequences is denied when the franchisor owns exclusive rights in the upstream market, as in the Ducati/SIP case, where the franchisor SIP was monopolist by means of legal provisions in the market of mobile telephone services. As a consequence, SIP was ordered by the Authority to eliminate the exclusive clause from its franchising contracts.

The exclusive supply and resale clause is, of course, a fundamental element of franchising agreements: moreover, it is clear that the franchisor will grant the franchise only to the undertakings which, in its opinion, are the most skilled in the specific field of activity, or, in any case, whose entrepreneurial ability it trust. According to the Italian antitrust Authority, such a clause cannot be included in distribution agreements one of whose parties is in a dominant position: as a consequence, these undertakings may not carry out a franchised network for the distribution of their products. Worth to note, it was again stated by the Authority (in the above mentioned Dealer GSM decision), that no exclusive distribution agreement at all can be entered into by an undertaking in a dominant position.

After the Ducati/SIP case had been decided, the Authority started a new procedure against SIP (Assistal/SIP, in Boll., 25-26/94), which was suspected of foreclosing, by means of the creation of the same franchised network “IN-SIP”, the access of its competitors to the most qualified dealers of telephone devices at large, and particularly in the field of distribution of key telephone systems and private automatic branch exchange systems. In its decision of 30/5/1995 (in Boll., 22/95), the Authority stated that the fact that Telecom (the new name of SIP) was the head of a huge and experienced commercial network, whose main feature was the use of a common trade mark (formerly “IN-SIP”, now “Telecom”), which was borne by the marketed products, proved, among other elements, that the franchisor Telecom was in a dominant position. Anyway, no further violation of arts. 2 or 3 of the Italian antitrust law was contested to Telecom for the carrying out of its franchised network, after the exclusive clause had been eliminated.

In the Parabella case, the Authority examined the case of a franchised network of body care and slimming treatments, operating on the whole Italian territory, and also abroad, as it was maintained by the franchisor, whose franchising agreements included various anticompetitive clauses. For example, resale price-fixing clauses, exclusive supply duties, also for products which were not absolutely necessary for the identification of the dealer as a franchised undertaking, post-term competition bans for an indefinite time after the agreement had expired, were included in the franchising contract.

The Authority decided not to start a proceeding, because the market share of the whole network (though defined in application of questionable criteria which included also gyms in the relevant market) was by far lower than 5%.

This opinion can be criticised, since it leads to the consequence that franchisors whose market share is low can cast upon their franchisees any kind of anticompetitive restrictions, which would be unlawful if the market share of the franchisors was higher.

Other restrictions. No case of the Antitrust authority is until now reported concerning the following points:

- restrictions on the products ans services that a franchisee is authorized to sell;

-exclusive supply agreements whereby franchisees are required to obtain certain goods or services only from their franchisor or suppliers designated or apporved by the franchisor;

-requirements that the goods and services that franchisees sell should conform to specified standards that may be periodically modified by the franchisor;

-exclusive and non-exclusive territorial rights granted to franchisees and restrictions on the territories within which, or the customers with whom, the franchisee may trade;

- the extent to which franchisors may legally determine or influence the prices franchisee charge to their customers;

- the degree to which a franchisor may discriminate among franchisees with respect to the terms of their franchise agreements.....................[check]

On all these issues the doctrine is inclined to maintain that the respective rules contained in EC Regulation n.4087 might be followed by Italian antitrust Authority and competent judges.

We may conclude that in opposition to the EC tendency to consider any vertical restraint whatsoever in violation of art. 85.1, with the only possible escape runaway of art. 85.3 (thus adopting a sort of a per se rule), the Italian Authority seems to have adopted a s.c. “effect test”, which is supported by the text of art. 2 of the Italian law, when it says that in order to be prohibited the practices must hinder the play of competition “in a consistent manner”.

Competition by franchisees

Though obligations not to compete imposed on the shoulders of the franchisees have not specifically been dealt with by the Italian antitrust authority yet, it can be stated that the same attitude shown by EC authorities will be applied. By the way, since non-competition duties, between franchisees as well as between franchisor and franchisees, can be considered as ancillary to exclusive territorial rights, they may be evaluated following the same principles set forth by the authority in its decisions on the latter.

Inasmuch as covenantsnot to compete are not caught by antitrust prohibitions, art. 2596 of the Civil Code applies, thus requiring that the restrictive clause be in writing and limited to a given territory and a determined field of business.

Finally, according to the same article, the duration of non-competition agreement cannot exceed the period of five years; in the case a longer period is agreed by the parties, the duration of the agreement will be automatically reduced to five years.

Remedies and enforcement

According to art. 15 of the Italian antitrust act, the Authority, in the case when violations of arts. 2 or 3 are ascertained, may fix a term for the elimination of such violations. Moreover, if violations are important, a fine may be imposed by the Authority, whose amount will be no lower than 1% and not higher than 10% of the global invoice of each of the parties, depending on the importance of the violations.

A fine may be imposed in the case violations are not eliminated before the term is expired, whose amount can be up to 10% of the global invoice of each party, or, in the case a fine had already been imposed, at least the double of the prior fine.

Finally, in the case of repeated breaches of such provisions, the Authority may order the staying of the business activity of the parties for a period up to thirty days.

The Authority’s decisions may be appealed to the Tribunale Amministrativo Regionale (TAR; i.e. district administrative tribunal) of Lazio,seating in Rome (art.33)..

Art. 33.2, provides that “actions for nullity, actions for damages and applications whose purpose is to obtain interim measures in respect of infringements of provisions of Titles I to IV (including arts. 2 and 3) shall be brought before the Court of Appeal which has relevant territorial jurisdiction”.

The question arose of determining which Court is geographically competent to deal with such claims, in cases where the plaintiff assumed that arts. 2 and 3 of the antitrust act had been violated by means of a franchising contract. The Courts of Appeal of Turin and Catania, in their decisions of the Parabella case (the same franchised network which has been examined by the antitrust Authority) stated that the competent Court is that of the place where the franchising contract is entered into, and not that of the place where the franchisee carried out their entrepreneurial activities. These decisions are undoubtedly wrongful, and can be widely criticised. The appropriate criterion for determining the competent judge is that of the locus commissi delicti, i.e., the place where the franchisee, which is the party whose entrepreneurial freedom of activity was unlawfully restricted, and this place is not, of course, that where the contract is entered into, but that where the franchisee carries out its business.The latter view has been adopted by the Court of Appeal of Milan in the judgment of 21/3/1995 in another Parabella case.

That same decisions of the Court of Appeal of Milan (on which see the observations of M. TAVASSI, Il contributo dei giudici ordinari, in AA.VV., Antitrust fra diritto nazionale e diritto comunitario, Milan, 1996, 148 ff.), faced the problem of determining whether the burden of proving the presence of the anticompetitive effects of the agreement in the whole national market, or in a relevant part thereof, was cast upon the plaintiff (a franchisee, which claimed for a declaration of voidness of the agreement for violation of art. 2) or upon the defendant (the franchisor). The Court stated that such burden is cast upon the plaintiff who claims a violation of antitrust law; moreover, it was pointed out that the previous decision of the antitrust Authority, which had stated (as we have seen) that the market share of the Parabella network was too low for determining any violation of antitrust law, though not being binding on the Court, based a presumption that no anticompetitive effects had been produced on the market by the franchising contract. Finally, it must be emphasized that the Court stated that no direct protection is granted to the damaged parties by the antitrust law, whose object of protection is the freedom of the market only. Though not fully agreeable with, this is also the opinion of the EC Court of Justice.

A possible defence of the party in a franchising agreement whose entrepreneurial freedom is unlawfully restricted can be found in the decision of the case Studio Trezzano 2- ILFI, of 13/11/1989, by the Tribunal of Milan (reported in Giur. merito, 1991, 1078; for further observations see A. FRIGNANI, G. ROSSI, Recenti sviluppi normativi e giurisprudenziali in tema di franchising, in Disciplina del commercio, 1995, 329 ff., 333), which held that EC Regulation 4087/88 may be applied to franchising agreements entered into by undertakings whose places of business are in the same member State, when these agreements are the basis for a larger network, crossing the borders of that State and extend in other member States. As a consequence, the price-fixing clause included in the franchising contract was declared null and void; moreover, considering that the franchisor had claimed that the contract had to be considered automatically discharged in case of breach by the franchisee, voidness was extended to the whole contract.

Lastly, no suits for multiple or punitive damages are allowed in Italian law.


As already seen, no specific law governing franchising has been issued in Italy; therefore, the disclosure duties of the franchisor must be evaluated (besides the code of ethics level) in application of the general rules governing precontractual liability.

According to art. 1337 of the Civil Code, during negotiations and drafting of contracts the parties must act in good faith. Violations of this general duty may lead to liability for damages, whose amount is determined on the basis of expenses and other damages (e.g. loss of contractual chances with other parties), which the damaged party would have avoided if negotiations had never been started (s.c. “negative interests”).

Up to now, such rule was applied to negotiations for a franchising agreement in the Stefanel case (see supra).

Contractual fraud is governed 1439 and ff. of the Civil Code; according to art. 1427, fraud is one of the cases in which the interested party may file a suit for annulment of contract. Such suit shall have to be filed in the term of a year after fraud is discovered.

In any case, the contract is valid, and may enforced, until the Court has ascertained the fraud and ordered the annulment of the contract.

Though no statutory definition of fraud is given, the Courts and legal scholars usually give quite a wide interpretation of such concept.

As it is generally agreed, fraud may therefore include, under given conditions, the omission of material facts; in any case, the plaintiff, according to art. 1439, will have to prove that the contract would not have been entered into if fraud had not taken place. In the case where the contract would have been entered into notwithstanding fraud, the defendant may be held liable for damages, but the contract will maintain its validity (art. 1440 of the Civil Code).

Liability for fraud, of course, may not be contractually opted out.

Lastly, the parties may include in their agreement clauses that limit the franchisor’s obligations to the precise terms of the franchise agreement and exclude claims by the franchisee based on statements or promises made before the signing of the contract. Nevertheless, according to art. 2722 of the Civil Code, the existence of such statements or promises, if made before or at the same time of the signing of a written contract, may not be judicially proved through witnesses. Consequently, it may be very difficult for the plaintiff to prove that oral statements or promises were made by the franchisor.

In any case, such clause may not be considered as valid in the case a suit for fraud is filed by the franchisee, nor art. 2722 may find application.


In two cases, the Italian Courts did hold franchisors liable for acts or omissions of their franchisees. Such cases dealt both with contract claims by persons who contracted with franchisees. It is more difficult that the Courts may hold franchisors responsible for non-contractual claims for damages brought by third parties against franchisees, since according to Italian law nobody can be held responsible for misconduct by other persons, unless expressly stated. In other words, the franchisor may be held liable for such claims only if damages suffered by third persons are consequence of his own acts as well as of those of the franchisee, and if the other requirements of tort law (e.g. negligence of the franchisor) are met.

In the case Grimaldi SpA v. Magatelli - Effeci Sas, decided in 1992, the Milan County Court (Pret. Milano, 21.7.1992, in Contratti, 1993, 173, with a comment by G. DE NOVA; for further observations, A. FRIGNANI, G. ROSSI, Recenti sviluppi normativi e giurisprudenziali in tema di franchising, in Disciplina del commercio, 1995, 329 ff.) stated that the franchisor could be liable for the acts of the franchisees towards third parties if the franchisee had induced such persons to believe that he was acting as an agent of the franchisor. General rules of the Civil Code concerning good faith in the carrying out of contractual relationship had therefore to be applied.

The Court did not really explain why the franchisor ought to be liable for the misbehaviour of the franchisees, and particularly for his misstatements concerning his quality of independent enterprise, giving that no obligation of such kind was included in the franchising contract (following the provisions of EC Regulation 4087/88). The decision has been, under this point of view, widely criticised by legal scholars.

Notwithstanding such criticism, a quite similar decision has been taken by the Crema District Court, in the case Ford Italiana Spa v. Campopiano (Trib. Crema, 23.11.1994, in Contratti, 1996, 52, with some observations by C. BERTI). In such decision, the Tribunal of Crema held that a distribution agreement (in the field of distribution of automobiles) may be qualified as a franchising contract if the degree of co-ordination and integration between the undertakings of retailer and wholesale distributor (or producer) is so high that their contractual relationship fulfils the requirements of art. 1, n.3, lett. b) of Regulation 4087/88. As a consequence, the wholesale distributor may be held responsible for damages which arose to consumers as a consequence of breaches by the retailer of the contracts it enters into with the consumers.

Worth to be noted the qualification of the contractual relationship as a “franchising” agreement is reached on the basis of a provision whose field of application cannot go beyond the limits of EC (or national) antitrust law, and which could not be applied to the specific subject-matter, which regarded a claim for breach of contract.

Moreover, the responsibility of the wholesale distributor is based not on the qualification of the agreement as a “franchising” contract, according to the above mentioned provision of Reg. 4087/88, which is completely unnecessary, but on the detrimental reliance of the consumer on the fact that the retailer and the wholesale distributor, which, of course, both used the same signs and trademarks, were really parts of the same undertaking, and not two different undertakings.

To avoid any doubt, it is advisable that the contract expressly oblige the franchisee to disclose his quality of independent undertaking to third parties when he enters into relationships with in the carrying out of his activity. The contracts should furthermore expressly state that no relationship of agency is set up between the parties, and that the franchisor may not be in any case bound by the acts or statements of the franchisee.

In this connection, a sign on the premises notifying customers that the business is independently owned and operated by a franchisee should be sufficient to prevent third parties claims, at least in cases such as Grimaldi Spa v. Magatelli - Effeci Spa, whose decision was based on the detrimental reliance which the omission of such signs and indications had caused to the franchisee’s customer.

Insurance against such claims may be available; indemnification by franchisee is undoubtedly valid and enforceable, also because in cases like those decided by the Italian Courts indemnification by franchisee is just the performance of its contractual obligations.

Finally, a contractual obligation to indemnify the franchisor against liability arising out of the franchisee’s operations may be undoubtedly imposed to franchisees. In any case, such obligation may be enforced only when such liability is in no way the consequence of misconduct by the franchisor, or to which the franchisor did concur in any manner.


Overview of tax system

As in other highly industrialised countries, the Italian tax system is complex. Tax collection continues to be an apparently insoluble problem. Italy has yet to establish an efficient system to limit tax evasion, though some efforts have been recently made in this direction and thus tends to prefer indirect taxes, which are more difficult to escape; tax rates may vary from one year to another.

Direct taxes applicable to the joint stock company (SpA), the limited liability company (Srl), the partnership limited by shares (Saa) and foreign partnerships are subject to the corporate income tax known as IRPEG and the local income tax known as ILOR.

A company with a registered office in Italy or its administrative headquarters or principal business activity in Italy is taxable on its world-wide income.

Corporate tax rates for IRPEG is 37%. ILOR rate is now very low, since this tax has been almost fully substituted by ICI.

Since ILOR is an expense deductible for calculating taxable income subject to IRPEG, the effective overall must be determined by substracting the ILOR rate from the IRPEG rate.

Capital gains applicable to a company are treated as ordinary business income. With regard to the tax on the gain from the sale of a fixed asset used in the company’s business, the company may include the gain in income in the year in which it was collected or in fixed instalments in the year it was earned and in the following four years.

A 1990 statute provided for a tax on capital gains on the stock exchange market.

A non-resident company is liable for both IRPEG and ILOR on the income it earns in Italy, unless different provisions are included in a tax treaty between Italy and the country where the company is resident.Italy has signed bilateral conventions against double taxation (following the model issued by OECD) with more than 60 industrialized and developing countries .

Dividends received by domestic shareholders from an Italian company are subject to withholding of 10% as an advance on their annual tax obligation. Since 1994 it is possible to perform tax obligation on dividends from a joint stock company whose shares are on the stock exchange market with a withholding of 12.50%.

Dividends paid to a non-resident are subject to 32,4% withholding as final tax on the foreign shareholder, unless modified by a tax treaty.

Royalties paid to a resident company are not subject to withholding. Royalties paid to non-resident or physical persons are subject to final withholding of 21%

Generally speaking, the above mentioned rules will be applicable notwithstanding the form of international franchise relationship adopted by the parties. However, a foreign franchisor should be particularly alert to the tax implications resulting from the setting up in Italy, sometimes even unwittingly, of a so-called “permanent establishment”, which creates a tax liability on his profits , including presumed profits. The most obvious example of a “permanent establishment” is the setting up of a branch, but various other situations can be found which give way to Italian taxation.

Therefore a foreign franchisor when creating a master franchising relationship with somebody in Italy in order to recruit his franchisees and/or supervise his franchised network , should carefully avoid that the Italian tax authorities deem such a person to be a “permanent establishment”, and thus subject the foreign franchisor to Italian taxation on his income, or presumed income, produced in Italy thanks to the services performed by his employee or agent in Italy. If the relationship is simply a contractual one,it hardly amounts to “permanent establishment”, but if a joint venture is created with the resident master franchisee, or financial assistance is provided for, the tax authorities might assess it differently.

Finally, some taxes may be levied in Italy by municipal bodies: the most important of such taxes is ICI, which is payable on the estimated value of real property, at a rate, fixed annually be each municipality, from 2‰ to 6‰.

Tax treatment of fees

Royalties are a fully deductible expense to the paying company. They should be computed on an arm’s length basis and be reasonable for the benefits received.

Such deduction may take place also if royalties are paid by a subsidiary or joint venture company to one of its parent companies, if the same requirements are met.

The same treatment may be allowed to fees paid for services.

Taxation of franchisor’s staff

An employee of an Italian company is subject to graduated personal income tax, known as IRPEF, on his employment income earned in Italy.

If the employee, whose duty is to perform in Italy his management services to the benefit of an Italian franchisee or on behalf of the franchiso, is a resident of Italy, or has his main place of business in Italy, or merely lives in Italy for more than six months during the tax year, in any of such instances he will be subject to Italian tax treatment on his world-wide income.

Gross income is reduced by social securities contributions and personal allowances (for example, dependent spouse and children). Tax is paid by withholding at the source by the employer.

In the absence of any special tax treaty provision, there is no special tax treatment of foreigners who come to work in Italy on a short-term basis.

Specific issues

Investments faced by a franchisee will be subject to the same tax treatment applicable to any kind of business investment. Up front and continuing fees may be deducted form the franchisee’s revenue at the same conditions mentioned in the previous paragraph.

The standard VAT (IVA, in Italian) rate at present is 19%. Different VAT rates are provided for specific goods, such as luxury items (39%), many foodstuffs (4%) and so on.Services are subject to 19% rate.

Real estate

A tax called INVIM is payable on the increase in value of real property whenever transferred. In addition, all land and buildings owned by businesses must be revaluated every ten years and the INVIM tax will have to be paid on the evaluated amount.

INVIM is a graduated tax, ranging from a minimum of 5% to a maximum of 30% computed on the property appreciation.

Mention has already been made of ICI, which has to be paid each year, and whose amount is calculated on the basis of the presumed value (i.e. calculated by the land-office) of land and premises.

On the other hand the franchisor incurs no real estate tax liability if it reserves contractual control over real property,either by an option to purchase the premises or assume the lease for the premises at which the franchisee’s business is located upon termination or expiraton of the franchise.

Without taxes

Foreign franchisors have no obligation towards Italian authorities to collect and remit to the same sale s taxes or VAT on equipment,products and supplies sold to the franchisees in Italy,unless those products are already property of an Italian legal entity (for instance, a franchisor’s branch or subsidiary).

Italy has double taxation agreements with more than 60 countries of the world.


Regulation of investment

No specific rule governing foreign investments is at the present time in force in Italy, nor participation in the ownership or in the management of such investments is subject to any requirement different from those regarding domestic businesses.

The 1956 foreign investment law n. 46, guaranteeing the right to repatriate profits and disvestments of funds previously invested in Italy has been repealed. At no time since passage of this law have there been any restrictions placed on the repatriation of dividends or profits.

Exchange controls

In compliance with the EC Directive regarding the free movement of capital, Italy has substantially reduced its earlier restrictions on the import and specifically the export of capital. With DPR n.148 of March 31,1988, Italy changed the previous negative approach to permit transaction to take place, unless specifically disallowed.

Since regulations by the Italian Exchange Office (UIC) are complex and subject to change on short notice, foreign franchisors are advised to check with their local bank prior to effecting transactions with Italy, to assure they comply with such regulations.

Foreign franchisors will have no difficulties in repatriating franchising fees or royalties. They should, on the other hand, be particularly careful, for both tax and currency control purposes, when charging an Italian company for management fees, technical assistance or service fees. Such charges must be related to the rendering of bona fide services, be documented and calculated on an arm’s length basis, as well as be reasonable with respect to the nature of the supplied services. These rules are of even greater importance in inter-company transactions between the foreign franchisor and an affiliated or related company in Italy.

Continuing franchise fees for vague grants of unspecified know-how could be disallowed as a taxable deduction to the Italian taxpayer recipient of the know-how. In this connection, it is very important that know-how is in documented form( a leading book on these issues is M.PIAZZA,L’impresa nei rapporti internazionali,4th ed.,Pirola,Milano,1993).


Italy is a member state of both EC and WTO. Therefore, rules provided by such international organisations governing quotas and tariffs, also in specific fields of business, will be applied. EC rules governing product testing or safety requirements of specific products are also applied.

Specific national rules governing the quality or safety requirements of specific products are sometimes issued; in any case, they may not usually make it very difficult, or even impossible to a franchisor its franchisees to import equipment, goods or supplies.

Visas/Work permits

As a member state of the EC, Italy makes a clear distinction with respect to work permits between citizens of other EC countries and non-EC workers.

Workers form other EC countries are treated for work purposes like any Italian citizen and are not requested to obtain a special work permit. Workers from EC shall, anyway, obtain a permit issued by the police, granting them a right to reside in Italy. Formalities are relatively simple, and such permit can never be denied.

For non-EC nationals, the requirements are more restrictive, and considerably more time-consuming. The foreign worker must file an application at an Italian consulate in his country of origin, requesting permission to work in Italy.

The processing of the application can be painfully slow, inasmuch as three ministries are involved in it (the Ministries of Foreign Affairs, Labour and the Interior). The applicant cannot begin to work in Italy until his work permit has been issued. A wait of some 12-18 months is not unusual. The permits, issued by the police, usually have a duration longer than one year, and are generally renewable.

The whole application procedure for non-EC nationals is less cumbersome when the foreigner will act in Italy in a role other than as an employee, such as a fiduciary, corporate director or professional person, capacities which do not involve competing with Italian citizens for employment.


Generally speaking, it is not needed for a franchisor to establish any organisation whatsoever in Italy, as franchises can be granted directly to Italian parties.

The principal methods of structuring a business venture in Italy are the following (see A.FRIGNANI,G.ELIA, Italian Company Law, Kluwer, Deventer, 1992,containing also an English translation of arts. from 2325 through 2548 of the Civil Code):

1. joint stock company or corporation (Società per azioni - Spa);

2. limited liability company (Società a responsabilità limitata - Srl);

3. general partnership (Società in nome collettivo - Snc);

4. limited partnership (Società in accomandita semplice - Sas);

5. limited partnership with shares (Società in accomandita semplice - Saa);

6. sole proprietorship (impresa individuale);

7. branch office (sede secondaria);

8. business participation venture (associazione in partecipazione).

Joint stock company (Spa)

This is a company which has the same features as the joint stock company or corporation in the other countries. Shareholders are issued stock certificates and their liability is limited to corporate assets. It is the most common venture for large undertakings.

The minimum capital amount required to form the Spa is. 200 million Italian lire(approximately 105.000 ECU) of which not less than 30% must be deposited at an Italian bank at the time the corporation is formed. Such funds are transferred to the corporation’s accounts once it has been homologated by the competent Tribunal. The remaining 70% of capital is subject to call by the board of directors as and when it is needed to carry out the company’s business.

The Spa must be formed by at least two promoters, who may be Italian or foreign citizens, corporations or individuals. While the number of shareholders may subsequently be reduced to a single shareholder, in such event the Italian corporation will loose its limited liability and the sole shareholder will be subject to unlimited liability for company obligations.

Formation of Spa is carried out by a notary and does not require the physical presence of the founding shareholders. Foreign corporations or individuals may grant a power of attorney to persons living in Italy for the purpose of incorporating the Spa.

Management of the S.p.A. is entrusted to a board of directors or sole director, all of whom may be foreign citizens and residing abroad. They need not be shareholders. Directors of the S.p.A. have the usual responsibility to promote the best interests of the corporation and are liable to the corporation or its creditors for negligence or fraud. Management by a legal entity is not admitted.

The S.p.A. must have a board of statutory auditors (Collegio Sindacale) which is composed generally of three members, plus two alternates. The board of auditors is not to be confused with an auditing firm engaged by management to certify the financial statements. The auditors are required by law to conduct quarterly reviews of the corporate accounts; they must approve the annual balance sheet and generally ensure that the accounting records are properly kept and recorded. The board of auditors is invited to take part in all meetings of the board of directors as well as meetings of shareholders.

Members of the board of directors and board of statutory auditors are elected for a term up to three years and are eligible for re-election.

Meetings of shareholders of the S.p.A., as well as board meetings, generally take place at the company's registered office, but may take place elsewhere within or outside Italy, if the articles of incorporation so permit. A meeting of shareholders must be held once a year to approve the company's financial statements.There may be special meetings to take up decisions of preferred share owners.

The S.p.A. must maintain the customary corporate books: minute books of shareholders' meetings and directors' meetings, shareholders book, journal, inventory book, VAT records, etc.

Limited liability company (S.r.l.)

The S.r.l. has most, but not all, of the same attributes as the joint stock company, except that there are no shares of stock. Equity is represented by quotas as recorded in the required company book, but transfer of quotas may be restricted.

The S.r.l. is generally used for small or medium-sized ventures and provides the benefit of liability limited to company assets. The minimum capital requirement is 20 million Italian lire (ECU 10. 500), of which 30 % must be deposited with a bank as in the case of the joint stock company. The company may be managed by a board of directors or a sole director. The board of statutory auditors is not required if the capital of the S.r.l. is less than L. 200 million (ECU 105.000).

The S.r.l. may not, as distinct from the joint stock company, issue bonds or debentures.

By virtue of a 1988 Law imposing a government concession tax on company capital, the S.r.l. has acquired enhanced popularity and many joint stock companies were, as a result, converted to the S.r.l. The difference in the annual concession tax burden between the S.p.A. and S.r.l. was very substantial and the S.p.A. suddenly became an unattractive format for doing business for companies of relatively modest dimensions. After widespread protest, the tax was revised, but the difference still exists.

In 1993 a law (decr.lgs. march 3,1993,n.88) was passed to the effect that a limited liability company may be formed of one member only, but if such sole member is a legal entity it does not enjoy limitation of liability.

General partnership (S.n.c.)

The S.n.c. does not enjoy limited liability, but may assume obligations in its own name. The partnership agreement must be filed with the Registry of Enterprises by the notary engaged to form the partnership. All the partners are jointly and severally liable for the obligations of the partnership. No minimum capital is required. There are no restrictions on foreigners forming a partnership, but a foreign partnership is treated as a corporate entity for tax purposes (in the absence of a tax treaty provision to the contrary).

Limited partnership (S.a.s.)

With the S.a.s., the general partners are jointly and severally liable without limit, while the limited partners are liable only to the extent of their capital contribution to the partnership. Only the general partners may manage the partnership;if a silent partner is involved in managing the business,it looses his status and become unlimitedly liable. The rules applicable to the general partnership apply to the S.a.s. unless the partnership agreement provides differently.

Limited partnership with shares (S.a.a.)

The S .a. a. is distinguished from the limited partnership (S . a. s.) by virtue of the issuance of shares. The general partners are jointly and severally liable without limit for partnership obligations, while the limited partners are liable to the extent of the subscribed shares.

If not for the purpose of keeping closed assets among family members, the S. a. a. is infrequently used.

Sole proprietorship

A sole proprietorship must register with the Chamber of Commerce in the city in which the proprietor conducts his business. The proprietor is liable without limit for the obligations of his business.

Branch office

In lieu of establishing a business entity in Italy in one of the forms indicated above, a foreign company may open a branch office. While the branch has some attributes of an independent business, the foreign parent company is liable without limit for the obligations of the branch.

The branch must be registered with the Registry of Enterprises kept by the competent Chamber of Commerce. No minimum capital requirement exists. The branch must file its own financial statements on an annual basis, as well as those of the parent company, the latter obligation being frequently ignored in practice. The tax authorities, however, have the right to demand from the parent company financial statements, an obligation which frequently discourages foreign companies from opening a branch in Italy.

Business participation venture

A contractual relationship to create a special business participation venture (Associazione in partecipazione) is contemplated by the Italian Civil Code, generally for relatively short duration.

Under this formula, party A grants associate B the right to participate in the profits of a business venture organised by A in return for a specified capital contribution by B. Third parties have rights only against party A. The venture terminates upon completion of the project for which it was intended, a factor tending to distinguish this formula from a limited partnership, which is usually formed with the intention of operating on a more or less long-term basis.

Associate B has a right to an annual accounting. Unless the business venture agreement provides for the contrary, associate B shares in the losses of the venture to the same extent to which he participates in the profits.

From a review of the various ways of organising a business venture in Italy, it would appear that the franchisor or sub-franchisor would be well advised to operate under the format of a joint stock company (S.p.A.) or limited liability company (S.r.l.), both of which provide for limited liability. The corporate law and income tax requirements applicable to the two formats are substantially alike. The other business structures briefly reviewed above are ill-suited to the needs of the foreign franchisor and should, in the opinion of the author, be disregarded.

We have seen that the S.p.A. requires a substantially higher minimum capital commitment (L. 200 million, ECU 105.000) than the S.r.l. (L. 20 million, ECU 10. 500), but confers upon the shareholders a considerably higher degree of prestige than the more modest S.r.l.

The S.r.l., however, offers cost savings related to its exemption from the requirement of appointing a board of statutory auditors if the capital of the S.r.l. is less than L. 100 million (ECU 52.500),the quotaowners enjoy more freedom in structuring the articles of incorporation and it undergoes less formalities.

With respect to the franchisee or sub-franchisee, the most effective format would be dictated by the nature of the business and its financial dimensions. The franchisee, for example, who opens a motel will make a substantial investment of capital and the benefits of limited liability would dictate the formation of either the S.p.A. or S.r.l. On the other hand, a franchisee opening a small photocopy shop might find a general partnership (S .n. c.) or the sole proprietorship sufficient for his needs.


Finding sites

Given the historical tendency to concentrate much of Italian urban life within the centre of the cities and towns, it should not be surprising that finding suitable site locations for purchase or leasing for franchise outlets is difficult and expensive.

As a result of such overcrowding and the consequent closing of the downtown areas to vehicular traffic, a trend towards decentralisation to periphery is now quite developed. Shopping centres and malls are now quite numerous in almost any Italian towns, and in such centres may franchises find their best location.

It may be useful, though not essential, in order to find sites, to have established relationships with persons in the real estate business, since most of transactions involving real estate in Italy are carried out through real estate agents. Such relationships do not need to be established the intervention of a joint venture partner, since no restriction is placed on foreign ownership of real estate, and foreigners are welcomed by real estate agents.

Generally speaking, real estate may be both purchased or leased. Some franchisors may be tempted to purchase real estate in prime locations in major cities for the purpose of leasing the premises out to their franchisees. Besides beeing a good investment ( in Italy depreciation of real estate is almost unknown),if the relationship with a franchisee should then be terminated for any reason, the franchisor would take repossession of his valuable property, and lease it out to a new franchisee.

There are, unfortunately, two substantial drawbacks to this strategy:

1. The Italian rent control law of 1978 provides, with certain exceptions, that the tenant of commercial property has the right to occupy the premises for a period of six years, plus a lease renewal for an additional six years, even if the lease agreement should provide for a shorter term.

Thus, the owner/franchisor of the premises used by the franchisee could terminate the franchise agreement after, let us say, five years, but will not be able forcibly to evict a franchisee who regularly pays the rental and otherwise carries out the lease agreement until 12 years have elapsed.

2. But there is another provision of the rent control law which would discourage all but the most persistent franchisor from leasing commercial space to his franchisees. If the rental agreement is not renewed by the franchisor/lessor or is terminated for reason other than breach of the rental agreement by the franchisee/tenant, and provided the premises are used for direct contact with the public, the franchisee has the right to receive from the franchisor an indemnity equal to 18 months’ rent (21 months’ if a hotel) for the loss of goodwill.

If the franchisor/lessor then leases the same premises to another party to carry on the same business within one year of the termination of the lease with the first franchisee, the latter has the right to the payment of a second 18-month (or 21-month if a hotel) indemnity from the franchisor, equal in amount to the first one.

A franchisor/lessor would, then, find himself in the position of being required to pay an ex-franchisee to whom he had leased the premises a sum equal to 36 months' rent. The law of August 8,1992,n.359, recalled above,has milded this regulation, insofar as the duration and the rental royalty are concerned.

It is the view of the author that the leasing by the franchisor of commercial premises to his franchisees would, for the two reasons explained above, appear to pose unacceptable risks for most franchisors. Attempts to circumvent the rent control law- for example, by not charging the franchisee rent for use of the premises, but increasing the franchise fees to serve to 3"cover” the loss of rent - will in all likelihood - be quickly unmasked by the courts.

A viable, although expensive, alternative for the franchisor would be for him to lease to his franchisee not the bare premises, but a fully functional turnkey business. The rental of a business, as opposed to the rental of business premises, is not subject to the rent control law and, thus, does not call into play the problems we have discussed above (for this reason, some franchisors choose this route; see Pretore of Palestrina, 14 February 1987, Bratti case, in JIFDL,1987,39).

Planning/land use laws

In Italy every municipal government must issue its own city planning and land use provisions. The modification of such plannings has to be decided by municipalities. In some cases, problems may arise when plannings are to be modified, because sometimes many disciplines may be at the same time applied. Therefore, it is advisable to carefully check the provisions of city plannings regarding the land or premises a franchisor is about to purchase or lease.

The proliferation of fast-food outlets in recent years lead environmentalist groups to seek remedies against the alleged degradation of central-city areas. In February 1987, following the loudly protested opening of the first MacDonald’s outlet in the heart of Rome, a provision was inserted in legislation primarily directed to revision of the rent control law to give city governments substantially more discretionary power to deny operating permits in cases where the activities in question were deemed to be “incompatible with local traditions and areas of particular interest within their boundaries”.

The Rome City Council’s application of such provision in order to deny a permit to a new fast-food opening in Rome was upheld by an administrative Court as a legitimate use of the discretionary power granted by the aforesaid statute.

Following to that decision, the Constitutional Court had to deal with the matter (C. Cost, 30.7.1992, n. 38, in Foro It., 1992, I, 2897; see also the remarks by A.FRIGNANI, E. BELLA, Barriers to franchised fast-foods in Italian historical cities, in JIFDL, 1993,140): the statute was upheld, but the Court stated that it shall have to be applied keeping into account the need for reasonable balance between the general interest, protected by the Constitution, to protection of the cultural heritage, and the interest of any single person to freedom of economic initiative, which is also protected by the Constitution. Unfortunately, the Court did not state any criteria for such balancing: therefore, administrative authorities still have a wide discretionary power.

Of course, in italy a certain number of buildings, particularly in the towns’ centres are classified as “historical”:such classification would entail limitations in the type of business that may be conducted at or the modifications that may be made to such buildings:to that purpose a further authorization must be obtained from a special body called Sovraintendenza alle Belle Arti (Superintendancy to Fine Arts).


Generally speaking, construction in Italy is subject to the issuing of a special permit by the administrative authorities of the municipality. Such issuing may be very expensive, and the procedure for obtaining it quite long, as designs must be examined by the authorities, and their compatibility with the provisions of city planning or land law must be evaluated.

Once the permit has been obtained, construction must be started within a short period of time.

The building will then be inspected by municipal authorities and national health service officers, in order to grant the permit for residing in it. Buildings in which a business activity will be carried out are subject to further controls before such activity can be started (e.g., controls of electrical plants, security facilities for employees and so on). It may therefore be quite expensive, and it will request a very long period of time, in order to carry out all such procedures.

As a consequence, and also because of the problems connected with the location of suitable sites and the issuing of the operating permit requested by legislation affecting retail sales, there is a strong tendency to seek out potential franchisees among businessmen who already conduct a business more or less similar to that of the franchisor, who already have the precious operating permit and manage premises in a suitable location.

In recent years, the use of a general contractor who has responsibility for engaging subcontractors to perform specific jobs has become quite common. Moreover, most of large buildings are now constructed through “turnkey” contracts with a single contractor.

Restrictions on foreign ownership

No restriction whatsoever is placed on the acquisition of ownership or on the leasing of real estate by foreign persons.


Breaches of contract/remedies

In the case of breach of contract Italian law provides for two remedies: resolution (judicial termination) or judicial order of performance of the contract. Moreover, in both cases damages may be awarded.

Though the Italian legal system envisages no exact equivalent to the English concept of “fundamental breach”, according to art. 1455, an agreement may not be terminated if the default or breach is of minor importance.

In a recent decision the Appeal Court of Milan (App. Milano, 4.6.1996, Unali v. SEM Spa, in Contratti, 1996, 585 ff., with observations by L. DI LIDDO, Violazione dell’obbligo di esclusiva e risoluzione) affirmed that violations of the obligation not to sell competing products cast on a distributor shall be considered as sufficient to terminate a distribution agreement, because of the damage to the commercial image of the supplier which arose from competing products being sold in premises carrying its trade signs. Worth to be noted, in that case only a few competing products were sold by the distributor: therefore, the sale of competing products may be considered as a valid basis for termination of the agreement notwithstanding their quantity.

The rule of art. 1455 of the Civil Code is applicable also in case of voluntary termination of a contract, i.e. in the cases when an express resolutive clause had been inserted. For this reason, it is advisable that the franchisor specify in the agreement those clauses which he deems of major importance, whose violation by the franchisee will give way to the termination of contract by the franchisor.

According to Italian law, an injunction may be granted to a franchisor in order to enjoin a former franchisee from further using franchisor’s intellectual property rights after the termination of the franchise contract. Damages may be awarded, but not in the interlocutory proceeding, as they will need an ordinary suit to be filed.

An interlocutory injunction may be obtained in quite a short period of time (one month more or less).In some cases such an injunction may be granted even inaudita altera parte,in a couple of days from filing the motion..

Injunctions were granted to franchisors against former franchisees, for example, in the cases Standa v. Arcobaleno Market (Trib. Milano, 30.4.1982, in Foro It., 1982, I, 2042) and Peugeot v. Cella (Trib. Bergamo 28.4.1988, published in appendix to A. FRIGNANI, Il franchising, 407).

Worth to be noted, in some cases the Courts ordered to franchisors, with interlocutory measures, the continuation of the supply of products to franchisees after the contract had been terminated (see, for example, Pret. Roma, 11.6.1984, Sangemini v. Schweppes, in Foro It., 1984, I, 2042), considering that the continuation of supply was the only possible way to allow franchisee to sell his stocks and avoid great damages to his business. The risk that the Courts may order the continuation of supplies, with the same reasoning, also in the case of breaches of contract by the franchisees, cannot be underestimated.

According to arts. 1382 ff of the Civil Code a contract may include an agreed amount of damages which will have be paid in the case of a specific breach of contract. Such liquidated damages must be paid notwithstanding that the actual damage is proved by the damaged party or not.

On the other hand, according to art. 1384, the agreed amount of damages,if it has the purpose of a penal clause, may be reduced by the judge if the contractual obligation had been performed partially, or if the such amount is clearly too high, with regard to the actual interest of the other party to the performance of the obligation.

Multiple,punitive or exemplary damages are unknown to Italian legal tradition.

For further considerations refer to paragraph an “Termination” above.

Governing law

Italy is a party to both the Convention of Rome, on the governing law of contractual obligations, and the Convention of Bruxelles on jurisdiction and enforcement of foreign judgements.

Therefore, the parties may freely provide that their contract will be governed by the law of the franchisor’s country, and also that the contract will be submitted to a court in the franchisor’s country. Such clauses, anyway, shall have to be specifically approved in writing by the franchisee according to art. 1341 of the Civil Code.

Anyway, it must be avoided to choose as governing law a civil law jurisdiction, such as Italy, for a contract drafted following the common law model: first of all because the very detailed provisions featuring this kind of contracts may, in some case , run in contrast with the general principles governing contracts in civil law countries. Secondly, some contractual clauses may be replaced by mandatory rules.

It must also be remembered that non-mandatory rules may be applied when the courts find difficulties in the interpretation of contractual terms, which are not drafted following the usual patterns. Every contract must be construed and implemented in the light of the legal model, which it has been patterned upon.

Furthermore, even worse consequences may arise when the parties elect the competent forum in a civil law jurisdiction, such as Italy, for a contract governed by the common law rules and drafted according to this drafting technique.

First of all because the Italian judges are not accustomed to the very detailed provisions abundant in this kind of contracts, which in some cases might not conform to the idea that they have of the general principles underlying their own legal systems. Moreover, these judges pay a tribute to the statutory rules that a common law judge would never.

Last but not least, the two systems of law are based on concept and notions unknown to each other: a civil law judge could never master notions like “unconscionability”, “frustration”, “misrepresentation” (in all its variations) or ”hardship”, and viceversa a judge from a common law country would be in trouble with the French directive that obligations “doivent être exécutées de bonne foi”(art.1134), or the rules which give the judges the power to reduce a contractual penalty clause to “equità” (see art. 1384 of the Civil Code).

Dangers may arise also because of the procedural rules usually adopted in the civil law.


Of course, the parties may submit the contract to arbitration procedures,since Italy is party of most international conventions on commercial arbitration (for example, New York and UNCITRAL). The procedures provided for by regulations issued by international arbitration courts can be adopted. In any case, no relevant restrictions are placed on the procedural rules to be followed by the arbitrators. The parties are free to determine such rules in their contract. The application of the rules governing civil procedure may also be chosen.

Concerning the enforcement of foreign judgements, the rules provided for by the Bruxelles convention are applied.


There are grounds for substantial optimism regarding the prospects for the continuing growth of franchising in Italy.

As citizens of an advanced consumer society, Italians share the habits and tastes of consumers in other developed countries in clothing, sports and entertainment, household appliances, cars and services. Rising affluence is creating new demand for goods and services for a people eager to catch up with the more advanced countries of the world. Suitable foreign franchisors will find that this country traditionally welcomes novelty from abroad.

Italians are an energetic and dynamic people who look upon an integrated Europe as the best, and perhaps only, hope for introducing a degree of order and efficiency into Italy's stifling and costly public administration. The perennial inefficiencies of the postal service, trains, telephones and other services in the public sector are legendary. These, plus the huge public deficit, are also the source of growing anxiety for Italy's place in the EU.

The country is not lacking in problems, which may explain in part the reason why Italy installed more than 50 governments in the 52 years since the end of World War II.

But with it all, the Italian economy, after a period of recession, is now to enter a new slow but steady growth. There is, in short, an enormous resilience at work here, a capacity to overcome self-inflicted wounds and muddle through. Perhaps symbolic of Italy is the Tower of Pisa, which leans a trifle more each year and is constantly worrisome to the engineers, but which continues as a rich source of tourist revenues.



Associazione Italiana del Franchising(AIF)......

Ufficio Centrale Brevetti e Marchi.......

Autorità Garante della Concorrenza e del Mercato........