Most franchisors operating internationally will be aware that there is a statutory disclosure requirement in France pursuant to the Loi Doubin.

This law applies to contracts which have the following combined elements:

one of the parties is granted the use of a trade mark, trade name or shop sign; and
one of the parties commits to exclusivity or quasi-exclusivity.
In the event that the conditions are met, certain disclosures must be made thirty days prior to the execution of the franchisor licence agreement. The disclosures include the following items:

the address of the franchisor and the nature of its activities and the identity of its CEO
the corporate registration details and details about the trade marks
bankers’ details
details of the franchisor’s history over the preceding five years and a presentation of the general state of the market in respect of the products or services which are subject to the contract as well as the prospects of development of this market. The annual accounts in respect of the last two financial years must be annexed to this part of the document and public companies must exhibit the report established during the last two financial years; and
details of the franchise network, which must include information about franchisees, the agreement and so on.
The document must also give full details as to the size of the required investment.
The market report and analysis can be an onerous and time consuming requirement, particularly for foreign franchisors. As a rule it is the French master licensee who knows the French market much better than the foreign franchisor. Accordingly, the franchisor has to spend resources and money to retain a third party to prepare the market analysis for it. Another factor which can cause problems is the thirty day waiting period. On many occasions the parties are not willing to wait one month before they commence doing business and in some cases, customers or sub-franchisees which have already been lined up may lose interest if there is significant delay.

How can the Doubin law be avoided?

In an international master franchise agreement there are good arguments to suggest that the Doubin law does not apply where the international master franchise agreement is subject to English law. Whilst the Doubin law is generally viewed as a mandatory law, it is not thought that it applies where one of the parties is foreign and where the parties have agreed that their contractual relationship should be governed by foreign (for example, English) law. The Paris court has recently decided that as between a Spanish and a French party, the Doubin law did not apply. This was despite the fact that the contract was to be performed in France because the parties had chosen Spanish law as the governing law of the contract. This decision is very helpful for foreign franchisors as it gives them a possible escape route from the onerous and technical obligations imposed on them by the Doubin law in respect of a market that they may know very little about.

It has to be said that the French Supreme Court could overrule the decision which we are citing so there is no absolute certainty that this solution will work in all cases.

Semi-exclusivity

Another possible argument to avoid the Doubin law is that of semi-exclusivity. In order for the Doubin law to apply it is thought that the majority of the business activity of the French licensee must be affected by its exclusivity obligations. Whilst this is often so in a franchise context it is not always the case. In particular, it is not the case where the franchisee has an existing business to which it adds the franchisor’s business model. This could apply, for example, where the operator of an existing food court already owns four different fast food brands and then acquires the rights to operate a fifth brand in that food court.

The consequences of non-compliance

There is of course a certain risk that the above arguments might not convince a French court. However, the risk is not as great as many have been led to believe in the past. Firstly, non-compliance with the Doubin law does not automatically make the agreement null and void. The agreement will only be declared null and void if the franchisee can demonstrate that it would never have entered into the franchise agreement if a full Doubin law disclosure had been made. A franchisee would, for example, have to show that if it had been provided with a proper market study, it would have been apparent that the concept was going to be a failure in France. This burden of proof is difficult to discharge.

Furthermore, if the agreement is declared null and void, the franchisee would simply be entitled to be put in the position that it was in prior to the agreement. It is not entitled to any loss of profits. It would simply receive back any franchise fees and royalties together with wasted expenses. Any benefits derived from the agreement by the franchisee would be deducted.

Waiver solution

It may also be possible for the parties to waive their right under the Doubin law. However, this can only be done after execution of the agreement, not before. The reason is obvious. The law is in place to protect the franchisee and the franchisor should not use its leverage to force the franchisee to forgo this protection. However, in a situation where a large corporate French master franchisee is involved or in a situation where the parties both wish to avoid the Doubin law for reasons of time pressure it may well be appropriate that a release is signed by the franchisee a day after execution of the agreement.