Should you have any questions with regard to the below please feel free to contact Dr A. Tsirat directrly: A.Tsirat@jvs.com.ua
General information on franchising in Ukraine
General information on franchising in Ukraine
Current Ukrainian law does not recognise the concept of franchising but that does not mean that franchise agreements may not be used in Ukraine. Article 4 of the Civil Code of Ukraine says that civil rights and liabilities arising from grounds stipulated by the laws of Ukraine as well as from actions carried out by natural and legal persons not regulated by law but, on general grounds and due to civil laws, generate civil rights and liabilities.
As a franchise stipulates the right of a franchisee to use the franchiser’s intellectual property objects, the transfer of a licence to use these objects should correspond to Ukrainian laws. We may state that Ukraine has developed intellectual property legislation. In this sphere, there are the following national laws:
- Law on the Protection of Rights on Marks for Goods and Services;
- Law on the Protection of Rights on Inventions and Useful Models;
- Law on the Protection of Rights on Industrial Designs;
- Law on the Protection of Literary and Artistic Works.
In addition, Ukraine is a party to various international conventions. These are:
- Paris Convention for the Protection of Industrial Property;
- Patent Cooperation Treaty;
- The Madrid Agreement Concerning the International Registration of Marks and the Protocol Relating to that Agreement;
- Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks;
- Berne Convention for the Protection of Literary and Artistic Works.
Though Ukrainian laws give strict protection to an owner of intellectual property rights, he may use also the norms and provisions of international conventions and agreements as, under the Constitution of Ukraine, they prevail over the national laws and are a part of national legislation.
The transfer of a license for use of intellectual property objects supposes its obligatory registration at the Department on Intellectual Property Rights at the Ministry of Science and Education of Ukraine. A licence agreement is valid for third parties from the moment of its due registration. The registration is made within 2 months from the submission of the relevant documents.
At the same time, we should state that the new Civil Code of Ukraine which took effect from 1 January 2004 stipulates the voluntary but not obligatory registration of the license agreements. That means that the franchiser has to decide whether to register the licence agreement.
The new Civil Code of Ukraine has a special chapter devoted to franchise agreements. As in Russia, franchise agreements are known as commercial concession agreements.
The main requirements of the new Civil Code of Ukraine in respect of franchise agreements are as follows:
- they must be made in writing and signed by duly authorised persons. Violation of this requirement renders the agreement null and void;
parties to the franchise agreement shall be entrepreneurs; - the conclusion, amendment and early termination of the franchise agreement shall be registered at the franchiser’s relevant state registration body, if he is a Ukrainian resident, or the franchisee’s, if the franchiser is a foreign entrepreneur. Franchiser and franchisee may refer to the franchise agreement with third parties only after state registration of the agreement or amendment to it or its early termination.
The new Civil Code of Ukraine does not oblige the franchiser to disclose any information on the franchise before the conclusion of the agreement. Thus the franchiser decides on the amount, timing and necessity of such disclosure.
The Code indicates the basic rights and liabilities of the parties to the franchise agreement.
The franchiser is required:
- to register the agreement;
- to assist the franchisee in its business including rendering permanent technical and consulting support, training of personnel;
- to control the quality of goods and services sold under its trade mark;
- to perform its duties regarding independent franchise use, if the franchisee works under a master franchise agreement.
The franchisee is required under the franchise agreement –
- to use the franchiser’s trade mark and other symbols under the terms fixed in the agreement;
- to produce goods and services of the same quality as those of the franchiser;
- to perform the franchisers’ instructions as to the character, terms and conditions of the usage of the franchiser’s intellectual property rights;
- to inform customers on its franchisee status;
- to keep confidentiality about the franchiser’s know-how;
- not to compete with the franchiser;
- to agree the location of the franchise unit.
The Ukrainian Civil Code as with the Russian code puts joint and several liabilities on the franchiser under the franchisee’s sale of goods and services. We are aware that the similar requirement in Russia is an obstacle to franchising development.
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