Franchising in Austria: overview

A Q&A guide to franchising in Austria.

The Q&A provides an overview of the main practical issues concerning local and international franchising, including: current market activity; franchising regulatory framework; contractual issues relating to franchising agreements (analysing pre-contract disclosure requirements, formalities, parties' rights and obligations, fees and payments, term of agreement and renewal, termination and choice of law and jurisdiction); Operations Manual; liability issues; intellectual property; real estate; competition law; employment issues; dispute resolution; exchange control and withholding; and proposals for reform.

To compare answers across multiple jurisdictions, visit the Franchising: Country Q&A tool.

This Q&A is part of the global guide to franchising law. For a full list of jurisdictional Q&As visit www.practicallaw.com/franchising-guide.

Benedikt Spiegelfeld and Michael Radner, CHSH Cerha Hempel Spiegelfeld Hlawati Rechtsanwälte GmbH
Contents

Market

1. What have been the main developments in the franchising market over the past 12 months?

In Austria, franchising continues to be a very popular distribution form, increasingly used for a broad variety of goods and services. According to available data collected by the Austrian Franchise Association (Österreichischer Franchise- Verband) (OFV), in 2015 9,760 franchisees within 463 franchise systems conducted business in Austria, and 54% of all franchisees operated more than one location.

The franchising market in Austria is growing steadily. In 2014 a total net turnover of EUR8.8 billion was generated.

In the recent past:

  • A franchisee of the US franchisor Dunkin' Brands entered the Austrian market, setting up several locations of Dunkin' Donuts.

  • Several franchisees of the franchisor Subway managed to further develop their market position in Austria.

 
2. What are the most commonly used methods of local and international franchising?

Local franchising

Local franchising in Austria is commonly practised as:

  • Direct franchising, where a franchisor has a direct relationship with each individual franchisee.

  • Multi-unit franchising, where a franchisor appoints a single master-franchisee for a territory and the master-franchisee appoints multiple sub-franchisees.

International franchising

International franchising in Austria is commonly practised in the form of master franchise agreements including national and regional development plans. For an international or overseas franchisor a master franchise agreement can establish a clearly organised contractual basis with one responsible reference partner who has experience at the national level. Development obligations ensure expansion and increase visibility of the franchisor's brand.

 
3. Are there any specific reasons for an overseas franchisor to use a separate entity for entering into a franchise agreement with a franchisee in your jurisdiction?

Tax issues may be relevant reasons for overseas franchisors to use a separate (local) entity as the contractual partner of an Austrian franchisee. Generally, international taxation is regulated in various international double taxation treaties, the application of which may individually lead to a complex situation and the need for action.

Another benefit of the use of a local service entity incorporated under Austrian law is stronger integration in the national legal system. For example, this could result in stronger protection under specific constitutional rights.

The current Austrian Data Protection Act not only implements Directive 95/46/EC on data protection, but also implies even stricter national regulations regarding international data transfer. By having a local service entity, an overseas franchisor can avoid related legal questions that can be both difficult and complex.

 

Regulation of franchising

4. What is the legal definition of franchising and/or a franchise?

The Austrian legal system does not provide for a specific legal definition of franchising or a franchise.

References to franchising, however, can be found in acts provided by the EU, which have strongly influenced the Austrian legal system. In its Guidelines on Vertical Restraints (2010/C 130/01) the European Commission enables companies to conduct their own assessments of vertical agreements under EU competition rules. Section VI of these guidelines includes a general definition of franchise agreements, which incorporates:

  • Licensing of a business method and related intellectual property rights by a franchisor to a franchisee.

  • The provision of commercial and technical assistance to the franchisee.

  • Fees payable to the franchisor by the franchisee.

  • Selective restraints on products to be distributed, or exclusivity or non-competition provisions.

Although the European Commission's guidelines have no mandatory legal effects, their content can be used for a general orientation and interpretation within the national legal systems of EU member states. The definition is a useful abstract description for the Austrian franchise market.

Other attempts to generally define franchising can be found in:

  • The code of ethics issued by the Austrian Franchise Association (see Question 8).

  • ÖNORM D 7700: 2011 10 0, which was issued by the Austrian Standards Institute specifically for franchising systems. ÖNORMs themselves do not constitute mandatory provisions within the Austrian legal system, but they do summarise certain voluntary standards and practices complied with in particular industries.

 
5. What are the laws regulating franchising?

Franchising is not specifically regulated by Austrian law. However, franchising is subject to a number of Austrian statutory laws and provisions, which generally apply to various types of contracts and distribution forms.

Being a contractual cluster of rights and obligations created between private parties in the form of agreements, franchising must comply with the Austrian Civil Code. Guiding Austrian civil law principles to be considered include, for example:

  • Freedom of contracts (private party autonomy).

  • Prohibition of unlawful or immoral contractual content.

  • The right to promptly terminate continuing contractual obligations for good reason.

As well as the general civil code, other provisions that are relevant to the offer and sale of franchises include the:

  • Austrian Commercial Code.

  • Austrian Anti-trust Law.

  • Austrian Unfair Trade Practices Act.

The Austrian Supreme Court has developed important guidelines by way of analogy or expanded interpretation and introduced franchising into Austrian law. According to various judgments, the ongoing relationship between franchisor and franchisee is also influenced by the:

  • Austrian Consumer Protection Act.

  • Austrian Commercial Agent Act.

These laws may have an impact on a franchisor's and a franchisee's freedom in handling various contractual areas including:

  • Choice of law and forum.

  • Damage and compensation.

  • Duration and termination of agreements.

  • Period of notice.

  • Non-competition clauses.

 
6. What is the regulatory authority responsible for enforcing franchising laws and requirements in your jurisdiction?

In Austria there is no special state regulatory authority responsible for franchising (see Question 4). Enforcement of those laws that also regulate franchising (see Question 5) generally falls within the competence of the ordinary courts. As far as legally permissible, the parties to a franchise agreement can also agree on arbitration (see Question 38).

A relevant private institution is the Austrian Franchise Association (OFV), which considers itself to be an interest group supporting the franchise economy at national level and seeks to promote quality standards in franchising in Austria. The OFV publishes a code of ethics (see Question 8).

 
7. Must the franchisor be registered with a professional or regulatory body before setting up a franchise system?

A franchisor does not have to be registered with a professional or regulatory body before setting up a franchise system.

However, almost all business activities in Austria are subject to licences regulated by the Austrian Commercial Code (Gewerbeordnung) (GewO). Before setting up a franchise system the franchisor and franchisee must normally apply for business licences from the relevant government authority. The object and extent of these licences depends on the business activity conducted within the chosen franchise system. For example, a franchisee that operates the business itself may require a licence for restaurants, retail, commercial services and so on, and a franchisor may need a licence to provide consultancy services. Operating a business without a legitimate GewO licence violates administrative criminal law and may therefore lead to severe financial penalties.

In addition, the law stipulates that a company operating business in Austria must automatically become a member of the Austrian Chamber of Commerce (Wirtschaftskammer Österreich), which involves an obligation to pay membership fees.

Franchisors and franchisees can also voluntarily become members of private institutions such as the Austrian Franchise Association.

Austrian law does not require a franchisor or intellectual property (IP) owner to register his rights with an IP registry or other body before setting up a franchise. However, for self-protection, registration is highly recommended (see Questions 30 and 31).

 
8. Is there a code of ethics or other means of promoting ethical franchising in your jurisdiction?

The Austrian Franchise Association (OFV) issued a code of ethics for its members, which is similar to the code of ethics issued by the European Franchise Federation. However, the OFV's code of ethics is not legally binding. Therefore compliance is not a requirement for setting up and operating a franchise system in Austria.

The code of ethics states guiding principles for:

  • The relationship between the franchisor and franchisee.

  • Franchise agreements.

  • Advertising.

  • Exchange of information.

The aim of the code of ethics is to encourage fair treatment and respect between the franchisor and franchisee. In particular, parties are expected to:

  • Resolve differences of opinion through direct constructive negotiations or mediation.

  • Refrain from behaviour that damages the concept of franchising (for example, destructive forms of pressure, non-objective damaging publication, pooling of franchisee lawsuits).

 
9. Do franchisees benefit from any laws designed to protect consumers or small businesses?

According to case law from the Austrian Supreme Court, franchisees, under certain conditions, benefit from protection under the Austrian Consumer Protection Act (Konsumentenschutzgesetz) (KSchG).

In general, Austrian consumer protection applies between commercial enterprises (entrepreneurs) and consumers. An entrepreneur under the KSchG is considered to be a permanent corporation or a natural person engaged in independent commercial activity, and a consumer is someone who does not fulfil those conditions.

According to established case law, a franchisee is treated as a consumer if it has not been independently engaged in commercial activities of the relevant type before commencing its franchise activity. The franchise agreement is then deemed to be a "formation procedure" (Article 1(3), KSchG), which means that the franchisee is not treated as an entrepreneur for the purposes of the KSchG. As a result, consumer protection applies to the franchise agreement. However:

  • It is possible for the parties to agree to the contrary.

  • The legal classification of entrepreneur and consumer relies to a large extent on individual characteristics, so it is important to carefully assess each case individually.

If applicable, the KSchG grants franchisees additional rights, including:

  • The right to withdraw from the franchise agreement within 14 days, if the agreement was concluded off the franchisor's business premises.

  • Restrictions on certain contractual provisions, such as arbitration clauses.

 
10. Are there any other requirements which must be met before a business can sell a franchise?

There are generally no additional legal requirements to sell a franchise, aside from consumer protection issues (see Question 9).

However, other factors may have to be considered when planning the sale of a franchise, including:

  • Company structure.

  • Real estate management.

  • Tax optimisation.

  • Employment structure.

  • Advertising presence.

 

Franchise agreement

Pre-contract disclosure requirements

11. Is the franchisor subject to any general or formal pre-contract disclosure requirements?

Before entering into a franchise agreement, the franchisor must within an appropriate time disclose to the franchisee essential information regarding the operation of the franchise. As confirmed by the Austrian Supreme Court, this obligation is based on a general pre-contractual duty to exercise diligence and disclose relevant information.

Austrian law does not set out any specific procedural rules regarding pre-contract disclosure. In practice franchisors disclose the following, which are generally regarded as sufficient to fulfil pre-contractual disclosure requirements:

  • Legal name, legal form and legal address.

  • Trade name and trade marks.

  • Information regarding the franchise concept, existence of (pilot) businesses and actual number of franchisees.

  • Information regarding intellectual property to be licensed to the franchisee.

  • Required capital and manpower for the franchisee's business, and the categories of goods and services the franchisee is required to purchase or lease.

  • Rights and obligations of the parties to the franchise agreement.

  • Bankruptcy, insolvency or comparable proceedings; criminal convictions; findings of liability involving the franchise; and pending lawsuits with a potential impact on the prospective franchisee's business.

Breach of pre-contractual disclosure obligations can entitle a franchisee to sue a franchisor for damages. Providing misleading information can lead to nullity of the agreement.

 
12. Must the franchisor disclose fairly and in good faith all facts material to the prospective franchisee's decision to enter into the arrangement, or must the prospective franchisee rely on its own due diligence?

Under Austrian law a prospective franchisor must provide sufficient relevant information to fulfil general pre-contractual disclosure requirements (see Question 11).

However, a franchisor is not obligated to disclose all facts material to the prospective franchisee's decision to enter into the franchise agreement.

 

Formalities

13. What are the formal contractual requirements to create a valid and binding franchise agreement?

Generally Austrian civil law does not stipulate specific requirements regarding the form of a contract. Even oral franchise agreements can be valid and binding. However, it is reasonable to expect a written franchise agreement because of the:

  • Complexity of the agreement.

  • Need for evidence of the agreement.

Although under the Austrian Constitution the official language in Austria is German and any application filed with an Austrian authority or court must be in German, the original contract can be in either German or another language. The Austrian Franchise Association's code of ethics, which is not legally binding (see Question 8), states that either:

  • A franchise agreement must be in the native language of the country where the franchisee is based.

  • The franchisee must be provided with a certified translation.

 

Parties' rights and obligations

14. Is there a general obligation to behave fairly, reasonably or in good faith to the other party during the term of the franchise agreement?

A franchise agreement is categorised as an act of private law between individuals. This gives rise to certain binding rights and obligations between the parties.

Many franchise agreements include similar contractual provisions, which could be regarded as general terms and conditions of trade (GTCT) or sample contract forms. Under Austrian law, GTCT or sample contracts are subject to specific and mandatory provisions regarding transparency and moral principles (Articles 864a and 879(3), Austrian Civil Code).

If a franchisee is a consumer additional consumer protection provisions must be considered (see Question 9).

Obligations of the franchisee

Several guiding principles of Austrian civil law, doctrine and jurisprudence recognise a general duty of "allegiance" between the parties to a contract. This includes a general obligation to refrain from causing intentional harm that would defeat the object and purpose of the franchise agreement. This duty cannot be excluded by agreement between the parties. Therefore any provision in breach of this duty and included in a franchise agreement is not valid.

While each situation must be considered individually, for franchisees the general duty of allegiance may include refraining from activity that could:

  • Harm the chosen franchise system.

  • Support competitors of the franchisor (even if not violating contractual non-competition clauses).

Obligations of the franchisor

The general duty of allegiance between parties to a contract (see above, Obligations of the franchisee) also places obligations on the franchisor.

For a franchisor operating its system with several different franchisees in the same region or country, this duty creates an obligation to ensure certain territorial protection for existing franchise locations (impact theory). Allowing the set-up of new franchise locations within close proximity to an existing location could harm an existing franchisee and could therefore be an infringement of the franchisor's duty of allegiance.

If an overseas franchisor appoints a local sub-franchisor, it is the local sub-franchisor that generally is obligated to fulfil the duty of allegiance. Therefore, an overseas franchisor or its officers and directors cannot be held liable for the local sub-franchisor's failures. This rule may not apply in specific cases of direct involvement by the overseas franchisor, its officers or directors.

 
15. Does local law require that particular provisions must be expressly included in a franchise agreement?

Generally there is no specific Austrian provision that requires particular content to be included in a franchise agreement.

However, franchise agreements (like all contracts under Austrian civil law) must comply with the minimum requirements for a contract to be held effective and legally binding (essentialia negotii).

The following non-mandatory frameworks outline particular provisions that are expected to be included in a franchise agreement:

  • Code of ethics of the Austrian Franchise Association.

  • ÖNORM D 7700: 2011 10 01 (see Question 4).

 
16. Are exclusion and entire agreement clauses enforceable in your jurisdiction? If so, are they effective to protect the franchisor?

Exclusion and entire agreement clauses are enforceable in Austria and can be effective to protect franchisors (see Question 29).

 
17. Can the franchisor impose product tying or other purchasing restrictions and non-compete obligations on the franchisee during the term of the agreement?

Restrictions on purchasing and product tying

The franchisor is allowed to impose product tying and other purchasing restrictions. However, when doing so, it is limited by provisions in Regulation (EU) 330/2010 on the application of Article 101(3) of the TFEU to categories of vertical agreements and concerted practices (Vertical Restraints Block Exemption). Among other restrictions, an agreement that obliges a franchisee to buy more than 80% of contract goods from either the franchisor or a supplier named by the franchisor is unenforceable.

Non-compete obligations and transfer restrictions

Generally there are no restrictions under Austrian law preventing a franchisor from imposing non-compete obligations during the term of the franchise agreement. For post-term obligations see Question 22.

Also, in general, there are no legal transfer restrictions or provisions restricting ownership of the business to Austrian entities.

 

Fees and payments

18. What fees are usually payable by the franchisee? Are there any restrictions on the parties' freedom to set the fees and payments, or any other payment requirements?

The general principle of good morals (Article 879, Austrian Civil Code) stipulates that any contract (or part of a contract) is null and void if it contravenes "good morals". Whether a contract violates good morals is open to interpretation. Numerous rulings of the Austrian Supreme Court helped to create certain legal guidelines. Often good morals are synonymous with principles of public decency or accepted and honest business practice. For example, a fee and payment regulation could infringe good morals if it creates exceptional disadvantages for one party to a contract.

The legal limits of good morals apply to contractual provisions regulating interest on overdue payments. Currently, interest between entrepreneurs of well over 9.2% may be considered to be unlawful.

In general, provided it is not contrary to the principle of good morals, the parties to a franchise agreement have freedom to determine their fee and payment obligations.

Fees usually payable by a franchisee are:

  • Entrance fee.

  • Continuing franchise fee (based on turnover).

In practice, additional fees may be agreed, such as:

  • Advertising fee/obligation.

  • Renewal fee.

 

Term of agreement and renewal

19. Are parties free to agree on the term of the franchise agreement? What is the typical term of a franchise agreement in your jurisdiction?

The term of a franchise agreement is not regulated by Austrian law. However, the parties are not completely free to agree on any terms, because a franchise agreement with a duration of more than five years can be contrary to EU law. In general, a franchise agreement will only exceed five years if necessary for a particular reason. For example, when required for the protection of a franchisor's know-how.

In Austria franchise agreements usually have a duration of five to 15 years.

 
20. What rights of renewal are usually included in the franchise agreement? Are fees paid on renewal?

Commercial practice

Franchise agreements usually contain a contractual option for the franchisee to renew the contract, provided that it still meets all the necessary requirements for properly operating the franchise.

Actual renewal may trigger a renewal fee payable by the franchisee.

Local law

Private autonomy is the basis of Austrian civil law. This makes it possible for individuals to agree binding contracts creating legal frameworks between themselves. A renewal clause in a franchise agreement creates a mandatory obligation on the franchisor. Violation of a contractual obligation can entitle a franchisee to sue the franchisor to enforce:

  • Compliance with the franchise agreement.

  • Compensation for the harm caused by non-compliance.

In general, Austrian law does not create specific restrictions on fees or charges payable on renewal. However, the limits of good morals apply (see Question 18).

 

Termination

21. Are there any limitations on the right of a franchisor to terminate the agreement?

According to case law from the Austrian Supreme Court, the termination provisions of the Austrian Commercial Agent Act apply, by analogy, to franchise agreements. A franchise agreement can only be terminated in accordance with specific terms.

In addition, a franchisor can immediately terminate a franchise agreement because of:

  • Default in payment of franchise fees.

  • Franchisee's bankruptcy (but see below).

  • Franchisee's refusal to perform activities.

  • Abuse of the franchisor's confidence.

  • Franchisee's inability to perform its contractual activities.

In relation to the franchisee's bankruptcy, the Austrian Insolvency Code (Insolvenzordnung) (IO) generally prohibits termination clauses based on a party's insolvency. This indisputably applies to restructuring proceedings under the IO. However, in the case of a franchisee's real bankruptcy liquidation, it is arguable that serious legal doctrine again demands the analogous application of Article 22 of the Commercial Agent Act, to enable termination of the contract.

A franchisee can immediately terminate a franchise agreement for reasons including:

  • Personal assault by the franchisor.

  • Franchisor's infringement of significant contractual provisions.

  • Franchisor's inability to perform its contractual activities.

Subject to good morals limits, it is also possible for the contracting parties to agree on, and enforce, contractual penalties for breach of the franchising agreement.

 
22. Are post-term restrictive covenants enforceable?

Subject to the contract terms, on termination or expiration of a franchise agreement, a franchisee can be prohibited from making any further use of the franchisor's intellectual property rights.

Confidentiality covenants in franchise agreements are enforceable in Austria.

According to EU legislation a post-term non-compete clause of up to one year is admissible under certain prerequisites.

 
23. Can the franchisor or a replacement franchisee continue to sell to the former franchisee's customers?

Under Austrian law it is possible for a franchisor or a replacement franchisee to continue to sell to a former franchisee's customers. However, the question of compensation for the former franchisee is a major issue and should be considered.

On the subject of compensation claims, the Austrian Supreme Court has analogously applied the Austrian Commercial Agent Act. Consequently, after termination of a franchise agreement, the original franchisee can claim appropriate compensation if all of the following apply:

  • The original franchisee acquired new clients or substantially increased the scope of existing business relations.

  • Material benefits are expected for the franchisor after termination of the franchise agreement.

  • Payment of compensation is reasonable.

Even if the above conditions are met, the franchisee is not entitled to claim compensation if any of the following apply:

  • The franchisee gives notice of termination.

  • The franchisor terminates the agreement due to defaulting behaviour of the franchisee.

  • The franchisee assigns its rights and duties to a third party.

The maximum compensation payable to the franchisee cannot exceed one year's profits of the franchisee, based on the average of profits during the previous five years. The court can be asked to determine the amount of compensation payable, on the application of either party. Any court claim for compensation must be made within one year after termination of the franchise agreement.

 

Choice of law and jurisdiction

24. Will local courts recognise a choice of foreign law in a franchise agreement for a business operating in your jurisdiction?

According to Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I), the parties to a contract are free to choose the law under which their contract is governed. However, complete freedom of choice requires certain relevant foreign elements affecting the contractual relationship. If all relevant elements of the contract except the choice of law are located in a single national legal system, the national legal system will apply and cannot be derogated from, regardless of the contractual choice (Article 3, paragraph 3, Rome I).

Therefore, local courts must recognise the parties' exclusive choice of foreign law if their contractual relationship is influenced by relevant foreign elements (for example, international franchising).

If a relevant foreign element is missing (for example, a purely national franchising agreement):

  • All mandatory Austrian laws prevail over conflicting foreign provisions.

  • The parties' choice of foreign law will only apply in relation to non-mandatory provisions.

If a franchisee is a consumer additional consumer protection provisions must be considered (see Question 9).

 
25. Will local courts recognise a choice of foreign jurisdiction in a franchise agreement for a business operating in your jurisdiction?

According to Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, legal entities domiciled in an EU member state must be sued in the courts of that member state and can only be sued in other EU member states under certain conditions. This regulation has priority over national law. Therefore, Austrian courts must recognise a foreign jurisdiction in accordance with EU law.

However, EU law does not enable displacement of jurisdiction in favour of the courts of a non-EU member state. Even if displacement could be agreed with the courts of a non-EU member state, enforcement of any non-EU court decision would be subject to the existence of a multilateral or bilateral international treaty. In the absence of an enforcement treaty it would not be possible to enforce the decision of a non-EU member state court in Austria.

If a franchisee is a consumer additional consumer protection provisions must be considered (see Question 9).

 

Operations Manual

26. How does the franchisor ensure that the franchisee complies with the business standards, systems and requirements?

As Austrian law does not specifically provide franchising rules, the principle of freedom of contract prevails. It is up to the franchisor to draft and enforce appropriate contractual provisions in the franchise agreement to obligate the franchisee to comply with business standards, systems and requirements.

A franchisor and franchisee normally agree that an operations manual is an integral part of their franchise agreement. It is common practice for the parties to agree contractual penalty clauses and special termination rights for the franchisor in the event of repeated violation of the operations manual.

 
27. Can the franchisor change the Operations Manual unilaterally, as is usually required?

If agreed, the franchisor can unilaterally change the operations manual to a certain extent. Complete freedom of the franchisor to unilaterally regularly change the operations manual could, however, infringe general good morals (see Question 18). Therefore it is recommended that appropriate contractual limits are included in the franchise agreement.

 

Liability issues

28. What are the franchisee's remedies against the franchisor for deceptive or fraudulent selling practices?

If a franchisor induces a franchisee to enter into a franchise either by deception or fraud, the franchise agreement is considered null and void, provided the franchisee would not have entered into the agreement if they had known the true position.

Minor errors may either or both:

  • Entitle the franchisee to demand appropriate compensation.

  • Constitute a reason to terminate the contract.

 
29. How can third-party claims against the franchisee be brought successfully against the franchisor?

Indemnity

According to Austrian law, nobody can be held legally liable for the obligations of someone else. In addition, an agreement at the expense of someone not party to the contract is prohibited. Therefore, in general, a party can only make a claim against someone with whom they are in a direct contractual relationship. In the case of franchising, the direct relationship is generally between the third party and the franchisee. However, there are exceptions, including:

  • Agreement between the parties. Under the principle of freedom of contract, the franchisor and franchisee can agree exceptions to the general principle. For example:

    • exclusion or transfer of liability;

    • indemnities.

  • Product liability. According to the provisions of the Austrian Product Liability Act, a franchisor has strict liability for injury to life resulting from a defective product that it has manufactured or imported.

Precautions

According to the concept of independence in Austrian civil law, in general a franchisee is independent of the franchisor. It is possible for the contracting parties to agree additional contractual rights and obligations to emphasise the franchisee's independence from the franchisor.

 

Intellectual property

30. What provisions are usually made in relation to intellectual property rights (IPRs), including know-how?

It is common practice to grant the use of IPRs to a franchisee by entering into a licensing agreement. Typically the franchising agreement includes the franchisee's right to use the franchisor's registered and protected trade marks for the purpose of the franchised business. There is a legal definition of know-how in the Austrian Franchise Association's (OFV's) code of ethics. The definition is based on EU legislation. It is advisable to carefully draft secrecy provisions to protect know-how for the lifetime of the franchise agreement and after its termination. As a minimum the following should be imposed on the franchisee:

  • An obligation to impose secrecy obligations on its employees.

  • Effective penalty clauses for contractual violations.

Typically the licensee is not entitled to sub-license IPRs without the consent of the franchisor.

 
31. What are the registration requirements for licensing IPRs?

In Austria trade marks for goods and services are subject to protection by registration with the Austrian Patent Office. Trade marks and service marks are divided into:

  • Word only.

  • Picture and word-picture (logo).

An application for trade mark registration can be made in German or in any other language.

To be eligible for registration, trade marks must:

  • Be distinctive.

  • Not confuse consumers.

A foreign enterprise that does not have a seat or permanent establishment in Austria must appoint a representative who is resident in Austria to act on its behalf in a trade mark application.

 

Real estate

32. Are consents from landlords difficult to obtain when transferring leases or granting subleases from a franchisor to a franchisee?

Within the Austrian legal system two tenancy regimes exist, namely the:

  • Austrian Civil Code regime, which is a more liberal, abstract and outline regime.

  • Austrian Tenancy Law regime, which is a more restrictive and detailed regime.

Whether one regime or the other applies partly or in full depends on the classification of the individual property involved. Various combinations are possible depending on the circumstances. However, other than in exceptional cases (for example inheritance), there are no mandatory rules for the transfer of lease rights or subleasing under either regime.

Therefore, it is a question of contract whether a landlord grants his tenant a legally enforceable right to transfer a lease to a third party, by either:

  • Accession to the lease itself.

  • Subleasing.

If a franchisor, as a head tenant, wishes to enter into a commercial lease agreement with the landlord of a (potential) franchisee location, explicit provision should be included in the lease contract to ensure sufficient flexibility.

In Austria most lease agreements are not registered with the Austrian land register. There are no mandatory formalities, beyond those required for other contracts.

A written lease agreement triggers stamp duty under the Austrian Fee Act.

 
33. How can a franchisor prevent the franchisee from occupying the premises after the franchise agreement has ended?

To prevent a franchisee from occupying franchise premises after the franchise agreement has ended, the franchisor should include relevant contractual clauses in the franchise agreement.

In the case of subleasing, for example, a clause could explicitly stipulate that the sublease ends automatically when the franchise agreement is terminated. If the franchisee subsequently refuses to leave the premises, the franchisor could then sue the franchisee to obtain title. After obtaining title, the franchisor could demand judicial execution to force the franchisee out of the premises.

 
34. How can the franchisor effectively acquire the franchisee's premises at the end of the franchise relationship?

If the franchisee owns the relevant premises, the franchisor and the franchisee can agree an option to purchase. The franchisee and franchisor are free to agree the scope and extent of any such option.

 
35. If the franchisor leases or subleases its own site to its franchisee, can it pass on all related costs to the franchisee? Can the franchisor charge its franchisee tenant a rent expressed as a percentage of the franchisee's sales?

The parties can agree to pass all costs related to leased or subleased premises to the franchisee. However, any such agreement can only create obligations between the franchisor and its franchisee. The franchisor, as the owner of the premises, cannot release itself from obligations to third parties.

The franchisor can charge a rent expressed as a percentage of the franchisee's sales.

 

Competition law

36. What is the effect of competition law rules on franchising agreements? Are there any available exemptions?

Competition law

Austrian competition law corresponds fully with EU regulations, which apply to trade between entities in EU member states. In its Guidelines on Vertical Restraints (2010/C 130/01) the European Commission enables companies to conduct their own assessments of vertical agreements under EU competition rules. For franchising, Regulation (EU) 330/2010 on the application of Article 101(3) of the TFEU to categories of vertical agreements and concerted practices (Vertical Restraints Block Exemption) applies. It enables the companies to carry out vertical agreements, within the following market share limits:

  • Franchisee: at least 10%.

  • Both parties: up to 30%.

The Vertical Restraints Block Exemption contains a blacklist of forbidden provisions. If used these provisions can lead to a partial or complete nullity of the franchising agreement. These include:

  • Vertical resale price maintenance agreements, except those:

    • setting a maximum price;

    • giving non-binding recommendations.

  • Prohibition of passive distribution beyond the contract territory.

  • Prohibition of cross-deliveries within the dealer network.

Exemptions

Agreements containing provisions on customer protection are permitted. Therefore it is possible to prohibit the poaching of one franchisee's customer by another franchisee.

Online/e-commerce restrictions

The franchisor cannot prevent a franchisee from having its own website presence, but it can have a say in the implementation of the website, for example in design or wording. According to the Guidelines on Vertical Restraints (2010/C 130/01), in general, a franchisee is allowed to promote and sell products online, as it is considered to be a form of passive selling and therefore cannot be prohibited by the franchisor. However, limited interference by the franchisor may be possible under certain circumstances.

In addition to the Guidelines on Vertical Restraints, the franchisee and franchisor should consider:

  • Austrian competition and anti-trust law (see above).

  • E-commerce law, which requires the disclosure of additional information on the franchisee's website.

 

Employment issues

37. Can a franchisee be regarded as an employee of the franchisor?

The Austrian Supreme Court has outlined various characteristics of an employment relationship. These include:

  • Personal control by the employer through direct orders and instructions.

  • No entrepreneurial risk on an employee or financial consequences from the failure of the company an employee works for.

As an essential part of a franchise relationship is that the franchisee takes its own entrepreneurial risk, and can be responsible for financial losses generated while operating the franchise business, under Austrian law a franchise is not normally regarded as an employment relationship.

The employees of a franchisee are not regarded as employees of the franchisor and therefore are not in a position to enforce any claims against the franchisor.

 

Dispute resolution

38. How are franchising disputes typically dealt with? What provisions for handling disputes are usually included in domestic franchise agreements?

Enforcement of franchise agreements and of those laws that regulate franchising generally falls within the competence of the Austrian ordinary courts for civil matters. The highest authority on civil matters is the Austrian Supreme Court.

Depending on the individual case, dispute resolution before the ordinary courts can be lengthy and proceedings can trigger unforeseeable costs and expenses.

Arbitration is an alternative to dispute resolution before the ordinary courts. Austria itself has several arbitration institutions. Subject to the court's control, Austrian arbitral awards are enforceable provided certain conditions are met, including:

  • A valid arbitration clause.

  • Impartiality of the arbitrators.

A choice of overseas governing law can be enforceable in part or full (see Question 24).

 
39. How are foreign judgments or foreign arbitral awards enforced locally?

Enforcement of foreign judgments is governed by several multilateral and bilateral international treaties.

The enforcement of arbitral awards in Austria is governed mainly by the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

 

Exchange control and withholding

40. Are any exchange control or currency regulations applicable to payments to an overseas franchisor?

There are currently no specific Austrian exchange control or currency regulations applicable to payments to an overseas franchisor.

 
41. Is there a withholding obligation on payments made to an overseas franchisor?

There are currently no specific Austrian laws regulating withholding obligations on payments made to an overseas franchisor.

However, withholding obligations may result from international double taxation treaties.

 

Reform

42. Are there any proposals to reform the laws affecting franchising?

Neither the Austrian legislator nor the Austrian government authorities have published proposals or specific plans for reform that could affect franchising in particular, either positively or negatively.

 

Online resources

The Official Journal of the European Union

W http://eur-lex.europa.eu/homepage.html?locale=de

Description. The Official Journal of the European Union, in German.

The Austrian Franchise Association

W www.franchise.at/franchise-oesterreich

Description. The website of the Austrian Franchise Association, in German.



Contributor profiles

Dr Benedikt Spiegelfeld, Senior Partner

CHSH Cerha Hempel Spiegelfeld Hlawati Rechtsanwälte GmbH

T +43 1 514 35 111
F +43 1 514 35 35
E benedikt.spiegelfeld@chsh.com
W www.chsh.com

Professional qualifications. Austria, attorney-at-law, 1979

Areas of practice. Corporate; mergers and acquisitions; distribution law; arbitration; infrastructure.

Languages. German, English

Professional associations/memberships. International Bar Association; Austrian Franchise Federation; European Franchise Lawyers Group (EFL); UNION Viennese Society of Attorneys at Law; Austrian Arbitration Association; ICC Austria; Managementclub Vienna.

Michael Radner, Associate

CHSH Cerha Hempel Spiegelfeld Hlawati Rechtsanwälte GmbH

T +43 1 514 35 0
F +43 1 514 35 35
E michael.radner@chsh.com
W www.chsh.com

Professional qualifications. Austria, attorney candidate, 2014

Areas of practice. Corporate; mergers and acquisitions; distribution law; public commercial law.

Languages. German, English, French

Professional associations/memberships. Austrian Lawyers' Association.


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