Noerr LLP

Dusseldorf

Noerr is a pan-European full-service firm with over 500 lawyers, tax consultants and business consultants across 16 offices in Germany, Central and Eastern Europe, Spain, the UK, and the US. Founded in 1950, the firm is widely recognized for providing its clients with interdisciplinary advice and quality services responsive to the needs of its national and international clients. Noerr’s professionals share high standards, a commitment to excellence and collaboration, and a passion for helping their clients succeed, resulting in trusted relationships and a record of high achievement.

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Updates

Company & Commercial

Share transfers and company exits
Russia | 24 September 2018

There are a number of restrictions on share transfers in Russia which companies should bear in mind. In addition, companies should be aware of the laws regarding whether minority shareholders can alter or restrict changes to share capital structures, when shareholders must notify changes to their shareholding to a regulatory authority and whether companies can buy back their shares. A number of restrictions also exist with regard to exiting a company.

Interested party and material transactions
Russia | 19 March 2018

Transactions of Russian joint stock companies and limited liability companies require the consent of the general meeting or the board of directors if they qualify as material or interested party transactions. As the non-observance of the relevant requirements may be grounds for contesting these types of transaction, they should be observed not only by shareholders and members of the corporate bodies of the respective companies, but also by persons that wish to enter into such transactions with these companies.

Contract drafting: right to terminate or amend contracts and fulfilment of payment obligations
Russia | 15 May 2017

The Supreme Court recently clarified parties' right to terminate a contract unilaterally (ie, the 'right to unilateral refusal of performance' in Russian terminology) or amend a contractual obligation unilaterally. The court also clarified the requirements regarding the fulfilment of payment obligations, including with regard to bank transfers, currencies and interest in the event of a default, among other things.

New law allows legal entities to request information from shareholders to identify beneficial owners
Russia | 10 April 2017

Russian law continues to develop with respect to the disclosure of beneficial owners of Russian businesses. New provisions came into force at the end of 2016, which require all Russian legal entities to take reasonable and available steps to identify their beneficial owners and disclose them on request, among other things. For this purpose, the law expressly entitles a Russian legal entity to request information from its shareholders, as well as from other persons who in any way control the entity.

Deadline and requirements for annual general meeting of shareholders in Russian legal entities
Russia | 27 March 2017

The statutory deadline for holding the annual general meeting of a Russian limited liability company (LLC) is April 30 2017. The meeting must approve the annual results of the LLC's activities – in particular, its annual financial statements as of December 31 2016 and its 2016 annual report. Violation of the deadline or any formal requirements may result in administrative fines. The deadline for holding the annual general meeting of a Russian joint stock company is June 30 2017.

Supreme Court clarifies Civil Code amendments regarding compensation for damages and contractual penalties
Russia | 03 October 2016

In March 2015 and July 2016 amendments to the Civil Code were introduced regarding compensation for damages and contractual penalties. In March 2016 the Supreme Court provided its interpretation of the March 2015 amendments. Together, they should make damages claims easier to assert, clarify the limitations of liability, define the criteria for the reduction of penalties and establish contractual means of protecting creditors against loss and damages.

Equity financing in joint stock companies: shareholder contributions to assets
Russia | 01 August 2016

Amendments to the Federal Law on Joint Stock Companies recently came into effect, allowing shareholders to finance joint stock companies (JSCs) safely by means of so-called 'contributions to assets'. Voluntary contributions can be made via an agreement between the relevant shareholder and the JSC. Alternatively, a non-public JSC's articles of association can stipulate that the shareholders' meeting can impose an obligation on shareholders to make contributions.

Corporate housekeeping: annual meeting of shareholders and participants
Russia | 21 March 2016

The statutory deadline for holding the annual general meeting of a Russian limited liability company (LLC) will expire on April 30 2016. The annual meeting must approve the annual results of the LLC's activities – in particular, the annual financial statements and the annual report of the LLC as of December 31 2015. Violations of the deadline or the formal requirements may result in significant administrative fines.

Alienation and pledge agreement of shares in limited liability companies
Russia | 07 March 2016

The Federal Law on Limited Liability Companies was recently amended. Among other things, a share in a limited liability company can now be alienated in order to exercise the option to conclude a contract by way of separate notarisation of the irrevocable offer and subsequent notarisation of the acceptance. The timeframe in which share pledge agreements must be filed with the registering authority has also been shortened.

Beneficiaries' duty of disclosure
Russia | 25 January 2016

According to a draft bill introduced by the Federal Service for Fiscal Monitoring, legal entities will be obliged to maintain, document and disclose information on their beneficiaries and measures instigated by beneficiaries on the request of authorised bodies (as defined by the government). The bill obliges companies to record such information, store it for five years and update it annually.

Supreme Court position on application of Civil Code
Russia | 09 November 2015

The plenum of the Supreme Court recently issued a resolution on the application and interpretation of the general provisions of Part 1 of the Civil Code. The resolution addresses a number of issues regarding the use of customary practice, the registration of real estate objects and notes of objection, the validity of contracts, the resolution of meetings and representation and power of attorney.

Reform of notary system
Russia | 28 September 2015

A draft bill on the notary system and notarial services has been introduced in the State Duma. The draft bill is intended to replace the framework legislation on the notary system which is currently in force and proposes substantial amendments, including the introduction of a new system of liability for damages caused by the actions of notaries and other persons involved in notarial activities.

Recent civil and company law developments
Russia | 20 July 2015

Draft legislation recently submitted to the State Duma includes proposed amendments to the Civil Code which seek to establish different kinds of liability for violations of monetary and non-monetary obligations, as well as a bill to reduce the timeframe for state registration of legal entities and individual entrepreneurs.

Latest Civil Code amendments: impact on finance transactions
Russia | 29 June 2015

During the past couple of years significant steps have been taken to modernise Russian commercial legislation, in particular the Civil Code. As part of these efforts, Federal Law 42/2015 recently entered into force. The law amends the Civil Code provisions regarding obligations and contract law and aims to implement certain foreign legal concepts used in practice in Russia-related finance transactions.

Supreme Court rules on abuse of rights
Russia | 05 May 2015

The Supreme Court has held that an abuse of rights committed when entering into a transaction is a breach of the Civil Code, and that for this reason, the transaction should be declared invalid. Notably, the Supreme Court had previously pointed out that such an abuse of rights should not constitute grounds for declaring a transaction invalid.

Supreme Arbitrazh Court clarifies effects of rescission of contracts
Russia | 20 October 2014

The Supreme Arbitrazh Court has clarified that the effects of rescission of a contract, other than those provided by law, may be stipulated in an agreement between the parties with consideration of the restrictions imposed on the freedom of contract. The court pointed out that on rescission, the debtor's obligations will be terminated, with certain exceptions.

Civil Code amendments on legal entities: companies start new life
Russia | 08 September 2014

More amendments have been introduced to the Civil Code regarding legal entities. One novelty is that all legal entities will be classified as either corporations or unitary enterprises. Corporations include legal entities in which shareholders have corporate interests, while unitary enterprises include legal entities whose founders have ownership interests in such legal entities' property.

New accreditation procedure for branches and representative offices
Russia | 16 June 2014

In 2015 a new procedure for the accreditation of branches and representative offices of foreign companies will enter into force. Accreditation will be carried out by an official body authorised by the government. The law introducing the procedure also stipulates new grounds for termination of accreditation of representative offices and branches in accordance with the decision of the accrediting body.

New rules on freedom of contract improve civil law
Russia | 14 April 2014

The Supreme Arbitrazh Court recently enacted new rules for the interpretation of freedom of contract by Russian arbitrazh courts. The new rules constitute an important step forward in the process of conforming the Russian legal system to Western standards. Among other things, the resolution provides that the courts should consider legislative intent in interpreting the law applicable to the contractual parties.

Further Civil Code amendments affecting international private law
Russia | 27 January 2014

Further revisions to the Civil Code have introduced significant changes to the provisions governing transactions involving a foreign element. Among other amendments, company law now governs the liability of a legal entity's founders and members for its obligations, while the form of a transaction is now subject to the law governing the transaction itself (rather than the law of the jurisdiction in which it was executed).

Supreme Arbitrazh Court clarifies director's liability for company losses
Russia | 02 December 2013

The Plenum of the Supreme Arbitrazh Court has clarified certain matters associated with compensation for loss resulting from defaults by directors. The court listed circumstances that must be proven to find a director's actions unfair and also noted cases in which a director can be found to have acted unreasonably in undertaking a transaction.

New Civil Code amendments signed into law
Russia | 10 June 2013

A law containing several significant amendments to the Civil Code was recently signed into law by the president. Among other things, the new law regulates the delivery of 'legally significant notifications', imposes restrictions on the challenge of bad-faith transactions, introduces the concept of an irrevocable power of attorney and stipulates new requirements regarding the statute of limitations.

Recent developments in company law
Russia | 20 May 2013

Recent months have seen several developments affecting company registration and organisation. Among other things, a bill has been introduced imposing stricter penalties on compa­nies located at an address other than that specified in the Unified State Register of Legal Entities, significant amendments relating to associations are now in force and a new form of non-profit legal entity has been proposed.

Bill highlights inadequate legal protection in commercial transactions
Russia | 29 April 2013

A bill to amend the Civil Code contains important provisions to improve the protection of good-faith legal activity. However, despite these proposed improvements, legal protection under Russian law still has many gaps with regard to commercial transactions. For this reason, an investigation of the rights of contracting parties through thorough due diligence is indispensable in major investment projects.

Court specifies conditions for fulfilment of paid services contracts
Russia | 24 September 2012

In considering a particular dispute, the presidium of the Supreme Arbitrazh Court has held that the parties to a paid services contract may specify the obligations of the service provider to be both the fulfilment of certain actions and the provision of particular deliverables connected with those actions (eg, contracts, applications or other documents) to the customer.

Corporate Russia awaits key guidance on LLC shareholder exclusion
Russia | 11 June 2012

A shareholder in a Russian limited liability company (LLC) can ask the courts to exclude another shareholder if the latter is in severe violation of its duties or impedes the LLC's activities. The Supreme Arbitrazh Court is due to give guidance on certain key issues, including whether shareholders can be excluded for causing damage while acting in another capacity, and whether the size of a shareholding affects exclusion.

Changes to corporate legislation amend protection of creditors' rights
Russia | 16 January 2012

A new law amends the rights of creditors of limited liability companies in connection with a reduction in the company's charter capital. These rights are significantly restricted and are more consistent with the provisions of the Law on Joint Stock Companies. However, a potential creditor may now, at any time, request information from limited liability companies and joint stock companies on their net asset value.

Franchising

Requirements for interim injunction to enforce obligation to operate business
Germany | 06 February 2018

The Bochum Regional Court recently looked at whether a franchisee's contractual obligation to operate a business can be enforced by way of an interim injunction. To grant an interim injunction to enforce the obligation to keep the business open, it must be demonstrated that the franchisor faces serious losses at least equivalent to a threat to its survival or to drawbacks that cannot later be remedied.

No compensation claim for franchisee where franchisor must block customer data when agreement terminated
Germany | 24 October 2017

The Federal Court of Justice recently ruled that an authorised dealer, such as a franchisee, has no compensation claim in analogous application of the regulation governing sales representatives contained in the Commercial Code if the franchisor is contractually obliged to block the customer data provided to it by the franchisee, to discontinue using it and to delete it at the request of the sales intermediary when the contract is terminated.

Making life easier for franchise operators: modernisation of legislation
Russia | 27 June 2017

In recent years, the commercial titles of the Civil Code have been aligned more closely with international commercial practices and the Russian courts have been enforcing these new standards. These improvements are noticeable in the area of franchise law. Because these statutory provisions are new, franchisors should check the latest court decisions for additional guidance before structuring transactions based thereon.

No significant obstruction to advertising franchise systems
Germany | 04 April 2017

The Federal Court of Justice recently criticised a franchising advertising flyer in terms of competition law. One interpretation of this judgment is that it makes the advertising of franchise systems significantly more difficult. However, this point of view does not ultimately do justice to the decision, as the judgment does not fundamentally question the typical advertising of franchise systems.

Adequate substantiation of franchise and marketing fees in arrears
Germany | 07 March 2017

A Brandenburg Higher Regional Court decision regarding the payment of franchise and marketing fees in arrears shows the importance of a substantiated presentation of a claim, as well as the importance of accurate, transparent and comprehensible billing by franchisors. The court could not ascertain whether there were unpaid franchise or marketing fees, as the franchisor failed to present sufficient facts demonstrating the exact amount of the franchise and marketing fees in the respective timeframes.

Federal Supreme Court decision complicates franchisor advertising on behalf of franchisees
Germany | 14 June 2016

The Federal Supreme Court recently ruled that a franchisor's supplement containing prices stipulated as being "non-binding recommendations" obtainable only "in participating markets" constituted an act of unfair competition as the disclaimer was insufficient. The judgment raises questions about disclaimers, franchisor advertising obligations and whether franchisors are prohibited from enlisting franchisees to participate in a promotion.

Franchising and insolvency
Germany | 08 March 2016

Sometimes a franchisee can no longer pay some or all of the price of goods purchased from the franchisor, the rent for the premises or the franchise fees. Deferrals or instalment agreements may be among the solutions. But what happens if the concessions of the franchisor or the efforts of the parties are inadequate and the franchisee falls into insolvency?

Protection of confidential know-how
Germany | 29 September 2015

Franchise systems work based on the handover of know-how from franchisor to franchisee. To protect know-how, the franchisor can impose confidentiality obligations on the franchisee, even after the franchise agreement has ended. Methods of know-how protection should be dealt with in franchisee training in order to create awareness throughout the franchise system.

Termination of franchise agreements without notice
Germany | 26 May 2015

The Munich Higher Regional Court recently dealt with a case of termination without notice due to breaches of a franchise agreement by a franchisee. The court dismissed the franchisee's claim since the termination was ultimately valid. The court concluded that each individual breach did not justify termination without notice; only on considering all breaches together did termination without notice appear defensible.

Franchisee has no right to compensation
Germany | 24 March 2015

A commercial agent has a right to compensation at the end of a contract for the customer base it has established. The Federal Court of Justice has yet to clarify whether this applies analogously to franchisees – although it recently confirmed that franchisors will no longer be exposed to such a claim if their agreements do not contain an obligation to assign the customer base and such an obligation does not arise from other circumstances.

'Available only in participating outlets' notice inadmissible?
Germany | 18 November 2014

An advertiser must display its identity on advertisements. Most advertisements do not have the space to list numerous franchisees and for this reason, supra-regional advertising by franchisors usually carries a footnote. According to the Dusseldorf Higher Regional Court, a footnote may breach the Act against Unfair Competition because the advertising does not list the identity of all participating dealers.

Compulsory pension insurance for franchisee as self-employed with employee-like status
Germany | 19 August 2014

Every franchisee independently markets the franchise as a self-employed businessperson. This applies irrespective of the legal form that the franchisee selects for operating the franchise. The Regensburg Social Court recently considered whether a franchisee operating as a real estate agent was subject to statutory pension insurance contributions as a self-employed agent in accordance with the Social Code.

Pre-contractual franchisor disclosure obligations
Germany | 29 April 2014

A landmark higher regional court judgment from 2011 provides crucial guidance on the form and extent of a franchisor's obligation to disclose the profitability of its franchise system. The court had to consider whether the franchisor had satisfied its pre-contractual disclosure obligations when presenting profitability projections to a prospective franchisee.

Contractual and statutory limits to competition by former franchisees
Germany | 11 February 2014

A higher regional court recently questioned the extent to which unfair imitation arises if a franchisee continues to operate a franchise restaurant with an identical range of products, but under another label and colour concept. The court decided that the continuation of the defendant's sandwich restaurant at the same location under the name 'fresh!' was not prohibited as a hindrance to fairness.

Contractual right of withdrawal
Germany | 03 September 2013

The Dortmund Regional Court recently held that statutory prerequisites regarding proper instructions apply to a contractually agreed withdrawal right; it made clear that before entering into a franchise agreement, it should be determined whether the franchisee has a right of withdrawal. If it is standard practice to include instructions on exercising a right of withdrawal in every agreement, these must comply with statutory requirements.

Franchisor's breach of obligation to provide information
Germany | 04 June 2013

Franchisors must observe statutory information obligations when advertising. A reference to the franchise trading name entered in the Commercial Register and the address of the management headquarters must be provided, even if the advertised products are not sold there. Failure to state this information is a breach of competition law and the franchisor risks a warning.

Can sub-franchise continue once master franchise agreement is revoked?
Germany | 15 January 2013

The Federal Court of Justice recently held that that the expiry of a main copyright licence agreement does not lead to the expiry of the related sub-licences. The question is whether and to what extent this also applies to master franchising. Under a master franchising system, the franchisor concludes a master franchise agreement with a master franchisee, which is given the right to grant sub-franchises.

Claim for information based on suspected breach of non-compete clause
Germany | 18 September 2012

A contractual non-compete clause in a franchise agreement was at the centre of a case before the Dusseldorf Higher Regional Court. Its decision concerns the prerequisites for a franchisee's claim to information where it has reasonable suspicion of its franchisor having breached a contractually agreed non-compete obligation, and the right to claim damages from the franchisor.

Court assesses contractual obligation to protect franchisee against competition
Germany | 19 June 2012

The Dusseldorf Higher Regional Court recently ruled that a contractual duty of protection against competition on the part of the franchisor can arise only if the financial survival of the franchisee is at sustained risk due to competing activity. The court explicitly left open the question of whether the franchisor has a contractual obligation to protect against competition over and above the contractual provisions in principle.

No right to information on supplier rebates without contractual basis
Germany | 03 April 2012

Whether supplier rebates received by a franchisor are passed on to franchisees is a subject of practical importance in franchising. The Federal Court of Justice had previously ruled that a franchisor is not obliged by law to pass on these benefits to franchisees, except in cases where such an obligation has a contractual basis within the franchise agreement. The Dusseldorf Higher Regional Court recently confirmed this.

Contractual penalties: is an upper limit really necessary?
Germany | 13 December 2011

Contractual penalties are of great significance, especially in franchising. This is because losses arising from causes such as a breach of a non-compete provision or a confidentiality obligation relating to know-how are very difficult to quantify. The Erfurt District Court recently considered a contractual penalty clause and set strict criteria for its validity, in line with previous case law. In order for the clause to be valid, the court required penalties to be limited in cases of multiple breaches of the prohibition on competition.

No imminent competition protection without territorial protection
Germany | 06 September 2011

The Dusseldorf District Court recently dismissed a breach of good faith claim. While the ruling did not concern a franchise system, its reasoning may be extended to similar situations within franchise systems. The judgment is therefore significant for franchise systems, especially since there are few rulings on the topic of imminent competition protection.

De facto retention of customer base establishes no Section 89b claim
Germany | 31 May 2011

The Mönchengladbach Regional Court has held that a franchisee has no claim to compensation under Section 89b of the Commercial Code, analogously applied, if it is not contractually obliged after the end of the contract to transfer the customer base to the franchisor. The de facto retention of the customer base by the franchisor is not adequate to establish such an analogy.

Strict integration of franchisee does not establish employment relationship
Germany | 01 March 2011

The demarcation between the status of an employee and that of a franchisee determines which court has jurisdiction over disputes and whether labour law and social insurance law apply. In the commercial respect too, the demarcation can be significant for the franchisor, considering the social insurance law contributions which must be paid by the employer for its employees.

Strict integration of franchisee does not render agreement immoral
Germany | 23 November 2010

The Dusseldorf Higher Regional Court recently clarified in unexpectedly clear form that even a strict integration of a franchisee by contractual provisions which leave him or her only limited commercial discretion is not subject to any legal objection if these provisions are necessary, for example, for the maintenance of quality standards typical of the system.

Termination of franchise without notice on grounds of suspicion of a crime
Germany | 24 August 2010

The possibility of dismissing an employee without notice because he or she is suspected of a crime has long been acknowledged in German employment law, and these principles have often been applied to recurring contractual relationships in other areas of law. However, until recently the higher courts had not ruled on the application of the principles of dismissal on suspicion to franchising.

Franchisee's obligation to issue direct withdrawal authorization: advantages and risks
Germany | 27 April 2010

In light of a recent Federal Supreme Court ruling, a valid obligation to participate in the pre-authorized withdrawal method will be difficult to secure under general conditions. Measures to mitigate the unreasonable detriment to the franchisee of using the method are worth considering. The advantages of agreeing to use the pre-authorized withdrawal method should be weighed carefully against the associated risks.

Price recommendations and price monitoring in franchises
Germany | 13 April 2010

A Federal Cartel Office decision in which a company was found to have exerted pressure on its dealers in seeking to impose price stabilization measures has serious implications for franchisors. Parties exchanging information within franchise systems must bear in mind the broad interpretation of the term 'exercise of pressure' in the ruling, and internal communications should avoid the phrase 'price monitoring'.

Franchisor's liability for breaches of unfair competition law by franchisee
Germany | 13 October 2009

In general, a franchisor cannot be held liable for the actions of a franchisee. However, an important exception to this applies to competition law. The Federal Supreme Court recently held that a franchisor was liable for a franchisee's advertising practices in breach of competition law, despite the fact that the franchise contract clearly informed the franchisee that such practices were not permitted.

Franchising and Execution of Arbitration Awards
Germany | 21 July 2009

When agreeing upon the jurisdiction which is to apply to a franchise agreement, a review must be made as to whether that law recognizes a fairness test for general conditions of business. If that is the case, a remote place of arbitration should not be agreed so as to avoid problems with the recognition and execution of arbitration awards.

Termination of Franchise Agreements for Good Cause: A Sensitive Issue
Germany | 28 April 2009

When termination for good cause is invoked, it is often to end business agreements which have been projected into the long term. Furthermore, such agreements are often connected with major investments on the side of both parties. The law therefore sets out relatively onerous requirements that must be fulfilled before termination for good cause can take place.

Arbitration Clauses in Franchise Agreements
Germany | 20 January 2009

A recent decision highlights that if a franchise agreement to be concluded in Germany is to be made subject to a foreign law, the question of whether that law provides a fairness test for general conditions of business must be asked. If German law is applied, a place of arbitration which is far away and outside Europe should not be chosen.

Franchisees May Be Obliged to Pay Statutory Pension Contributions
Germany | 23 September 2008

For a long time it has been unclear whether franchisees are required to make statutory pension insurance scheme contributions. However, a recent judgment of the Berlin-Brandenburg State Social Court suggests that they may be required to do so if, despite the lack of a formal legal bond, they are financially dependent on mainly one principal.

Uniform Presentation and the Franchisor's Liability Risk
Germany | 08 July 2008

Externally a franchise system is perceived as a single business rather than as a group of legally independent entrepreneurs. However, it does not follow that the franchisor becomes contractually bound by contracts between the franchisee and the customer. The Federal Supreme Court recently dealt with a case which clearly illustrated the problem.

Purchasing Benefits in Franchise Systems: The Praktiker Case
Germany | 20 May 2008

Repayment systems are evident in many franchise systems. The suppliers to the system grant the franchisor discounts depending on the purchase volume from franchisees. In a recent decision, the Dusseldorf Higher Regional Court dealt with this issue with refreshing clarity and confirmed that the law does not oblige the franchisor to pass on any part of these benefits to the franchisees.

Online Sales within the Franchising Context
Germany | 29 January 2008

The provisions on internet sales found in franchise agreements vary considerably, ranging from a total ban to a partial restriction with qualitative requirements imposed on the franchisee's internet presentation. The Berlin Regional Court recently ruled on whether a manufacturer was entitled to prohibit the sale of goods by a distributor via an auction platform.

Franchise Agreements Held Void Due to Unreasonable Clauses
Germany | 30 October 2007

Franchise agreements which are based on model agreements deriving from foreign law frequently contain a considerable number of clauses which - although lawful in their country of origin - cannot be enforced under German law. If the court establishes a large number of unreasonable clauses the consequences can be dramatic: it could hold the entire franchise agreement to be against good morals and therefore invalid.

Exclusive Purchase Obligation under Review
Germany | 03 July 2007

Many franchise systems place an obligation on the franchisee to obtain some or all of its products from the franchisor or from suppliers designated by the franchisor. Such exclusive purchase obligations can restrict competition. A recent court decision has tightened the requirements governing the admissibility of a 100% purchase obligation lasting for more than five years in a franchise agreement.

Compensation Claims by Franchisees: New Case Law
Germany | 17 April 2007

A commercial agent may claim reasonable financial compensation from the enterprise for which it acted following termination of the commercial agency contract. There is initial agreement that a similar compensation claim can accrue to a franchisee against a franchisor, but whether the matter depends on an express contractual obligation to transfer the established clientele has not yet been clarified.

International Franchise Agreements: Choice of Law and Jurisdiction Clauses
Germany | 19 December 2006

A German court has held, with regard to a German-US commercial agency agreement stipulating the jurisdiction of the US courts in case of dispute, that the mandatory provisions on a commercial agent's claim for compensation under German law cannot be undermined by such a stipulation. This update examines the implications for franchise agreements.

Instruction on Right of Revocation: Still Unsafe Territory
Germany | 10 October 2006

The 2002 Federal Ministry of Justice model instruction on the right of revocation is not in line with the Civil Code. It is thus unclear whether the model instruction is invalid, with the result that, where it is followed, the franchisee will be considered not to have been properly instructed on the right of revocation. A regional court recently stated its opinion on this issue for the first time.

'Kickbacks' and Antitrust Law: The Praktiker Decision
Germany | 11 July 2006

In many cases franchisors receive purchase benefits from their suppliers in the form of price discounts (eg, rebates, quantity discounts, differential discounts) which are calculated according to the quantity of goods purchased by the franchisees. In recent years the question has arisen as to whether and to what extent the franchisor must pass on such benefits to the franchisee.

Admissibility of Direct Debit Authorization
Germany | 11 April 2006

Many franchise agreements authorize the franchisor to collect amounts due (eg, franchise fees) directly from the franchisee's account. This has many benefits for both parties. However, granting direct debit authorization to the franchisor within a franchise agreement must be judged according to the law on standard terms and conditions. Therefore, a direct debit authorization clause must be equitable.

Claims for Termination Compensation in Case of Franchisee's Insolvency
Germany | 20 December 2005

Under the Commercial Code, a commercial agent is entitled to claim compensation, once the commercial agency agreement terminates, for the benefits which the principal will continue to gain without having to pay commission to the agent. A court held that such a claim does not arise if the commercial agent or franchisee was insolvent prior to or at the time of termination of the agreement.

Consumer Protection for Franchisees Setting Up a New Business?
Germany | 16 August 2005

The Federal Court of Justice has ruled that a contracting party is deemed a businessperson at the time of the conclusion of the contract through which he or she takes up or prepares for his or her activities as a businessperson. The decision means that it is no longer necessary to observe the provisions on consumer protection when entering into a franchise agreement.

Promotion Campaigns and Price Fixing within Franchise Systems
Germany | 29 March 2005

A recent Federal Court of Justice decision indicates a new approach towards price fixing which is of great importance for promotion campaigns within a franchise system. It confirms that franchisors and franchisees can offer consumers a particular benefit in the form of additional free units of a product. However, a new implicit criterion of admissibility applies: the threshold of imperceptibility.

Franchisor's Pre-contractual Duty to Provide Information
Germany | 05 October 2004

In the wake of a recent regional court decision, franchisors are advised to disclose expressly to potential franchisees both the origin and the age of figures provided during contractual negotiations with regard to expected profits and profitability. An argument that there has been contributory fault on the part of the franchisee will not prevail in most cases.

Compensation of Franchisee upon Termination of the Franchise Agreement
Germany | 06 July 2004

Section 89b of the German Commercial Code entitles a commercial agent to compensation upon termination of the contract, since throughout the duration of the contract the agent builds up an established clientele which the principal can continue to use. Two German courts recently awarded such compensation to franchisees for the first time.

Franchiser's Obligation to Pass on Kickbacks
Germany | 23 March 2004

The Federal Court of Justice has ruled that a franchisor was obliged to pass on to its franchisees all purchase benefits it had negotiated for franchisee purchases in framework agreements with suppliers. It based this conclusion on the interpretation of a general contractual clause which required it to pass on all "benefits...in order to achieve the best possible business success".

Computerized Pricing Information Breached Competition Law
Germany | 25 November 2003

In a recent case the franchisor continuously sent its franchisees price lists and advertising material, and entered sales prices into a centralized IT system. Its communications failed to indicate that the prices given were non-binding recommendations. This practice was found to breach the provisions on pricing recommendations set out in German competition law.

No Right of Withdrawal for Franchisee Where Services are Obtained
Germany | 26 August 2003

Franchisees who are obliged to obtain services on a long-term basis will no longer be able to invoke a right of withdrawal, since this right has been rejected by Germany's highest civil court. Where a franchisee who assumes a recurrent obligation to obtain services nonetheless seeks to secure a right of withdrawal, this right must be expressly agreed by contract.

Repayment of Entry Fee for Early Termination of Franchise Agreement
Germany | 15 July 2003

The Higher Regional Court of Hamburg has considered whether a franchise entry fee must be repaid proportionately in case of early termination of the franchise agreement. If a franchisor wishes to avoid repayment, the entry fee must be designed so that it is paid only in consideration of the system development costs advanced by the franchisor.

Saving Clause May Not be Enough to Safeguard Validity of Agreement
Germany | 11 February 2003

When entering into a franchising agreement the parties can agree on a saving clause, which protects the validity of the agreement should one clause prove invalid. However, a new ruling now provides that the entire agreement will be found invalid, notwithstanding the inclusion of a savings clause, if one party can prove that it would not have been concluded without the invalid clause.

The Franchisee's Right to Revoke Franchise Agreements
Germany | 03 December 2002

Under German law a franchisee has the right to revoke the franchise agreement if it obliges him or her to buy goods from the franchisor on a regular basis. The franchisor must notify the franchisee of this right of revocation before the contract is concluded, and must meet certain strict requirements when doing so.

Courts Confirm Validity of Non-compete Clauses for Duration of Agreement
Germany | 24 September 2002

Two regional courts have confirmed that franchise agreements do not fall under EU rules which prohibit non-compete clauses of more than five years’ duration. However, the courts did not consider the possible invalidity of non-compete clauses that cover time periods lasting beyond the expiration of the franchise agreement.

The Franchisor's Duty to Protect Franchisees against Competitors
Germany | 02 July 2002

A franchisor is obliged to protect its franchisees against competition if the parties have explicitly agreed on territorial protection in the franchise agreement. However, where there is no such contractual obligation, case law suggests that the franchisee will rarely enjoy such protection.

Franchisor's Responsibility for Franchisees under Competition Law
Germany | 30 April 2002

A recent Federal Supreme Court decision has clarified the extent of the franchisor's responsibility for its franchisees under the Act against Unfair Competition. The court has ensured that the financial burden resulting from a franchisee's misconduct rests with the law-breaching franchisee, not with the franchisor.

The Standard Contracts Act's Application to Franchise Agreements
Germany | 12 February 2002

A German court has clarified that a party who concludes a franchise contract which marks the start of his or her entrepreneurial activity will be regarded as a merchant and not as a consumer. Thus, the stringent consumer protection provisions of the Standard Contracts Act will not apply to the franchise contract.

Liability for Non-fulfilment of Disclosure Requirements
Germany | 13 November 2001

Franchisors must refrain from providing misleading information on the success of their franchise and must disclose all associated risks in order to avoid subsequent damage claims. Information which implies that success is guaranteed may lead to liability on the basis of a breach of pre-contractual disclosure obligations.

Resale Price Fixing in Franchise Agreements
Germany | 12 September 2001

German law is very strict on the issue of resale price fixing. Franchise agreements that in any way restrict the franchisee's freedom to determine prices with respect to agreements entered into with third parties are prohibited, while even the recommendation of resale prices is forbidden for services or non-branded goods.

Termination of Franchise Agreements for Cause
Germany | 24 July 2001

Although there is no special provision governing the termination of franchise contracts without notice in Germany, court decisions confirm that such terminations are generally admissible. However, this may only be effective if there is an important reason for termination, especially in the case of long-term franchise agreements.

New Legislation on Right to Revoke Franchise Agreements
Germany | 06 February 2001

This update sets out the conditions under which a consumer is entitled to revoke a franchising contract, and how this may be effected.

Healthcare & Life Sciences

Taking advantage of patient data
European Union | 18 October 2017

Patient treatment and research creates a wealth of data. Given that health data is sensitive, reaping the benefits of data-based medicine brings particular challenges when it comes to data protection requirements. EU data protection law is currently based on the Data Protection Directive, among other things. This directive will shortly be replaced by the General Data Protection Regulation, under which data concerning health is subject to increased protection.

New law on professional secrecy for healthcare providers
Germany | 09 August 2017

Parliament recently passed a law revising the safeguarding of secrecy where third parties are involved in the exercise of professional duties by persons with a duty of confidentiality. The legislature responded to calls for a long-overdue reform and finally updated the criminal rules on secrecy for certain professionals. For the healthcare sector, this reform opens up a number of new opportunities for using the services of external service providers without facing the risk of criminal liability.

New rules on medical devices and in vitro diagnostic medical devices
European Union | 24 May 2017

The Medical Devices Regulation and the In Vitro Diagnostic Regulation, which the European Commission drafted following the Poly Implant Prothese breast implant scandal, were recently adopted. In particular, the Medical Devices Regulation strengthens market and post-market surveillance. The provisions require stricter assessment of product safety and clinical evaluations. In addition, the regulations cover previously unregulated aesthetic products.

IT & Internet

How to enter online consumer market without setting foot in Russia
Russia | 08 August 2017

For companies that are interested in entering the Russian market, but reluctant to establish a physical presence in the country, an online presence can be a viable alternative. The legal requirements for selling goods to Russian customers online are similar to those of other countries. In addition to complying with the mandatory requirements of Russian law, sellers should also make use of the benefits offered therein.

International Trade

Facilitation of rules regarding industrial assembly agreements
Russia | 13 January 2017

The industrial assembly rules, which provide for a customs rate of 0% for certain car components, were recently amended by a joint order of the Ministry of Economic Development, the Ministry of Trade and Industry and the Ministry of Finance. In particular, the amendments reduced the required percentages of local production and extended the terms for achieving particular percentages of local production.

Real Estate

New RETT rules for share deals
Germany | 06 July 2018

The Ministers of Finance of the Federal States recently agreed on new real estate transfer tax (RETT) rules for share deals. According to official press releases, a fundamental RETT reform that had been previously discussed was not agreed. Rather, the agreement consists of new RETT rules regarding share deals with a lower threshold, longer holding periods and aligning the rules that are applicable to corporations with those that already apply to partnerships.

Sale of real estate by special purpose vehicles
Germany | 20 April 2018

Transaction structures involving special purpose vehicles, whose main assets after completion of the purchase process consist only of the purchased real estate, are often chosen in Germany. Such structures are used in particular to shield from liability, so that third-party access to the special purpose vehicle's assets is limited. They are also used to facilitate a sale without incurring real property transfer tax for the exit.

Impending terminability of land use agreements for energy plants
Germany | 08 December 2017

The operation of energy plants usually means securing the required land long term by way of a use agreement. Prematurely ending a use agreement can substantially reduce the profitability of investments in energy plants. Defects in the written form of use agreements therefore constitute a risk for such investments. However, the Federal Court of Justice has decided that written form remedy clauses are invalid and do not prevent a contracting party from terminating a use agreement by invoking a written form defect.

Rental agreement termination for landlord's own use – new case law
Germany | 16 June 2017

A landlord can terminate a rental agreement for residential premises if he or she has a justified interest in ending the lease. Two recent Federal Court of Justice decisions provide clarification regarding a landlord's needs as grounds for termination. While the change in case law regarding the legal consequences of a breach of the duty to offer is welcome, the judgments also show that there is no one-size-fits-all answer to the question of whether termination due to a landlord's needs can be declared valid.

Benchmark for determination of compensation value for use of residential property
Germany | 17 March 2017

A residential landlord's right to compensation for use against a tenant who has been given notice of termination but not vacated the property in time is often of concern if the landlord demands compensation to the value of the rent customarily paid in the area. Until now, how to calculate this compensation precisely has been unclear. A recent Federal Court of Justice case has created legal certainty for those applying the law and has strengthened the interests of landlords.

Federal Fiscal Court clarifies trade tax implications of real estate investments
Germany | 17 February 2017

The Federal Fiscal Court recently clarified previously disputed issues on whether the lease of a shopping centre qualified as trade income or income from property administration. Surprisingly, the court also decided that marketing measures conducted by a centre manager are not detrimental for trade tax purposes, giving real estate investors much more flexibility for existing and future real estate investments in terms of ring-fencing trade tax exposures.

Real estate transactions with sellers outside Germany jeopardised
Germany | 11 November 2016

The sale of German real estate by companies or natural persons based outside Germany was recently made more difficult by the fact that the German tax authorities have obliged buyers to withhold and pay a lump sum of up to 25% of the purchase price for the account of the seller to secure the income tax incurred on the purchase price. This tax deduction can lead to the transaction failing if the purchase price is insufficient to cover both the seller's financing and the lump-sum tax deduction.

New rent control legislation – major impact on real estate investment market
Germany | 20 February 2015

The federal government recently published a proposal for tenancy law reform. The new rent control legislation will have a significant impact on prospective investors in the residential tenancy sector and investors are therefore advised to bear this in mind in their business and investment plans.