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Brief Reference to the Franchise Contract

With the review and autonomization of the Third Book of the old Commercial Code ("ComC") approved by Decree-Law No. 2/2005, of 27 December, and its transformation into the of Commercial Contracts legal regime, through Decree-Law No. 3/2022 of 25 May ("DL 3/2022"), which entered into force in September 2022, several new types of commercial contracts were introduced, among which, in this article, we will highlight the Franchise Contract.

As a preliminary note, it is worth noting that, notwithstanding the fact that the Franchise Contract is a named contract, due to the fact that it is expressly mentioned in Law No. 3/93 of June 24 - Investment Law in Mozambique, until the review of the ComC, the Franchise Contract was classified, in our legal system, as a legally atypical contract, totally subject to the will of the parties, since it lacked its own regulation. For this reason, one could think that the Franchise Contract exists under the domain of private autonomy and contractual freedom, whereby the parties, within the limits of the law, could freely dispose and adapt its content, according to their will.

Within the scope of comparative law, it has been verified that in most Member States of the European Union, the Franchise Contract is legally atypical and socially typical (because it is a reiterated and almost homogeneous social practice, in legal commerce). However, in Spain, as well as in Italy, there are already legal definitions of franchising, and in other countries, such as Portugal, the provisions of the agency agreement are analogously applied, mindful of the European Deontology Code, which aims to establish a set of essential rules of good conduct and good customs directed at those who operate franchising in Europe.

Article 403 of DL 3/2022 defines the Franchise Contract as a "contract whereby one party, the franchisor, grants the other, the franchisee, in return for payment, the right to develop, at its own expense and risk, an economic activity within the first party's franchise network". This contract grants the franchisee the right to exploit a set of industrial or intellectual property rights relating to trademarks, trade names, trade insignia, utility models, designs, copyrights, know-how or patents, to be used for the resale of products or the provision of services.

The above-mentioned Decree contains a clearer and more objective concept of the Franchise Contract, a concept that precisely encompasses the role of the parties in the legal relationship. While on the one hand, the franchisor must grant the franchisee the right to use the intellectual property rights to the extent necessary to develop the franchise activity, the franchisee in turn must do everything reasonable to ensure the peaceful and continued use of the intellectual property rights.

DL 3/2022 also provides that the franchisor must inform the franchisee, under the terms provided for in the distribution agreement, about market conditions, the commercial results of the franchise network, the characteristics and conditions of sale and supply of products, among others.

This regulation also includes pre-contractual information duties in franchising concerning multiple aspects of the business, such as the franchisor's business and experience, the relevant intellectual property rights, the relevant know-how characteristics, the commercial sector in which it operates, as well as the respective working conditions, the specific method of franchising and its operation, the structure and scope of the franchise network, the royalty commissions or other periodic payments, among other contract conditions.

In this Commercial Contracts Legal Regime, the Franchise Contract is regulated in the distribution contracts section. Notwithstanding the fact that a part of the doctrine believes that the distribution contract is distinct from the Franchise Contract and not necessarily one of the forms of distribution contract[1], our legislator has understood that, considering the economic and legal criteria, franchising may be classified in several ways, fitting within the definition of article 403(2), production or industrial franchising; distribution or product franchising; and service franchising, which resulted in the Franchise Contract being included in the section of distribution contracts.

From our point of view, there are no doubts that the introduction of this type of contract in our legal system is a breakthrough and another effective way of marketing products, goods and services, providing the franchisee with a faster and legally secure way of setting up one’s own business under the protection of a renowned brand.

We emphasize that, as this is a complex contract, it is always advisable to obtain from specialized persons all clarifications concerning the scope of the norms expressed therein, under the risk of misinterpretation of the clauses that compose a Franchise Contract and consequently result in losses for one of the parties that enters into the contract, as it requires a careful and balanced formulation in order to safeguard the positions and interests of both parties. As the autonomy and independence of the franchisee is a naturally present element resulting from the Franchise Contract, a balance between being subject to control and autonomy should be sought when drafting the contract and during its term.



[1] PEREIRA BARROCAS, MANUEL, “Franchising Contract", Revista da Ordem dos Advogados, Lisbon, April,1989, cit.: p. 135