Questions upon entering into franchising agreement (commercial concession)
Franchising. Franchising agreement is usually the Agreement of commercial concession, determined by Art. 1115 of the Civil Code of Ukraine. Under the Agreement of commercial concession one of the parties (proprietor) shall be obligated to entitle the other party (user) for extra charge with the right to use under its requests the complex of proper rights in order to produce and (or) sell certain goods and (or) services.
It’s not that simple. Under Art. 1118 of the Civil Code of Ukraine and clause 2 of Art. 367 of the Commercial Code of Ukraine the Agreement of commercial concession shall be subject to state registration by the body that registered market participant that shall be the proprietor hereof. At present the state registrar shall not make such registration, as such duty shall not be assigned to him. Therefore, the absence of state registration shall impose uselessness (invalidity) of the agreement, subject to general basis, in particular, Art. 210. State registration of the legal act: “1. Legal act shall be subject to state registration only in cases stipulated by the Law. Such legal actshall be executed from the moment of state registration.” Namely such agreement shall be deemed not executed (entered into). On another hand there is a special article of the Civil Code clause 4 of Art. 1118 saying that: “4. In all the contracts with the third parties the parties of the Agreement of commercial concession shall be entitled to refer to the Agreement of commercial concession only from the moment of its state registration.” The conclusion arises that the Legislator shall admit non-registered agreements, except contracts with the third parties. Yet the third parties shall be all except the parties of the agreement.
Therefore the question of concluding agreements, validity or invalidity of which is not obvious – is not the one to the lawyers, but to yourself.
Meanwhile, a discussion is still held upon adoption of a special act, regulating the state registration of the Agreements of commercial concessions.
From words to deeds. Draft resolution on approval in principle the draft Law on certain amendments to some legislative acts of Ukraine (concerning state registration of Agreements of commercial concession) 2334/П was only registered on 15 January 2009. Yet it has not been adopted.
Solution. Though, despite this notice, at present Agreements of commercial concession are being concluded extensively, it has been proposed to conclude not the Agreement of commercial concession, but the License agreement. Under the agreement herein subjects of intellectual property rights can be transferred for use, as well as under the agreement of concession. The major advantage though as opposed to the Agreements of commercial concession, – the license agreements on the permit to use subjects of intellectual property right shall not be subject to mandatory state registration.