What French Law Requires From a Franchisor: The Six Core Obligations

A French franchisor's obligations: the six that define the relationship

A French franchisor's obligations are far broader than the two or three that contracts usually recite. A franchise is a bilateral contract, so it creates duties on both sides; on the franchisor's side, the essential ones — those that belong to the very nature of the arrangement — number six, not three. The familiar shorthand is that the franchisor must transmit and update a know-how (savoir-faire), make its distinctive signs available, and provide assistance. That list is incomplete. Three further duties are equally fundamental: an obligation of publicity, an obligation of diligence, and an obligation of coherence within the network. A franchisor who honours the first three and neglects the last three has not met the standard French law sets, and each gap carries its own consequence — from damages, to a reduction of royalties, to termination at the franchisor's fault, to nullity of the contract itself.

These duties bind a franchisor whether the contract mentions them or not. They flow from the nature of the contract and from the general law of obligations, and they are read into the agreement by the courts. A foreign brand entering France with a template drafted for another market cannot assume that silence in its contract means freedom. The obligations described below attach to the franchise as a matter of law, and a franchisee who can prove a breach has real remedies. What follows sets out each of the six, the rule that governs it, and what happens when it is broken.

The legal frame behind a French franchisor's obligations

Before the six duties themselves, three interpretation rules govern how they are read, and every franchisor operating in France should understand them because they decide close cases. The first is binding force. Under Article 1103 of the Civil Code, contracts lawfully formed take the place of law for those who made them. The franchise contract is therefore law between franchisor and franchisee, and neither can modify it unilaterally. Some agreements reserve a power of unilateral modification to the franchisor, so that it can adapt its know-how or its network to technological, economic or social change. Fixed from the outset, such a power is intelligible, but it must remain controlled: under cover of "adaptation", the franchisor may not overturn the general economy of the partnership it struck with its counterparty.

The second rule is good faith. Under Article 1104 of the Civil Code, contracts must be negotiated, formed and performed in good faith, and that provision is public policy — the parties cannot contract out of it. Good faith is not a decorative principle in a franchise; it is structuring. A franchise is a partnership sealed by a common interest, and disloyalty on either side corrodes it. Several of the obligations below are simply good faith applied to a concrete situation.

The third rule is the reach of the contract. Under Article 1194 of the Civil Code, contracts bind the parties not only to what they expressed but to all the consequences that equity, usage and the law attach to the obligation according to its nature. This is the engine that adds unwritten duties to a franchise. It is also why a franchisor cannot shelter behind the absence of a clause. Where the agreement is a standard-form contract drafted by the franchisor — as most are — a further rule applies: in case of doubt, the contract is interpreted against the party that proposed it, that is, against the franchisor and in favour of the franchisee.

Know-how: the first of a French franchisor's obligations

Know-how is the heart of the franchise and the first of a French franchisor's obligations. It must exist at the moment the contract is concluded — the validity of the contract depends on it — but existence at formation is only the start. During performance, the franchisor must transmit that know-how continuously, and that transmission must occur in good time. Know-how delivered too late, or in fragments, or not at all, is a breach even where the concept itself is sound.

Because know-how is only a means to build and preserve a competitive advantage, it must also be constantly updated, adapted both to the evolution of the economic sector concerned and to technological change. A franchisor who freezes its method while the market moves has stopped delivering what the franchisee pays for. The franchisee bought the keys to a tested, transmissible success in order to gain a real competitive advantage on the market; a stale know-how no longer supplies that advantage.

Defending the know-how against misappropriation

The know-how must finally be defended against pillage. The law of 30 July 2018 on the protection of trade secrets, which introduced Articles L 151-1 and following of the Commercial Code, strengthens the franchisor's arsenal here — but it does not protect a franchisor's know-how automatically. Only information with three characteristics is covered by trade-secret protection: it is not, in itself or in the exact configuration and assembly of its elements, generally known or readily accessible to persons familiar with that kind of information in the sector concerned; it has commercial value, actual or potential, because it is secret; and it is the subject, on the part of its lawful holder, of reasonable protective measures in the circumstances to keep it secret. A franchisor that has taken no steps to keep its method confidential cannot later invoke the trade-secret regime.

The 2018 law is not a revolution for franchisors. They could already ask a court for measures to prevent or stop an attack on their know-how, in particular on the footing of unfair competition or parasitism. But the law widens the range of measures available. Under the new Article L 152-6 of the Commercial Code, a franchisor holding information protected as a trade secret that a third party to the network exploits unlawfully may seek compensation that takes into account, beyond its lost profit, its actual loss and its moral prejudice, the savings in intellectual, material and promotional investment the infringer drew from the unlawful use — the only way to deprive lucrative wrongdoing of its reward.

Site selection is part of the know-how

The transmission and updating of know-how run throughout the contract, but the know-how may also justify, upstream, a duty to help the franchisee select its premises, or at least its location. The location of the outlet is itself an element of the know-how: geographic situation, catchment area and competitive environment are the factors of a successful implantation. A franchisor should not be able to shelter behind the franchisee's "freedom of choice" to escape responsibility where a poor location precipitated the franchisee's ruin. French courts have already accepted this reasoning. A franchisor who possesses the data on what makes a site work, and lets a franchisee open in a location the franchisor knew was unviable, is exposed.

Distinctive signs among a French franchisor's obligations

The franchisee joins in consideration of a network. It intends to profit from a collective dynamic under a set of distinctive signs — the trademark and the trade name first among them. Making those signs available is therefore an essential obligation on the franchisor. This is the second of a French franchisor's obligations, and it is the one whose breach can be fatal to the contract.

Contracts usually set out how the signs are made available — a loan of the trade name, or a trademark licence. Whatever the mechanism, it falls to the franchisor to secure its rights over those signs and, in particular, to renew its trademark registration. The obligation does not stop at holding the signs: the franchisor must also act against third parties who misuse the network's distinctive signs, because an unpoliced trademark loses the value the franchisee bought into.

The consequence of failing at the threshold is severe. Where the franchisor has no rights at all over the signs it purports to license, the contract is null. A franchisee who discovers, after signing, that the brand it is paying to operate under was never validly the franchisor's to grant has not merely a claim in damages but an attack on the existence of the contract. For a foreign brand, this makes the state of its French trademark portfolio a precondition to franchising here, not an afterthought.

Assistance: a continuing French franchisor obligation

The franchisor is bound to provide assistance to its franchisee, and this is the third of a French franchisor's obligations. The Paris Court of Appeal has stated the rule firmly: the assistance a franchisor gives its franchisee is one of the franchisor's essential obligations, independently of any specific contractual stipulation. In other words, the duty exists even where the contract is silent. This is Article 1194 at work — assistance is part of the DNA of the franchise, one of the consequences the nature of the contract attaches to it.

The content of the obligation has at least a double dimension: commercial and technical. It is also continuous. The franchisor must help the franchisee at the launch of its business and assist it when difficulties arise, but assistance is not only occasional: it must be supplied regularly throughout the performance of the contract. A franchisor that appears at the opening and then disappears has not discharged the duty.

Contracts generally spell out the contours of the assistance. The franchisor may undertake to assist the franchisee in choosing its operating premises, in negotiating its loan, even in keeping its accounts. Increasingly, assistance also covers the IT tools whose use is imposed on or recommended to the franchisee for its activity; where software is imposed, it must be adapted and kept fit for purpose. Beyond what the contract lists, and independently of it, assistance is assessed case by case according to the franchisee's real needs.

What breach of the assistance duty allows the franchisee to do

The obligation is one of means, not result: the franchisee must prove the franchisor's breach in order, where appropriate, to obtain termination of the contract or compensation for its loss. Once breach is shown, the franchisee's toolkit is wide. It may raise the defence of non-performance (exception d'inexécution), seek specific performance, claim damages, obtain a reduction of its royalties, or even seek resolution of the contract. A franchisee is best advised to voice its dissatisfaction at once: although a waiver of a right is never presumed, courts sometimes hold a franchisee's prolonged inaction against it.

Publicity and brand image as a French franchisor's obligations

Because it stands at the head of a network, the franchisor bears responsibility for the network's image, and this is the fourth of a French franchisor's obligations. It must see that a certain discipline is observed, because franchisees who do not respect the concept risk harming the whole network. The franchisor must therefore police the outliers who depart from the concept — the free-shooters — in the well-understood interest of all the others. Policing the network is not optional zeal; it is part of the duty.

The duty is not only defensive. The franchisor must also promote the network, which is where the obligation of publicity arises. Contracts are often incomplete on this point. Few of them require the franchisor to account for the advertising actions it takes, even though an advertising royalty is charged to the franchisees, who are then unable to verify performance of the corresponding obligation. A minimum of transparency should nonetheless be required, given the nature of the franchise contract and, at the least, the equity that attaches to it.

Transparency on the advertising royalty

Every power calls for a counter-power, including the power of a network head. That counter-power runs, at a minimum, through an obligation of information across the life of the contract. How is a franchisee to know whether a franchisor is meeting its advertising obligations if the franchisor says nothing of its actions, or if those actions are unjustified and serve only the franchisor's own interests? Advertising royalties must be applied to advertising expenditure; used otherwise, they mask an unjustified enrichment. A regular rendering of accounts is owed. Where it is missing, a franchisee can ask the court to sequester the royalties, and a suspension of payment should be available on the footing of the defence of non-performance.

Transparency has a further edge where the franchisor also acts as the network's purchasing intermediary. Where the franchisor has taken on the task of negotiating the best terms with the network's referenced suppliers, it plays the role of a broker, and a broker — like any intermediary in the conclusion of a contract — must render account. That means two things: restoring the sums received in the course of the brokerage, and informing the principal of all the steps taken in its interest. A franchisee should therefore be able to learn the content of the contracts concluded between its franchisor and the network's suppliers, if only to be sure the network head has not kept for itself the rebates, discounts and volume-based reductions the suppliers granted. Trade secrecy does not defeat this: it cannot be brandished merely to avoid producing a compromising document without trampling the claimant's right to a fair trial.

Diligence and competence among a French franchisor's obligations

The franchisor must be serious. It may play on an offbeat image, but never with its obligations. Franchisees pay an entry fee and royalties, and they are entitled to seriousness in return. This is the fifth of a French franchisor's obligations, and it has two faces: an obligation of seriousness and an obligation of competence. On the first, a French court has held a franchisor at fault where its communication, meant to project an irreverent concept, turned out to be more vulgar than anything else and, in a provocative tone, triggered negative reactions — a contractual fault in its own right.

The obligation of competence is perhaps only an outgrowth of the franchisor's duty to transmit a competitive advantage, but it stands on its own. The franchisor is by definition the specialist of its concept. It holds all the information capable of maximising the exploitation of its know-how. As a professional endowed with the appropriate skills and resources, it undertakes to respond without delay to the legitimate expectations of its franchisees. Concretely, that means:

• delivery without delay of products conforming to the franchisees' orders;
• supply of attractive products, adapted and conforming to what the customer base expects;
• provision without delay of the figures and the economic and legal information useful to running the outlets efficiently;
• and, more generally, keeping the economic model it chose to franchise operative at every moment and for each member of the network.

The reason this obligation matters so much is its direct effect on the franchisee's bottom line. The franchisor is liable in contract at the slightest failure, all the more so because that failure bears directly on the profitability of the network's units. A franchisee cannot accept the slightest stock-out, the slightest wobble in the replenishment of its products — especially the brand's best-sellers, or the most commonly bought clothing sizes — nor the slightest inertia of the central purchasing function in sourcing the products best adapted to consumer taste and most competitive on the market. The franchisor must put its competence at the service of the profitability of the network and of its franchisees' outlets, always placing them in a position to enjoy a real competitive advantage on the market. Profitability is not an incidental hope in a franchise; the Cour de cassation has treated the expectation of gain as a determining element of the franchisee's consent, so a franchisor that compromises its partner's profitability departs from its very mission.

Coherence and homogeneity: the sixth of a French franchisor's obligations

Because it belongs to a network, the franchise also calls for a certain homogeneity, and this is the sixth of a French franchisor's obligations. Franchisees are, and must be, lodged under the same banner: identical treatment must in principle be afforded to them. It is the uniformity and common identity of the network that characterise the franchise. No discrimination, therefore. The requirement flows from the most elementary loyalty, and any difference in treatment must be justified by objective reasons. A franchisor who grants better terms to one franchisee than to another, without an objective basis, breaches the duty of coherence.

The same rule applies where the franchisor also develops its network through its own branches. Franchisees must not suffer unfair competition from more favourable pricing granted to the franchisor's own outlets. In the same spirit, a franchisor may not focus its advertising to the sole benefit of its branches. Franchisees cannot be treated as mere shop windows — show-rooms, as they are sometimes called — carrying the costs of a physical outlet while the profits are steered to the franchisor's own units. This is, again, a question of loyalty.

Coherence is also the thread that ties the earlier duties together. A franchisor that acts as a referencing centre must prove it has performed its duty of diligence and rendered account of the rebates it obtained; a franchisor that promotes the network must do so for all of it, not for its own outlets; a franchisor that polices the concept must apply the standard evenly. Read with Article 1104, the sixth obligation asks a simple question of every decision the network head takes: does it serve the network, or only the head of it?

Frequently asked questions about a French franchisor's obligations

What are the six core obligations of a French franchisor?

A French franchisor owes six essential obligations: to transmit and update a know-how (savoir-faire); to make available and protect the network's distinctive signs, above all the trademark; to provide continuous commercial and technical assistance; to promote and police the network's image with transparency on the advertising royalty; to act with diligence and competence, delivering on time and supplying useful data; and to maintain coherence, treating franchisees equally without discrimination. The first three are the familiar trio; the last three are equally fundamental and often overlooked.

Do these franchisor duties in France apply if the contract does not mention them?

Yes. Under Article 1194 of the Civil Code, a contract binds the parties to all the consequences that equity, usage and the law attach to it according to its nature. Assistance, for example, has been held to be an essential obligation of the franchisor independently of any specific clause. A franchisor cannot escape these duties by leaving them out of a standard-form contract, and any doubt in a franchisor-drafted contract is interpreted against the franchisor.

What happens if a French franchisor has no rights over the trademark?

The contract is null. Making the distinctive signs available is an essential obligation, and the franchisor must hold, secure and renew its rights over them. Where the franchisor has no rights at all over the signs it purports to license, the whole franchise contract falls. This is why verifying and securing the French trademark is a precondition to franchising, not an afterthought.

Is site selection part of a French franchisor's obligations?

It can be. The location of the outlet — its geographic situation, catchment area and competitive environment — is treated as an element of the know-how. A franchisor holding the data on what makes a site viable cannot always shelter behind the franchisee's "freedom of choice" where a poor location it should have flagged precipitated the franchisee's ruin. French courts have accepted this reasoning.

Can a franchisee withhold royalties when the franchisor breaches?

Yes, within limits. The assistance obligation is one of means, so the franchisee must prove the breach. Once proved, it may raise the defence of non-performance, seek specific performance or damages, obtain a reduction of its royalties, or seek resolution of the contract. For advertising royalties applied to non-advertising ends, it may seek sequestration of the sums and suspend payment. A franchisee should react promptly, because prolonged inaction can be held against it.

What must a franchisor disclose about the advertising royalty?

A franchisor that charges an advertising royalty should account regularly for how it is spent, because advertising royalties must be applied to advertising expenditure and, used otherwise, mask an unjustified enrichment. Where the franchisor also negotiates with the network's suppliers, it acts as a broker and must render account — restoring sums received and informing the franchisee of the steps taken — and trade secrecy cannot be used merely to withhold a document the franchisee needs to check performance.

How does breach of the diligence obligation affect a franchisee?

Directly and financially. The franchisor must deliver conforming products without delay, keep an attractive and adapted assortment, and supply the economic and legal data useful to running the outlets. Because these failures bear directly on the profitability of the network's units — and the expectation of gain is a determining element of the franchisee's consent — a stock-out on a best-seller, a stale assortment or withheld data is a contractual fault that engages the franchisor's liability.

Must a franchisor treat all franchisees equally?

In principle, yes. The uniformity and common identity of the network require identical treatment, and any difference must be justified by objective reasons. The duty extends to the franchisor's own branches: franchisees must not face unfair competition from more favourable pricing granted to those branches, and the franchisor may not steer its advertising to the sole benefit of its own outlets. This is a matter of loyalty under Article 1104 of the Civil Code.

Key takeaways on a French franchisor's obligations

How our French lawyers can help with a French franchisor's obligations

Whether you are a foreign brand building a French network or a franchisee who suspects the head of the network is not holding up its end, these six obligations are where most franchise disputes are decided. We audit franchise agreements against the standard French law actually imposes — not the three duties the template recites, but all six — and we identify the gaps between what your contract says and what a French court will read into it. For franchisors, we secure the front end: the state of the trademark and the distinctive signs, the know-how manual and its confidentiality measures under the trade-secret regime, the assistance and reporting mechanics, and the coherence rules that keep a mixed franchise-and-branch network out of trouble.

For franchisees, we assess whether a breach of assistance, diligence, publicity or equal treatment has occurred, quantify its effect on your profitability, and pursue the appropriate remedy — a reduction or suspension of royalties, damages, sequestration of misapplied advertising sums, or termination at the franchisor's fault.

This article is for general information only. It does not constitute legal advice. The scope of a French franchisor's obligations turns on the specific contract, the network structure and the facts of performance. Contact our French lawyers for qualified advice before signing, drafting or acting on a franchise agreement in France.