Franchising And Intellectual Property In Russia After 24.02.2022

• Published date: 21 April 2022
• Subject Matter: Corporate/Commercial Law, Intellectual Property, Corporate and Company Law, Patent, Franchising
• Law Firm: SCHNEIDER GROUP
• Author: Ms Evgeniya Sinanova

After 24.02.2022 many western brands have declared either suspending their activities in Russia, or leaving the market. However, in certain cases companies that structured their business under the franchising model, have found themselves unable to close the stores due to legal limitations.

Moreover, Russian Government has been introducing counter-measures against the sanctions imposed by foreign states. This includes, in particular, regulations geared at enabling local businesses to retain the use of intellectual property belonging to right holders from the states that introduced sanctions.

Franchising Models Used in Russia

Franchising model implies that a right holder grants to a third party a package of rights allowing it to run the business under an established brand and use the technologies, experience and standards developed by the right holder.

Usually, franchisors do not acquire shares in franchisees, since franchisees are expected to run the business on their own. Instead, franchising is typically structured under one of the following contractual models:

• Direct franchise agreement between the right holder and each franchisee

• Development franchising that provides granting to the franchisee the right to develop a specific territory by opening an agreed number of units

• Master franchising under which one partner concludes an agreement with the right holder and enjoys the right to grant subfranchises to other businesses.

In contrast to companies that run and control the business upon their own discretion, the freedom of franchisees to decide upon their presence on the market is limited by the law of contract.

Unilateral Termination of Franchising Agreements by Right Holders

The Russian Civil Code provides that obligations must be duly performed in accordance with the conditions of these obligations and requirements of law. Unilateral withdrawal from or change of obligations is prohibited unless otherwise is defined by law.

Under Russian law, unilateral termination of the franchising agreement by either party is possible if the agreement is concluded for an indefinite term. Such termination is subject to a 6-month notice period unless a longer term is established by the agreement.

Unilateral termination is also possible for fixed-term and indefinite agreements with a 30-days' notice if the agreement provides for the possibility of termination against payment of a certain compensation.

If the above termination options are not applicable under a...