Commercial cooperation: franchise

Franchise. Commercial cooperation. Arbitrage practice.

As one of the main principles of civil law, the principle of freedom of contract is established, according to which the participants in legal relations are expected to be able to conclude any contracts, both provided and not provided for by laws or other legal acts.

At the same time, when concluding such agreements, one must carefully consider the provisions included in them on the rights, obligations and responsibilities of the parties.

The Intellectual Property Court expressed its position on the specifics of the execution of a mixed commercial cooperation agreement.

Case plot:

A commercial cooperation agreement was concluded between two individual entrepreneurs, under the terms of which one party (right holder) granted the other party (user) for a fee the right to use a set of exclusive rights in business activities, including the right to use means of individualization, production secrets (know-how ), corporate identity for the organization and operation of an enterprise for the retail sale of products.

Under the terms of the agreement, the user undertook to pay a lump-sum fee for the use of the specified set of exclusive rights, as well as to submit daily reports to the right holder on the progress of retail sales of goods.

After several months of the execution of the contract, the entrepreneur, who is the user under the contract, referring to the fact that this contract and the commercial designation, the right to use which is transferred under it, are not registered with Rospatent, declared the contract invalid and filed a claim with the arbitration court for recognition of the contract invalid and collection of a lump-sum contribution.

At the same time, the entrepreneur, who granted the right to use a complex of exclusive rights, filed a counterclaim for the recovery of debt under this agreement and a fine for failure to fulfill the obligation to provide daily reports on it.

By the decision of the Arbitration Court of First Instance, upheld on the basis of the results of the appeal, the claims under the initial claim were denied, the counterclaim was partially satisfied, taking into account the reduction in the amount of the fine.

The Court of Cassation agreed with the findings of the lower arbitration courts.

Judicial act: judgment of the Intellectual Property Rights Court dated October 26, 2021 in case No. А53-42822/2020.

Court's findings:

1. The fact that the right holder has granted a complex of exclusive rights to a commercial designation and a production secret (know-how) and their use in commercial activities by the recipient under the contract sufficiently testifies to the real will of the parties to conclude and execute the contract in the form stipulated by it.

2. Misrepresentation and creation by the other party of the contract of a false idea about the essence of the actions performed by it must be reliably proven. At the same time, in similar disputes, the recipient under the contract needs to prove precisely the fact that when concluding a contract with a specifically named item in the form of granting the right to a commercial designation and production secrets, his will was directed to making another transaction, in particular, to obtaining the right to use defendant's trademark.

3. An agreement that grants the right to use only a commercial designation and a production secret (know-how) and does not grant the right to use a trademark cannot be regarded as a commercial concession agreement and, accordingly, is not subject to registration with Rospatent.

Comments:

1. Any person engaged in entrepreneurial activity, when concluding civil law contracts, must evaluate all the conditions included in such contracts both from the point of view of their business risks and from the point of view of understanding the actual essence of these conditions, since in the future, in the event of disputes over the actual will of the parties, expressed in the specific wording of the contract, will be assessed by it by the court.

2. We must also not forget about the essential conditions and requirements for certain types of contracts, which are imperatively established by law. Thus, for commercial concession agreements (franchising or franchise), it is essential to grant the right to use, first of all, a trademark or service mark, which must be registered in the prescribed manner.

3. At the same time, commercial cooperation between entrepreneurs can be expressed in various forms, including through the conclusion of mixed types of contracts aimed at obtaining benefits from each of the parties from the rights acquired from such contracts.

Please note that in 2020 the law firm Vetrov & Partners was marked by the industry rating of law firms Pravo.ru-300 in the nominations Arbitration Proceedings, Dispute Resolution in Courts of General Jurisdiction and is one of the regional companies throughout Russia in these nominations.

In the event that your litigation or other dispute, contractual work or any other form of activity concerns the issues discussed in this or our other material, we recommend that you check and make sure that your legal position complies with the latest changes in practice and legislation.

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