Goodwill Indemnity due to the Master Franchisee and/or to subfranchisees in case of Contractual Termination by the Master Franchisor 2012 IDI Annual Conference - Venice

CHAIRMAN: Luciana Bassani Dannemann Siemsen Advogados, Rio de Janeiro; IDI country expert for franchising (Brazil) PANELLISTS: Hikmet Koyuncuoglu Koyuncuoglu & Koksal Law Firm, Istanbul Horst Becker Ariathes Rechtsanwälte, Munich

Specific franchise regulation dealing with goodwill indemnity by the end of the master franchise or subfranchise agreements? MAIN ASPECTS TO BE VERIFIED

Similar legal provisions for agency agreements or distribution agreements that could be applicable by analogy to compensate the goodwill? ANALOGY

Legal basis -not goodwill -compensation for loss of benefits deriving from a clientele created by franchisee/ master franchisee Application of art. 89 b German Commercial Code (GCC) by analogy INDEMNITY IN GERMANY

Provisions of art. 89 b GCC Analogous application to other distribution intermediaries, exclusive dealers in particular Analogous application to franchisees and master franchisees INDEMNITY IN GERMANY

Loss of income because of loss of clientele Continuing advantages from the clientele for the principal Provision strongly based on equity reflections HISTORY AND PHILOSOPHY OF ART. 89 B GCC

Benefits for the principal deriving from the clientele brought by the agent Loss of commissions for the agent Elements of equity CONDITIONS

Hypothetical analysis of the commissions, the agent would have earned with the clientele Upper limit: one year‘s commission CALCULATION

Termination by agent without good cause Termination by principal for cause EXCLUSION OF INDEMNITY

Art. 89 b GCC may not be excluded before the end of the contract International mandatory Circumvention by choice of law and/or choice of jurisdiction prevented MANDATORY CHARACTER

Decision of German Supreme Court of 3 May 1983 Integration in principal‘s sales organisation Transfer of clientele to principal ANALOGOUS APPLICATION TO AUTHORISED DEALERS

Integration in sales organisation is not a problem Crucial requirement: transfer of clientele to franchisor No certainty concerning the basis of calculation ANALOGOUS APPLICATION TO FRANCHISEES AND MASTER FRANCHISEES

Not regulated under current Commercial Code Supreme Court Decisions only for Agencies No definition of a Franchise Contract in the legislation but Supreme Court Decisions INDEMNITY UNDER TURKISH LAW

Not regulated under current Commercial Code Supreme Court Decisions only for Agencies No definition of a Franchise Contract in the legislation but Supreme Court Decisions INDEMNITY UNDER TURKISH LAW

Is it common for Courts to rule in favor of master franchisees or subfranchisees upon expiration or termination of their respective agreements in order to specifically grant them compensation for goodwill? CASE LAW

The most valuable intangible asset – the trademarks – for attracting clientele, normally belongs to franchisors. Which aspects or circumstances do the Courts normally verify to grant such compensation? CASE LAW

Not regulated under current Commercial Code Supreme Court Decisions only for Agencies No definition of a Franchise Contract in the legislation but Supreme Court Decisions INDEMNITY UNDER TURKISH LAW

Art. 124 of the new Commercial Code to be entered into force as of Regulated for agencies – analogous application to distributors Characteristics of the franchise contract shall be analysed under such content INDEMNITY UNDER TURKISH LAW

i.the terms of the master franchisee agreement; ii.if the franchisor is the owner of a well-known trademark; iii.if the case involves a service franchise or a product franchise system; ASPECTS POSSIBLY CONSIDERED TO GRANT COMPENSATION

iv.if the franchise chain was started and developed in your country due to the particular effort of a master franchisee; v.if the agreement stipulates that the goodwill solely belongs to the franchisor, is it likely that the Courts would rule otherwise, granting such compensation? (pacta sunt servanda X unfair enrichment) ASPECTS POSSIBLY CONSIDERED TO GRANT COMPENSATION

vi.exclusivity and post-termination non- competition covenants could also be taken into consideration for such rulings? vii.criteria, if any, applied by the Courts to determine the percentage of goodwill that rests to each contractual party? Comparison made between master franchisees and subfranchisees of similar areas? ASPECTS POSSIBLY CONSIDERED TO GRANT COMPENSATION

a)the term of the master franchise agreement has simply expired or the franchisor is refusing to renew; b)termination due to master franchisor’s breach; c)termination due to franchisor’s breach; THE BEHAVIOR OF THE PARTIES

d)insolvency of the master franchisor; e)the amount of effort expended by the master franchisor; f)customer referrals by the master franchisor to the franchisor. THE BEHAVIOR OF THE PARTIES

THANK YOU VERY MUCH! Hikmet Koyuncuoglu Horst Becker Luciana Bassani