The Franchise Law Review: Czech Republic
The concept of franchising made its way to the then Czechoslovakia soon after 1989 when the fall of communism brought about the necessary political and economic changes. The opening of the Czech market to both domestic and international businesses led to the establishment of the first franchises, including the fast-food chain McDonald's (1991), the cosmetics shop Yves Rocher (1991) and the DIY retailer OBI (1995).
In 1993 the Czech Franchise Association (CFA), a non-profit professional organisation whose approximately 60 members include franchisors and various franchising specialists, lawyers and advisers, was established. The CFA is a member of the European Franchise Federation and the World Franchise Council.
Widespread expansion of the franchising model was, however, rather slow during the 1990s because of a variety of factors, including difficulty of access to external funding for small entrepreneurs, an underdeveloped legal system and foreign franchisors or investors' limited knowledge of the Central and Eastern Europe (CEE) markets, as well as Czech small to medium-sized businesses' lack of experience of international trade. This started changing around the time of the Czech Republic's accession to the European Union, in 2004, and after. This political development at the EU level contributed to the creation of a favourable environment for franchising, which has since progressed rapidly. Today, franchising is seen as a common business model with approximately 260 franchises being present on the Czech market. In 2017 there were 8,103 franchisees in the Czech Republic operating 6,262 own branches and 8,476 franchise outlets, which represents almost a doubling of the situation in 2012.2 While in the past there was a clear predominance of imported foreign concepts entering the Czech market through franchising, since 2011 franchising concepts originating in the Czech Republic have been in the majority. Among the most successful Czech brands are Husky and Bushman (both outdoor clothes), Benu and Teta (pharmacy and retail) and Fruitisimo and Bageterie Boulevard (both food).
The community of franchising professionals has also been growing. In 2006, the Czech Franchise Institute (which runs the Franchise Club) was established and, three years later, joined the International Franchise Association. The membership currently numbers around 100, making it the largest local franchising body. Other notable developments in the country include the publishing of an annual franchising report, since 2010, and since 2012 a dedicated quarterly magazine, Vlastní firma FRANCHISING. At present, there are over 300 franchise concepts operating in the Czech Republic, of which 59 per cent are Czech companies and 41 per cent are foreign companies.3
In general, there are no restrictions or approvals required in connection with foreign franchisors entering the local market. Obviously, there are some highly regulated sectors, such as defence, telecoms and gambling, but there are no limitations imposed specifically in connection with franchising.
Foreign entities that carry out business activities in the Czech Republic on a regular basis might need to set up a local establishment, whether in the form of a local subsidiary or a branch of the foreign entity, and must comply with the same rules that are applicable to domestic entities, such as acquiring the relevant trade licence and registering in the Commercial Register (although with respect to EU-based entities the latter requirement is disputed among legal commentators). Assessment of this requirement and ensuing obligations should ideally be made on a case-by-case basis and reflect the particular franchising model in question.
There are no general restrictions on a foreign entity granting a master franchise or development rights to a local entity. The terms of the respective agreements must, however, comply with the provisions of competition law.
There are no restrictions on foreign franchisors owning equity in a local business either.
ii Foreign exchange and tax
As far as foreign exchange is concerned, foreign persons (non-residents) can hold bank accounts in any currency and there are no restrictions placed on the import or export of capital. Repatriation payments can be made in any currency.
In general, the Czech tax system has been rather infamous for its complexity and for being rather burdensome for businesses. That said, most aspects of the local tax systems (including mutual assistance and administrative cooperation) stem from EU law. The main taxes include income tax, value added tax, real property tax, road tax (imposed on entities that use vehicles), excise duties and social security. The Czech Republic is party to over 90 double-taxation treaties. As far as withholding tax on royalties paid to non-residents is concerned, the standard rate is 15 per cent but can be 35 per cent if income is paid to a 'tax haven'. These rates can, however, be reduced under either a tax treaty or an exemption granted under the applicable EU legislation. Taxpayers from other EU or EEA countries may file a tax return at year end and deduct expenses related to royalty payments. From 2014, the Czech Republic and the United States cooperate on enforcement of tax duties under the terms of the US Foreign Account Tax Compliance Act.
i Brand search
The Czech Industrial Property Office (IPO CZ) keeps a database of trademarks and other intellectual property rights valid on the territory of the Czech Republic, whether national trademarks, European Union trademarks or international registrations. The database is available online (at www.upv.cz) and is a very useful tool for searching protected trademarks, similar brands and other intellectual property rights that may be relevant for franchises. The IPO CZ conducts research as part of its paid services, but it is perhaps more common to use the services of specialised law firms or trademark attorneys. The main reason for this is that searches should not be limited to the databases maintained by the IPO CZ. For unregistered brands, business names and the like, it is usually necessary to search in the relevant databases of legal entities (especially the Commercial Register), search among registered domain names, or simply carry out research on the internet. For some rights that may also be relevant, such as image rights, no research can be conclusive because copyright is an unregistered right in the Czech Republic. The results of searches should always be discussed with specialists who can carry out a risk assessment and provide advice on the best way forward.
ii Brand protection
Brand protection is typically obtained via registration of the relevant brand as a trademark by the IPO CZ or as a European Union trademark by the European Union Intellectual Property Office. Although Czech law contains tools to achieve protection of non-registered signs, it is always a good idea to rely on registered rights. Trademarks are protected by the Trademark Act No. 441/2003 (the Trademark Act), which now defines trademarks as any sign, in particular words, colours, drawings, letters, numbers or the shape of a product or its packaging, or sounds, provided that the sign can distinguish the goods and services of one entrepreneur from those of another and that it is represented in a manner that enables the authorities as well as the public to determine the clear and precise subject matter of the protection. Upon receipt of the application, the IPO CZ carries out a formal search to ascertain that the application meets all the requirements prescribed by law, as well as a substantive search to find out whether the sign concerned is eligible for registration as a trademark. In the event that the IPO CZ finds no legal obstacles to registration of the trademark, it publishes the application in its regular Bulletin; third parties can oppose the registration within three months of publication. From 1 January 2019, brand owners must monitor more actively what third parties are trying to register because the IPO CZ can no longer stop the registration of an identical mark for identical goods and services unless an opposition is filed by the owner of earlier trademark. Also, the IPO CZ can no longer prevent various speculative registrations that could previously have been considered to be in bad faith.
When a trademark is successfully registered, it is protected for 10 years from the priority date, which is usually the date when the application was submitted. This period can be repeatedly extended by an additional 10 years, subject to payment of an administrative fee.
Protection is also granted to designs provided they are new and have an individual character. Applications for registration of Czech national industrial designs must be submitted to the IPO CZ and they are then subject to substantive examination (in contrast to the registration procedure applicable to registered Community Designs, where there is only formal review of the application). When a design is registered, the protection lasts for five years but can be repeatedly renewed up to a total of 25 years.
According to the Trademark Act, the owner of a trademark has the exclusive right to use the trademark in connection with goods or services for which the trademark is registered. The term 'use' is defined in a rather broad manner and includes: (1) use of the trademark on the goods or on their packaging; (2) offering goods under the trademark, putting them on the market or storing them for such a purpose or offering or providing services under the trademark; (3) exporting or importing goods under the trademark; and (4) using the trademark in business correspondence and advertising.
According to the Industrial Designs Act,4 the registration of an industrial design gives its owner the exclusive right to use the industrial design, to prevent third persons from using it without his or her consent, to grant consent to use the industrial design to third parties or to transfer the right to the industrial design.
Intellectual property rights are typically enforced via courts. The relevant rights and claims available in cases of intellectual property rights infringement are (with the exception of copyright, which is regulated separately) all concentrated in Act No. 221/2006 on the Enforcement of Industrial Property Rights (the IP Enforcement Act). The IP Enforcement Act gives the IP owner the right to request that the infringer refrains from the activity that infringes or endangers the rights concerned, and that the consequences of the endangering or infringement be removed, namely by recalling or permanently removing goods and by recalling, permanently removing, or destroying tools or devices determined or used in connection with the activities that infringe or endanger this right. The IP owner can also request information about the origins of the infringing goods and their distribution channels. Regarding monetary claims, the rights holders can claim damages (they can choose whether to claim actual damages and lost profits, if applicable, or the amount calculated as double the standard market licence fee), surrender of unjust enrichment or, in cases of non-monetary harm, reasonable satisfaction, which can take the form of anything from an apology to financial compensation.
Simultaneously with enforcement of intellectual property rights, it is also fairly common in practice to make unfair competition claims. Examples of the activities that are explicitly listed among the types of unfair competition behaviour include misleading advertising, misleading marking of goods and services, and causing risk of confusion and parasitism on reputation, all of which can be especially relevant for franchising. This can be particularly useful for protection against various lookalikes and imitations, where the traditional intellectual property rights may not, for various reasons, provide sufficient protection.
iv Data protection, cybercrime, social media and e-commerce
The Czech Republic has a relatively long tradition of protection of personal data. The first data protection law had already been adopted in 1992 and this was later harmonised with EU law by Data Protection Act No. 101/2000, prior to the accession of the Czech Republic to the EU. On 25 May 2018, the Data Protection Act was replaced by the EU General Data Protection Regulation No. 2016/697 (GDPR), which is now valid and effective law throughout the whole EU. The GDPR further tightens the rules for the processing of personal data, as well as imposing severe sanctions for non-compliance. Conversely, some previous obligations were lifted and data controllers, for example, are now no longer required to notify the processing of personal data to the Czech Office for Protection of Personal Data. For more information about data protection law aspects of franchising, see the dedicated chapter of this Law Review on data protection.
With effect from 24 April 2019, local data protection legislation was introduced to implement some of the GDPR provisions – the new Act No. 110/2019 on the Processing of Personal Data (the Personal Data Processing Act). The most relevant aspect of the new Personal Data Processing Act is the specification of the age of consent for online services, which will have an impact on e-commerce. Under the GDPR, the age of consent in the online world is 16, but Member States can choose to lower this to 13. From this age range of 13 to 16 years, Czech legislators took the view that 15 years of age is sufficient for valid consent to data processing in the online world.
Cybercrime is explicitly addressed by the Czech Criminal Code,5 which provides modern criminal law protection for IT systems and data. The criminal offences include unauthorised access to IT systems and information media (hacking), unauthorised use of data and obtaining technology to violate the secrecy of messages, etc. Furthermore, the Czech Republic was one of the first European countries to take the measure of adopting a Cybersecurity Act.6 The Cybersecurity Act imposes duties on telecommunication providers or providers of critical infrastructure (e.g., in banking and the defence sector), consequently it is not likely to burden typical franchise businesses. Its purpose is to make the online environment safer. This may serve primarily to benefit digital franchises. The Czech Republic has adopted the EU Directive on Security of Network and Information Systems, known as the NIS Directive, which will slightly extend the number of subjects affected, and will harmonise the rules with the rest of the EU.
Legal regulation of e-commerce is rather complex and spreads across various laws, including the Civil Code,7 the Electronic Communications Act,8 the Consumer Protection Act,9 the Personal Data Processing Act, the Criminal Code and the Information Society Services Act.10 The latter is especially relevant not only because it contains rules on the liability of internet service providers, but also for its regulation of email marketing (and spam). Similarly, a wide range of rules apply to social media. Franchises must cope with many individual laws governing personal data protection, personality and privacy rights, intellectual property, consumer protection and advertising regulations. Rather than focusing on social media, these laws are technology-neutral and regulate on a general level.
In the Czech Republic, there is no legislation dedicated specifically to franchising. However, this absence of franchising legislation is perhaps not unusual, and definitely not a barrier to the development of franchise systems. Franchise arrangements are typically governed by civil law (as far as the actual contract or establishment of the business is concerned) but other areas, including public law (e.g., competition regulation, employment, trade licences and tax), can play an important role. Therefore, it is really a mixture of laws that are relevant in connection with the franchising industry.
A franchise agreement as such would be considered an innominate agreement (meaning a type of contract not specifically provided for in law) pursuant to Section 1746(2) of the Civil Code. The Civil Code is one of the most important pillars of Czech private law. Several years ago, the Civil Code was fully recodified, focusing on, among other things, the extension of contractual flexibility and freedom. Although the current Civil Code has now been in effect for seven years, it will still take time before the courts establish the necessary case law to bridge a few interpretation gaps and provide sufficient guidance to parties affected. A typical franchise contract would include elements of a sale contract, lease contract, licensing agreement, consignment contract and trade secrets, etc., which are all expressly regulated by the Civil Code. That, in turn, needs to be reflected when drafting a franchising agreement.
The European Code of Ethics for Franchising is not binding legislation in the Czech Republic; however, it seems to have certain persuasive power and tends to be relied on by entities involved in the cross-border franchising business.
ii Pre-contractual disclosure
The Civil Code brought into Czech law the concept of pre-contractual liability (culpa in contrahendo), which involves an element of disclosure obligation. Sections 1728 and 1729 of the Civil Code set out the following general rules:
- parties are entitled to hold talks freely and they are not liable when the contract is not concluded unless the other party starts or continues negotiations without the intention of concluding the contract;
- during the contract negotiations, parties should inform each other about all factual and legal circumstances to allow the other party to determine the possibility of concluding a valid agreement, and be clear about the other party's interest in making the contract;
- if during the negotiations the parties reach the point where the conclusion of the agreement appears to be highly likely, the party who, despite the other party's reasonable expectations, terminates the negotiations without justified reason is deemed to have acted unfairly; and
- the party that acts unfairly is liable for damages up to the maximum amount corresponding to the loss from non-concluded contracts in similar cases.
Other than this, there are no pre-contractual disclosure obligations specifically relating to franchising under Czech law. Also, the above rules are fairly general, broad and new, hence no proper judicial guidance is available yet. There are no special provisions regarding formal requirements for pre-contractual information concerning franchise agreements.
There are no specific registration requirements for franchises and no franchise register exists in the Czech Republic. Nevertheless, some general registration requirements apply; for example, relating to the setting up of a business in the Czech Republic (e.g., the trade licences register, registration of a legal entity in the Commercial Register and tax-related obligations).
As of 1 January 2018, a new central register of beneficial owners was established in the Czech Republic in line with the obligations imposed on EU Member States under the Fourth Anti-Money Laundering Directive. Czech companies had until 1 January 2019 to register their beneficial owners. Although currently there is no direct penalty stipulated by law for non-compliance, failure to register the beneficial owner may lead to negative consequences in, for instance, public procurement proceedings. Furthermore, a new Act on the Registration of Beneficial Owners presented by the Ministry of Justice is currently under consideration by the Chamber of Deputies. The Act should adopt a broad and comprehensive perspective on this matter. The proposed date of entry into effect of the Act is the first day of the fourth calendar month following its approval. The first draft of the Act expressly provides penalties for non-compliance with registration obligations, such as a fine of up to 500,000 crowns.
iv Mandatory clauses
There are no mandatory clauses applicable to franchise contracts. In principle, parties can determine the terms and conditions of their contract freely provided that their contract does not infringe good morals (bonos mores), public order or protection of personality status or rights.
Despite the fact that the European Code of Ethics for Franchising is not legally binding, members of national associations and federations of the European Franchise Federation (like CFA) undertake to respect the Code's principles and often incorporate these principles into provisions of franchise agreements or attach their national annex to an agreement.
v Guarantees and protection
A franchisor may request guarantees and protection under civil law. According to the Civil Code there are several options for guarantees, such as suretyship, financial guarantees, collateral transfer of rights, liens, bank guarantees and contractual penalties. Guarantees that are in compliance with the law are enforceable.
i Franchisor tax liabilities
Regarding Czech tax non-residents, a withholding tax of 15 per cent applies to licence fees paid by Czech tax residents to Czech tax non-residents. Double-taxation treaties may reduce the statutory withholding tax rates to 5 to 12.5 per cent. Under certain conditions the licence fees paid to related party recipients in the EU, Switzerland, Norway, Liechtenstein or Iceland may be exempt.
Legal entities with their registered office or place of effective management in the Czech Republic are considered to be Czech tax residents. Income from the worldwide operations of Czech tax-resident legal entities is subject to general corporate income tax. The corporate income tax rate applicable in 2020 was 19 per cent.
The licence fees received shall be subject to general corporate income tax and, on the principle described above, can be also subject to taxation in the country of the licence fee payer, depending on the relevant double-taxation treaty and national tax legislation of the payer. The franchisor may avoid double taxation by setting off the tax paid (withheld) in the foreign country against its tax liability in the Czech Republic.
Besides corporate income tax and withholding tax, general value added tax (VAT) rules apply to franchise business. As a member of the EU, the Czech Republic adopted the EU common system of VAT. VAT applies to most goods and services sold for use or consumption in the Czech Republic regardless of their origin (i.e., VAT applies to imports as well as to goods consumed or services provided in the Czech Republic). On the other hand, exported goods or services that are consumed outside the Czech Republic are usually not subject to Czech VAT. In 2020, the standard rate was 21 per cent and there are two reduced rates, of 15 and 10 per cent. Reduced rates apply primarily to essential goods and services such as food, medical supplies or goods for persons with disabilities or children. From December 2016, the 15 per cent reduced rate also applies to catering services, potentially including restaurants and fast food services. This benefit was introduced primarily as compensation for the new obligation to maintain electronic records of sales (called EET), which was implemented in the Czech Republic in 2016.
ii Franchisee tax liabilities
A Czech franchisee that pays a Czech tax resident for the licence fee has no tax liability, except for VAT, if applicable.
As a rule, licence fees paid to Czech tax non-residents are subject to withholding tax of 15 per cent. Double-taxation treaties may reduce the statutory withholding tax rates to 5 to 12.5 per cent and under certain conditions the licence fees paid to related party recipients in the EU, Switzerland, Norway, Liechtenstein or Iceland may be exempt. The tax is withheld by the Czech franchisee when making a payment to the foreign franchisor. The withheld amount must be transferred to the relevant Czech tax administration office by the end of the month after the month in which the money was actually withheld or in which the Czech franchisee had to record this liability (whichever occurred first).
iii Tax-efficient structures
There is not a generally applicable, one-size-fits-all best practice for tax-efficient franchising in the Czech Republic. It is always a good idea to analyse each particular situation and obtain specific tax advice on any franchising structure before its implementation.
Impact of general law
i Good faith and guarantees
It is a general principle of civil law that everybody must act fairly in their legal relationships. Nobody should obtain benefit from the performance of an unfair or illegal act, and nobody should obtain benefit by causing or controlling illegal conditions. In civil law disputes, good faith is presumed, whereas a lack of good faith is subject to a burden of proof. Another related principle is that of good morals (bonos mores) – a legal act (such as a contract) can be null and void if it is in obvious conflict with good morals.
ii Agency distributor model
Under Czech law, a business agent is an independent entrepreneur who undertakes to work towards long-term goals and carries out activities that aim at the conclusion of contracts of a certain kind. The represented person undertakes to pay a commission (agent's fee). An agency is therefore not a suitable model for franchising. In practice, franchisees typically proceed under their own name and at their own risk, whereas agents act on behalf of a principal and at his or her risk.
iii Employment law
It is highly unlikely, bordering on impossible, that courts would treat franchisees as employees. According to Czech labour law, an employee is a natural person who undertakes to provide dependant work in a basic employment relation. Therefore, relationships between franchisors and franchisees are not treated as employment relations.
iv Consumer protection
Under Czech law, a consumer is defined as any natural person who acts outside the scope of his or her business activities or outside the scope of his or her performance of a profession during the conclusion of an agreement with an entrepreneur (business undertaking). Because franchisees themselves act in their capacity as entrepreneurs or business entities, they cannot be treated as consumers. On the contrary, most franchise operators must make sure they comply with relevant consumer protection regulations in relation to their customers.
With respect to both entrepreneurs and consumers, Czech law recognises protection against abuses of expertise or economic position that aim to create or take advantage of the dependence of the weaker party and create a clear and unjustified imbalance in the parties' mutual rights and obligations.
v Competition law
In the Czech Republic, competition law is mainly included in (1) the Civil Code, which contains a brief general overview of the topic, rules about unfair competition and non-compete arrangements; and (2) the dedicated Competition Act.11 Czech competition law is harmonised with EU law, and the activities and views of the Czech Antitrust Office seem generally to be aligned with those of the European Commission. Obviously, it is always a good idea to review franchise contracts, especially from the perspective of any potential vertical restraints, which may include any exclusivity arrangements, resale price maintenance, product ties, etc., while checking whether an EU block exemption regulation applies. For more information about competition law aspects of franchising see the dedicated chapter of this Law Review on the competition law of the EU.
vi Restrictive covenants
During the term of the agreement, non-compete and other restrictive covenants can be enforced through the courts. In practice, and depending on the circumstances, the most efficient tool can be a request for a preliminary injunction. The court must decide within seven days of receipt of the request for a preliminary injunction, so it can be rather quick. The downside is that the claimant risks being liable for damages to the counterparty in the event that the main action is not successful.
Needless to say, the enforceability of restrictive covenants is subject to their being in line with the aforementioned competition law regulations. The Civil Code now includes a new concept of 'forbidden non-compete clause', according to which non-compete clauses must specify the territory, scope of activity or group of persons to which the restriction applies. A non-compete clause for an indefinite term or for a term longer than five years is forbidden, as is a clause that restricts the other party more than is necessary for adequate protection of the first party. The court may limit such a non-compete clause, revoke it or declare it invalid.
Franchise agreements can be terminated for reasons set out in law or agreed in a contract. Franchise agreements may be typically terminated by mutual consent of the parties or by one of the parties giving notice of termination.
Withdrawal from a contract is possible if it is negotiated by the parties to the contract or on the basis of law. If one party breaches a contract in a substantial manner, the other party can withdraw from the contract without unreasonable delay. Breach of a contractual obligation is substantial if the breaching party knew or should have known that the other party would not have concluded the contract if such a breach had been anticipated.
If a debtor is in default, a creditor can withdraw from a contract on the terms given by the contract or by law. If the default is substantial, one party can withdraw from the contract if it gives withdrawal notice to the other party without unreasonable delay. If the default is not substantial, the party can withdraw from the contract if the other party does not meet its obligation in adequate additional time. The rights to contractual penalties, payment interest, liquidated damages and also all provisions that should remain valid following a withdrawal are not affected by withdrawal from a contract.
The franchisee and franchisor can also terminate a contract if the parties negotiate a cancellation fee. If one party pays the cancellation fee, the agreement is cancelled in the same manner as if the party had withdrawn from the contract.
Revocation of a contract is possible if allowed by law or specifically agreed upon by the parties.
viii Anti-corruption and anti-terrorism regulation
The Criminal Code affects natural persons and their offences, and the Act on Legal Entities' Criminal Liability12 sets down offences of legal entities, such as corruption, money laundering or fraud. However, there is not any special regulation applicable to franchise agreements. The Czech Republic is also a member of various anti-terrorism and anti-corruption international treaties and agreements.
ix Dispute resolution
Disputes can be settled in courts or through arbitration. Franchise agreements typically include a dispute resolution clause that points either to a court or to arbitration. In the Czech Republic, arbitration is regulated by the Arbitration Act.13 This Act is applicable to all relations, without regard to their character. Disputes before courts are governed by the Civil Procedure Code.14 Another supportive procedure was introduced under the Mediation Act;15 if it is useful and suitable, the court can order the parties in dispute to attend meetings with a mediator for at least three hours and can interrupt the proceedings (for a maximum of three months). Nevertheless mediation is still not used very often, especially not for commercial disputes.
There is no specific procedure or industry practice for franchising disputes; we are not aware of any of the existing franchising associations in the Czech Republic offering mediation or arbitration services.
Ordinary court proceedings, including first and second instances, may last for several years, depending on the difficulty of the particular case, whereas arbitration proceedings are usually shorter.
Local courts recognise a foreign choice of law. Czech judges are obligated ex officio in matters that have international elements to follow conflict of law rules, and cases may use foreign law. Local courts also recognise jurisdiction clauses.
According to the Civil Procedure Code there is an option to obtain a preliminary injunction if it is necessary to arrange rights and obligations between participants to the proceedings. Jurisdiction is the same as in the main action. A security deposit of 50,000 Czech crowns must be paid by the applicant for such a measure to cover any potential damages (but the amount may be raised by the court).
Costs of litigation are allocated according to the principle of success in the dispute and costs are not capped according to law, but court fees are capped and the costs of representation are limited by secondary legislation, so it is usually impossible to obtain meaningful recovery of legal costs.
Enforcement of judgments and awards follows the common rules of enforcement under Czech law. Czech courts readily recognise foreign arbitral awards from other countries that are party to the New York Convention.
As in many other market areas, franchising was significantly affected by the covid-19 pandemic in 2020. Given that the licensors often choose premises located in shopping centres as the best places to open franchise branches, their closure affected them significantly.
Some brands were able to respond quickly to the situation and their franchisees could at least generate some sales, especially those operating in the food sector. Many were forced by the circumstances to reposition themselves using a 'takeaway' model and to strengthen delivery services or, in some cases, introduce these from scratch. For example, McDonald's deliveries increased by 45–50 per cent.
Those franchise concepts operating e-shops already had an advantage as costs related to rent and employees proved to be a big problem for the vast majority of franchise networks. The operation of individual outlets is set up so that normal operation completely covers the costs associated with rent and staff and generates income. In the face of commercial conditions depressed by anti-covid-19 measures, franchisees' rent, and sometimes even that of franchisors, had to be covered from financial reserves. This did represent a good position for negotiations with landlords because at the beginning no one knew how long this situation might last or for how long tenants would be able to subsidise rents from their own reserves. The situation regarding government rent assistance was also unclear and being part of a franchise network turned out to be an advantage. The bargaining power of an established and otherwise smoothly functioning brand was better than that of independent entrepreneurs.
According to publicly available information, the management of several franchise networks decided to waive or reduce their franchisees' regular monthly franchise fees; for example, Subway (food), Fruitisimo (food), the Nutriadapt Weight Management Clinic and the BodyBody fitness studio. Other brands adopted a policy whereby franchisees do not pay fees when they have no sales, such as Los Capolitos (food) and Bageterie Boulevard (food). The management of the Subway franchise network in the Czech Republic announced a 50 per cent reduction in franchise fees: instead of 8 per cent of turnover, the franchise partners will pay 4 per cent to the franchisor.
The real estate brokerage market was not directly affected by the governmental restrictions; however, the market slowdown was noticeable, with some brokerages starting to provide virtual tours online.
Nevertheless, some franchises have not been affected so significantly. For example, Oxalis (tea and coffee) plans to expand to other countries, Mail Boxes Etc (delivery services) and GAP (clothing) both entered the Czech market, and Alza.cz (electronics) intends to massively expand its network of AlzaBox self-service delivery units, with plans to increase the number of these as much as fivefold by 2021.
1 Vojtěch Chloupek is a partner at Bird & Bird s.r.o. advokátní kancelář.
2 Franchising Report Czech Republic 2017. PROFIT system. Prague 2017.
4 Act No. 207/2000 Coll. on the Protection of Industrial Designs and the Amendment to Act No. 527/1990 Coll., on Inventions, Industrial Designs and Rationalisation Proposals, as amended.
5 Act No. 40/2009 Coll. Criminal Code.
6 Act No. 181/2014 Coll. on Cyber Security and Amending Certain Related Acts.
7 Act No. 89/2012 Coll. Civil Code.
8 Act No. 127/2005 Coll. on Electronic Communications and Amending Certain Related Acts.
9 Act No. 634/1992 Coll. on Consumer Protection.
10 Act No. 480/2004 Coll. on certain Information Society Services and Amending Certain Related Acts.
11 Act No. 143/2001 on the Protection of Competition and Amending Certain Related Acts.
12 Act No. 418/2011 Coll. on Criminal Liability of Legal Persons and Proceedings against Them.
13 Act No. 216/1994 on Arbitral Proceedings and on Execution of Arbitral Awards, as amended.
14 Act No. 99/1963 on the Civil Procedure Code.
15 Act No. 202/2012 on Mediation and Amending Certain Related Acts.