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News

New Rules Applicable to Franchisors' Registry

 

On April 7 2006 the government modified the rules and regulations applicable to the Franchisors' Registry (Royal Decree 2485/1998). The government aims to promote the registry as a tool to obtain accurate and updated information. Until now, the registry was considered merely as a list of franchisors. Companies must now provide additional information in order to be registered; therefore, according to the executive, the registry may now be considered as a "valid tool to determine which companies comply with the requirements in order to be regarded as franchisors and which companies do not". The government also aims to clarify the definition of 'franchise' and differentiate franchising activities from other commercial activities that are often confused with franchising.

The new Royal Decree 419/2006 took effect on May 17 2006. Franchisors that were already registered benefited from a transitional period to submit additional information; this period ended on June 30 2006.

This update reviews the information that must be provided in order to obtain registration, as well as the obligations of franchisors that were already registered.

Definition of 'Franchise'

The new rules have added certain elements to the definition of 'franchise'. 'Business activity in franchise' shall refer to any activity carried out pursuant to an agreement whereby a company (the franchisor) transfers to another company (the franchisee), within a given market and in exchange for financial compensation (which may be direct, indirect or both), the right to use a franchise for a business or commercial activity already carried out by the franchisor with sufficient experience and success, and to market certain products and services. Franchises must at least involve:

  • the use of a common name and symbol or other intellectual or industrial property rights, and a consistent appearance of the premises or transport means covered by the agreement;
  • communication by the franchisor to the franchisee of technical knowledge or know how, which shall be proprietary, substantial and unique; and
  • continuous provision by the franchisor to the franchisee of commercial or technical support (or both) during the term of the agreement, notwithstanding any supervision powers under the franchise agreement.

The following shall not be regarded as franchises:

  • commercial concession agreements or exclusive distribution agreements whereby a company acquires branded products under certain conditions from another company (which provides the former company with a certain degree of exclusivity within a given area), resells the products under certain conditions and provides after-sale support to consumers;
  • manufacturing licences;
  • the right to use a trademark within a given area;
  • technology transfers; and
  • rights to use signs or symbols.

Requirements to Obtain Registration

In order to be registered in the registry, franchisors must provide the following information:   franchisor's details - that is:

  • company name;
  • registered office;
  • details of registration with the Companies Registry, where applicable; and
  • tax identification number or code;
  • the type of intellectual or industrial property rights covered by the franchise agreement, including:
  • a certificate stating that ownership of the rights (or the authorization to use them) has been duly granted and is effective;
  • the duration of the rights; and
  • any proceedings involving the rights; and

a description of the franchised business, including:

  • an explanatory report on the activity;
  • the number of franchisees and establishments in the network, indicating whether they are directly operated by the franchisor or whether they operate under franchise assignments;
  • the municipality or region where the establishments are located;
  • the length of time for which the company has been in the franchising business; and
  • the franchisors which have ceased to be part of the Spanish network in the past two years.

Where the franchisor is a master franchisee, it must submit documents certifying the following details concerning its franchisor:

  • company name;
  • registered office;
  • legal form;
  • term of the master franchise agreement; and
  • assignment agreement entered into by the original franchisor.

Companies registered through a representative must provide a certificate of agency. Foreign companies must submit original documents together with their translations.

The following elements may be registered voluntarily for information purposes only:

  • a quality certificate certifying compliance with quality standards and identifying the standards on which it is based;
  • the adherence to an alternative dispute resolution system in case of dispute between franchisor and franchisee;
  • the existence of deontological codes within the framework of the franchise agreements;
  • the adherence to consumer arbitration systems and other alternative dispute resolution systems to deal with consumer complaints; and
  • other information deemed to be of general interest.

Obligations of Registered Franchisors

Registered franchisors must:

  • notify the registry of any modification to the franchisor's details, the type of intellectual or industrial property rights or the master franchisor's details within three months of the change;
  • notify the registry of the cessation of the franchise business as soon as it occurs;
  • notify the registry (in January of each year) of the creation and closure of establishments - whether directly owned or franchised - that took place during the previous year;
  • and submit a report (in January of each year) on the current situation of the company, certifying the accuracy and relevance of the information held by the registry.

 "International Law Office"