A new Civil and Commercial Code for Argentina

This is the first article of a series of three; starting with franchising, continuing with the right of publicity and the name of legal entities and concluding with the rules on advertising (particularly comparative advertising).

Introduction

In August 2015, a new Civil and Commercial Code came into force in Argentina. The new code unifies certain regulations that were contained in the former Civil Code, the former Commercial Code and in a number of the laws which supplemented them. In some cases, the new code adds greater detail to certain legal notions that were contained in the laws and regulations already in force. The new code also introduced regulations on matters that were not previously regulated.

Franchising

The following gives a general overview of the main provisions of the law which relate to franchising.

While the use of franchising is widespread in Argentina, until the enactment of the new code there were no laws or regulations which specifically referred to it. Pursuant to the new legislation, franchising occurs when one party (the franchisor) grants the other party (the franchisee) the right to use a proven system to market certain products and services under the trade name, logotype or trademark of the franchisor, who provides the know-how and ongoing technical and commercial support, for a direct or indirect consideration by the franchisee.

The franchisor must be the sole proprietor of the trademarks, patents, trade names, copyrights and other IP rights comprised within the franchise. If the franchisor is not the sole proprietor, pursuant to the law, it must be entitled to use and transfer the right to the franchisee.

Unless otherwise agreed, the franchisee is not entitled to assign the franchise and may not change the place where it sells or manufactures the franchised products. In turn, the franchisor cannot sell the franchised products or services to third parties other than the franchisee. Regarding the customer base, the law deems that it belongs to the franchisor.

The law establishes a number of duties of the franchisor and the franchisee. Under the law, before signing the franchising agreement, the franchisor must:

• provide economic and financial information on the development of similar enterprises during the last two years;
• provide the franchisee with a franchisor’s operation manual; and
• defend and protect the franchisee in the use of trademarks, trade names and copyrights, even when in the case of international franchises the defence of the franchisee is in the charge of the attorney whom the franchisor may have designated for this reason.

The minimum duties of the franchisee include:

• abiding by the specifications contained in the franchise manual;
• keeping the information furnished by the franchisor confidential;
• refraining from jeopardising the identity or the reputation of the franchise; and
• providing any information reasonably required by the franchisor.

While the parties may restrict or waive the exclusiveness of the franchise, if they do not expressly do so then the franchise shall be considered exclusive to both parties.

The minimum term of the franchising agreement is set at four years, with automatic renewal for subsequent one-year terms, except in special cases such as activities developed in locations with a shorter duration (eg, fairs, expositions, shows). After the initial term has lapsed, either party may terminate the agreement by giving at least 30 days’ notice to the other party.

The law mandates that some clauses are null and void, for example the ban on the franchisee to challenge the trademarks, trade names or copyrights with good cause, or the ban on establishing non-commercial relationships with other franchisees.

The parties to a franchising agreement are independent, there is no employment relationship between them. Consequently, the franchisor is not liable for the legal duties of the franchisee, or for the cost-effectiveness of the franchise.

Within the terms of the franchise, the agreement may be terminated only with due cause and the rules set out in the new code for general contracts and agreements will apply. Irrespective of the terms of the agreement, the party wishing to terminate at the end of the original term or of the subsequent terms must give advance notice to the other party at least one month for every year of the agreement, with a cap of six months. In the event that the agreement does not specify a term, the advance notice must be given at least at the start of the third year.

Finally, the provisions of the new code govern all types of franchises, including industrial franchises, master franchises, direct franchises and development agreements.

Fernando Noetinger, Noetinger & Armando, Buenos Aires