Franchise in Lithuania

A Form of Cooperation

A franchise is a form of long-term cooperation regulated by an agreement between two legally independent businesses, where, in exchange for a one-time and/or ongoing fee, one business (the franchisee) obtains the right, under strictly defined conditions, to use certain rights of another business (the franchisor).
These rights may include the use of the franchisor’s trade name, the right to sell and/or produce its goods, access to protected commercial or production information, and the ability to benefit from the franchisor’s accumulated experience.
The franchisor undertakes to provide the franchisee with various forms of assistance, such as in establishing and equipping the business and organizing its operations.

Franchise Agreement

Franchise agreements differ from other forms of cooperation due to their flexibility; they cover not only goods and technologies but also carefully designed marketing tools, with a strong emphasis on building the image of the company and its products.
Only entrepreneurs (business entities) may be parties to a franchise agreement.

A franchise agreement must be in written form. Failure to observe this form renders the agreement invalid. For third parties, the agreement can be used only after registering the fact of its conclusion in the legal entities register, where the rights holder is registered.
If the rights holder is registered in a foreign country, the fact of concluding the franchise agreement must be registered in the legal entities register, where the user is registered.
If the subject of the franchise agreement involves an object protected by industrial property rights, the agreement must also be registered with the relevant authority that maintains the registry of such rights.

Sub-franchise Agreement

A franchise agreement may grant the user the right to allow other persons to use all or part of the exclusive rights granted under the franchise on sub-franchise terms. The conditions of the sub-franchise must be specified in the original franchise agreement or later agreed upon with the rights holder.
The franchise agreement may also stipulate that the user is obliged, after the conclusion of the agreement, to grant other persons the right to use those rights for a specified period on sub-franchise terms.
A sub-franchise agreement cannot be concluded for a period longer than the franchise agreement itself. If the franchise agreement becomes invalid, the sub-franchise agreement automatically becomes invalid as well.

The rights holder is obliged to:

1. Provide the user with technical and commercial documentation and other necessary information to exercise the granted rights, as well as train the user and their employees on all issues related to implementing those rights;
2. Issue the licenses specified in the agreement and ensure their proper registration.

Unless the agreement specifies otherwise, the rights holder must:

1. Ensure the registration of the franchise agreement;
2. Provide the user with ongoing technical and consulting support and assist in training their employees;
3. Monitor the quality of goods, services, or works produced or provided by the user under the franchise agreement.

The franchisee, taking into account the nature and specifics of their activities and the conditions of the franchise agreement, is required to:

1. Use the franchisor’s trade name, trademark, or service mark in their business in the manner specified in the franchise agreement;
2. Ensure the proper quality of goods, works, or services produced, performed, or provided under the franchise agreement;
3. Follow the franchisor’s directions and instructions regarding the use of rights, the internal and external appearance of commercial premises, and other operational conditions defined in the agreement;
4. Provide customers with additional services they could reasonably expect when purchasing goods, ordering works, or services directly from the franchisor;
5. Not disclose to third parties any trade or production secrets or other confidential information obtained from the franchisor;
6. Conclude a sub-franchise agreement if such an obligation is stipulated in the franchise agreement;
7. Inform customers in the most apparent way that they operate under a franchise agreement and use the franchisor’s trade name, trademark, or another symbol identifying the franchisor.

The parties may include in the franchise agreement only those competition-restricting provisions that are not prohibited under competition law. Such restrictions may include:

1. The franchisor’s obligation not to grant similar exclusive rights to other persons within the same territory where the franchisee operates, or the franchisor’s obligation not to engage in similar activities in that territory;
2. The franchisee’s obligation not to compete with the franchisor within the agreed territory in the business area in which the franchisee operates under the granted rights;
3. A prohibition on the franchisee from entering into franchise agreements for similar rights with competitors (or potential competitors) of the franchisor;
4. The franchisee’s obligation to coordinate with the franchisor the layout and the internal and external appearance of the commercial premises specified in the agreement.

Franchise agreement provisions restricting the parties’ rights may be declared invalid under the grounds and procedures set by competition law, if such provisions restrict competition.

In particular, invalid provisions include:

1. Clauses granting the franchisor the right to set the prices or minimum prices for the goods, works, or services provided by the franchisee;
2. Clauses granting the franchisee the right to sell goods, perform works, or provide services only to a certain category of customers or only to customers residing within the territory defined in the franchise agreement.