1. FRANCHISE AGREEMENT, ITS DEFINITION AND LEGAL NATURE
There are several different definitions of a franchising agreement under the related applicable regulations and in practice. Article 3/b of the Block Exemption Communiqué on Franchise Agreements defines a franchise agreement as:
"A franchise agreement whereby the franchisor grants the franchisee the right to use a franchise for the purpose of marketing certain types of goods or services in return for a direct or indirect financial contribution and at least; 1) Use of a common brand or business name and giving a uniform appearance to the facilities and/or means of transportation; 2) Transfer of know-how by the franchisor to the franchisee; 3) An agreement containing obligations for continuous commercial and technical support of the franchisee by the franchisor during the term of the agreement”
The doctrine states:
"The franchisor may grant authorization to the franchisee to use any registered trademark or service mark for a definite or indefinite period of time."
or
“In general, a continuous relationship in which one person (the franchisor) authorizes another person (the franchisee) to carry out production, operation or marketing activities through the use of its own system and involves mutual obligations”
The franchise agreement is a sui generis, anonymous, onerous and typical framework agreement that imposes obligations on both parties and gives rise to a continuous debt relationship. The franchise agreement is not regulated under the law and is a type of agreement that was born and developed in practice within the framework of the principle of freedom of contract. Although it contains the characteristics of various contracts such as sales, rent, service, proxy, agency, license, dealership, it is a unique type of agreement.
The fact that it is a fully bilateral-synallagmatic agreement stems from the fact that the franchisee is basically under the obligation to pay a fee, and the franchisor is under the obligation to use its commercial values, industrial property rights such as trademarks, licenses, patents and designs. This relationship is continuous throughout the term of the agreement and is referred to as an agreement that gives rise to a continuous debt relationship in legal classification.
2. RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER A FRANCHISE AGREEMENT
As we have stated, the franchise agreement is an agreement that imposes obligations on both parties and the parties have rights and obligations arising therefrom. In line with the explanations provided in the doctrine; the franchisor is obligated to provide:
1. Pre-contractual
information,
2. Use of the franchise
system (commercial values) (trademark, title, know-how),
3. Protection and support for the franchisee.
The franchisee, on
the other hand, is obligated to ;
1. Release the
goods and/or services personally,
2. Use the
franchise system,
3. Follow
instructions and deal with inspections,
4. Pay the fees,
5. Show loyalty (non-competition, confidentiality, information, and accountability)
3. TERMINATION OF THE FRANCHISE AGREEMENT
"Termination of the franchise agreement has a number of consequences for the parties. For the franchisee, the obligation not to use and return the intangible goods and the obligation not to compete if a noncompetition agreement has been executed, and for the franchisor, the obligation to take back the goods under the agreement, the obligation to return the entrance fee and the obligation to pay the goodwill compensation if the conditions are met.” [2]
Upon termination of the agreement, the franchisee must terminate use of all licenses, titles and trademarks of the franchisor by the franchisee. One of the issues that must be ceased upon termination of the agreement is the technical knowledge of the franchisee, known as “know-how”. Although the follow-up of the termination is not easy in practice, use of the values that are unique to the franchisor and that cause the franchisee to establish this contractual relationship should be terminated in practice.
"Despite termination of the franchise agreement, the franchisee's continued use of the intangible goods constituting the franchise system leads to civil and criminal liability. If the intellectual and industrial rights that the franchisee continues to use are registered, the provisions of the Code of Industrial Property shall apply, and if not, the provisions of the Turkish Commercial Code regarding unfair competition shall apply. On the other hand, if the franchisee violates this obligation, it is possible to be held liable in accordance with the provisions of the Turkish Code of Obligations." [3]
The franchisor, on the other hand, has an obligation to assist in liquidation of the business by taking back the goods in the hands of the franchisee within the framework of the post-contractual good faith when the agreement is terminated, and to claim for goodwill compensation if certain conditions are met.
4. FRANCHISEE'S GOODWILL COMPENSATION AND CONDITIONS
Goodwill compensation is also referred to as portfolio compensation and customer portfolio compensation in practice and is referred to as “goodwill compensation” under our Law as per the Article 122 of the Turkish Commercial Code. Goodwill compensation has been introduced to our law within the scope of the steps of harmonization with the Acquis Communautaire in the process of candidacy to the European Union.
In order for the Franchisee to claim for goodwill compensation, the following conditions must be met:
1. The agreement is
terminated in such a way that a goodwill compensation may be claimed,
2. The franchisor
continues to benefit from the acquired customers,
3. Loss of income
to the franchisee,
4. The payment of goodwill
compensation is equitable,
5. The claim must
be filed within one year of the termination of the franchise agreement,
6. Monopoly rights have been granted to the franchisee.
Paragraph 1 of the Article 122 of the Turkish Commercial Code setting out the goodwill compensation stipulates the conditions of the claim as follows :
"(1) After
termination of the contractual relationship, the agent may claim for an
appropriate compensation from the principal on the following conditions;
a) If, thanks to
the new customers found by the agent, the client keeps receiving significant
benefits even after termination of the contractual relationship,
b) If, as a result
of termination of the contractual relationship, the agent loses the right to
demand the remuneration that he would have obtained if the contractual
relationship had continued for the works performed or to be performed within a
short period of time with the customers brought into the business by the same,
c) If it is equitable to do so, when the facts and circumstances of the case are evaluated.”
It is not possible to claim for goodwill compensation in any type of termination of the agreement, and in accordance with the article #122/3 of the Turkish Commercial Code, if the termination was not made by the franchisee for just cause or if the franchisor terminated the agreement due to the franchisee's fault, then it is not possible to claim for goodwill compensation in accordance with the rule of equity and honesty:
“(3) If the agent has terminated the agreement without any act of the principal justifying the termination, or if the agreement has been terminated by the principal for just cause due to the fault of the agent, the agent may not claim for goodwill compensation.”
Another condition, as stipulated under the Article #122 f. 1 of the Turkish Commercial Code for the franchisee to claim compensation is that the franchisor derives significant benefits from the new customers found by the franchisee even after termination of the contractual relationship. Accordingly, in order for the franchisee to claim for goodwill compensation, the franchisee must bring new customers to the franchisor and the franchisor must derive significant benefits from these new customers after termination of the contractual relationship. The concept of new customers is naturally continuous, and one-time customers acquired by the franchisee are not sufficient for this compensation to arise.
As a result of the image created, the franchisor must have opened a new commercial door, so to speak, due to this relationship. Since the legal purpose of the claim lies in the fact that it is not appropriate in terms of equity for the franchisee to be deprived of this gain in return for the material gains obtained by the franchisor and the intention to establish a balance of interests, it is in the spirit of the provision that the franchisee does not benefit in the scenario where the franchisor does not benefit. The loss of wages of the franchisee due to termination of the franchising agreement, which is another condition of the goodwill compensation, also serves the purpose of protecting this balance of interests.
"Regarding the equitable condition of the goodwill compensation, the amount of goodwill compensation to be paid to the franchisee should not be more than the interest of the franchisor or the loss of wages suffered by the franchisee due to termination of the agreement. Therefore, the equitable condition should not be evaluated without determining whether the other conditions are met." [4]
As a result, it is seen that in the franchise agreement, the parties mutually carry out commercial activities, subject to come certain rights and obligations, and both parties benefit from this relationship. In order to protect the balance of interests of the parties in the event of termination of the agreement within the framework of the statutory requirements, the goodwill compensation has been incorporated into our Law in the process of harmonization with the Acquis Communautaire, and it has found an application area in agency and similar agreements.
Since this claim, which is based on good faith to ensure the balance of interests, is subject to some conditions listed under the Law, it is not possible to claim it in every situation and condition. In this article, the Franchise Agreement is briefly explained, and the conditions required by the Law to claim for goodwill compensation are generally explained.
Att. Gamze Nur Şan
References:
1. M. Zahid DOĞANAY, “Franchise
Sözleşmesinde Denkleştirme Talebi, Adalet Publications,
2021, Ankara, p.31-32.
2. M. Zahid DOĞANAY, “Franchise
Sözleşmesinde Denkleştirme Talebi, Adalet Publications,
2021, Ankara, p.87.
3. M. Zahid DOĞANAY, “Franchise
Sözleşmesinde Denkleştirme Talebi, Adalet Publications,
2021, Ankara, p. 89.
4. Bahar ŞİMŞEK, “Franchising
Sözleşmesi” Istanbul University, Institute of Social Sciences, Department of
Private Law, Master's Thesis, Istanbul, 2015 p. 346.
