The Franchise Law Review: Poland
According to the experts, the Polish franchise and distribution network market will continue to grow in the coming years. In mid-2019, Forbes listed Poland among the 10 most attractive countries for franchising in 2019.2 As early as the beginning of 2020, the number of different franchise models in Poland exceeded 1,310, with approximately 83,500 franchise outlets. The most popular franchise trends and sectors in Poland are still food and grocery chain stores, although there have been changes, mainly due to the legal restrictions on commercial sales on Sundays (which from the start of 2020 have been even more restrictive and currently cover almost every Sunday in the year). There is a growing trend for shops to become convenience stores and new technology trends are visible (Carrefour with Express and BIO stores, Chata Polska and Żabka, Eurocash with ABC, 1 Minute, Delikatesy Centrum, Groszek, Lewiatan, Gama and Mila brands, GK Specjał with Nasz Sklep and Rabat Detal shops, Odido and Chorten with Fresh Market are still strong). Although Tesco continued its process of withdrawing from Poland in 2020, 301 of its shops will become outlets for Sailing Group's Netto, which now has 386 shops in Poland. Dino is still growing and Biedronka is introducing technology-driven changes. Restaurant chains (including McDonald's, KFC, Da Grasso, Cukiernia Sowa and the Swedish brand Max Burgers, which now has only 10 restaurants in Poland but plans to open 190 more in the near future), clothing retailers (including Vistula and Wólczanka, KappAhl, Solar, Tatuum, Zara and H&M, although New Look has withdrawn from Poland), hotels (including Best Western and Accor/Orbis) and cosmetics retailers (Inglot, Yves Rocher, Ziaja, Rossmann, Sephora, Drogerie Polskie and Jasmin) are all worthy of mention. A franchise remains one of the main ways small entrepreneurs can develop, and franchising provides jobs for about half a million people in Poland.
The franchise market, which is in no way resistant to the impact of the covid-19 pandemic, is continuing to see a move from classic shops to the online provision of goods and services, where the franchisors create online central sales platforms for clients and then orders are delivered by local franchisees. This new solution has already been successfully adopted by Telepizza and McDonald's, with online orders delivered by local restaurants; and by Intermarché, with online orders picked up by clients at selected local-store pickup points. Notably, technological changes are also being introduced for franchisees. For example, Żabka has created an app with which franchisees can remotely manage stores, and both Żabka and Eurocash Group have launched statistical apps so that their franchisees can monitor their local markets (with data including the average age of local residents, profitability of selling specific products, etc.).
We can observe both an increasing presence of international franchises in Poland, and the success of Polish export brands abroad. The biggest Polish participants in the international franchise market are companies such as Inglot (whose stores can be found on every continent, in 74 countries, including Dubai, Ivory Coast, Kazakhstan, the Philippines, Peru, Nepal and the United States), Gino Rossi, 4F, LPP (Reserved, House, Cropp, Mohito and Sinsay), CCC, Organique and Orlen gas stations. Polish producers have also started expanding into different sectors, gaining recognition in, for example, business-to-business markets.
Because of the growing numbers of franchise models and outlets and the popularity of franchising in Poland, the Polish government has started a discussion about regulating this market. A legislative proposal has been submitted to the Polish parliament, which aims to strengthen the position of franchisees in relation to franchisors by adding new provisions to the Polish Civil Code. Currently, it is only at the draft stage; it remains to be seen what the final form of the changes will be and whether they will come into force at all.
The covid-19 pandemic will lead, or has already led, to a global economic crisis. However, the franchise market in Poland is doing relatively well. The sectors that have benefited most from the pandemic are grocery stores (Żabka, Carrefour), supermarkets (Intermarché and Bricomarché are claiming an increase in the number of customers) and courier services, which are doing better than ever (especially brands such as Stava, ePaka and BTL).
Franchising is perceived as a safe business concept by Polish entrepreneurs, even now during the pandemic. The thought of having a business supported by a franchisor during such a difficult time encourages many investors to consider investing in a franchise. The rising unemployment rate caused by the covid-19 crisis is also expected to contribute to an increase in the number of franchise outlets in Poland. Apart from this, the still growing number of 'multi-franchisees' (entrepreneurs who own more than one branch) is evidence of the high level of confidence people have in the franchise system. Companies belonging to the Polish Franchise Organisation follow the Franchising Code of Ethics adopted by the European Franchise Federation.
Non-EU companies are obliged to establish a branch or subsidiary company to operate a business in Poland. Ownership of real estate is restricted for non-EEA franchisors and requires government approval.
Conducting business activity in Poland requires registration. Apart from registering, there are, in general, no strict rules on starting a business in Poland.
ii Foreign exchange and tax
There are no exchange controls in force. The standard Polish withholding tax rate due on franchise fees and dividends is 20 per cent. If a double-taxation agreement (DTA) applies, both franchise fees and dividends payable to foreign entities are subject to tax established thereunder. The Polish franchisee is a remitter of withholding tax in Poland and remains liable for payment of amounts due to the Tax Office. As of 1 January 2020, new withholding tax regulations came into force, introducing a completely new tax regime. The new model sees mandatory withholding tax collection from all transactions concluded with the same entity in one tax year if these are valued at over 2 million zlotys in total. Only the taxpayer or tax remitter (under an appropriate contract) can apply for its return. As a result, a large number of entities using preferential tax rates and exemptions are now obliged to pay withholding tax. However, this obligation has now been postponed until 1 July 2020. The new rules also provide for certain exceptions, whereby a taxpayer or tax remitter can apply a tax preference to payments exceeding 2 million zlotys if the tax remitter submits an appropriate statement or obtains an opinion from the tax authorities. Tax remitters are also obliged to exercise due diligence when collecting withholding tax and assessing the applicability of preferential taxes. For many this may mean introducing an additional procedure to verify payment recipients. The amendments also relate to the Fiscal Penal Code, under which fines of up to 21.6 million zlotys and imprisonment of up to five years may be imposed for concealing or submitting false information in statements or requests for opinions when applying for exemptions.
i Brand search
A brand search allows assessment of the availability of a mark in the light of earlier registrations and applications. When conducted prior to filing, a brand search avoids the undesired costs of potential infringement proceedings or the unexpected necessity of changing the brand because of earlier registration of an identical or similar trademark.
The Polish Patent Office (PPO) provides online access to all published trademark applications and registrations, and can thus be used as a database for brand searches. Adequate appreciation of the potential risk of confusion with earlier trademarks usually requires some level of proficiency. The assistance, therefore, of trademark or patent attorneys is strongly recommended when analysing search results.
As of 15 April 2016, the PPO examines absolute refusal grounds only. Conflicts with earlier trademarks are not examined ex officio. The holders of earlier trademarks may oppose conflicting applications before their registration. This requires ongoing scrutiny and monitoring of new trademark applications in relevant classes.
Brand searches are usually limited to earlier trademark applications and registrations; however, to identify all potential risks connected with the launch of a new brand, it is also worthwhile conducting a 'freedom to operate' search. This search concerns non-trademark prior rights, such as company names, trade names, unregistered trademarks and all other designations used on the relevant market. The simplest way to conduct it is by using an internet search engine.
ii Brand protection
In Poland, a trademark application can be filed either in paper or electronic form. The scope of protection is determined by the list of goods and services attached to the application, classified in accordance with the Nice Classification. Application proceedings can take as long as between 10 and 12 months, provided the application is not opposed.
Individuals and entities that have a domicile or a business seat in Poland, or on EEA territory, do not have to be represented in trademark registration proceedings by a professional representative. Individuals or entities from outside the EEA must be represented in trademark registration proceedings by a Polish-qualified professional (i.e., trademark attorney or attorney-at-law).
Information on trademark applications is published within two months of filing. If there are no absolute refusal grounds, the application is published in the official bulletin, and from this time any third parties may file their observations regarding absolute refusal grounds, regardless of the PPO's primary positive assessment. On the basis of these submissions, the PPO might change its view and dismiss the trademark application.
For published trademark applications, the PPO automatically runs an informative search of earlier identical or similar trademarks registered for identical or similar goods, for the purpose of registration.
Within three months of publication of the application, the holders of earlier trademarks, as well as the holders of earlier personal and economic rights, may oppose the trademark application. The opposition deadline is not extendable. The parties have two months (extendable to six months) to settle the case (cooling-off period). Following this, the PPO will proceed with the opposition. The likelihood of confusion is determined in cases of identical or similar registered trademarks applied in relation to identical or similar goods or services. The trademark applicant may raise a non-use claim against the earlier registration. The PPO is bound by the grounds of the opposition indicated by the opponent. Letters of consent are acceptable.
If no opposition is filed, the PPO issues a decision on trademark registration. Otherwise, the PPO also grants registration to the extent an opposition was dismissed by a final, non-appealable decision. Registration is conditional upon payment of the relevant registration and publication fees.
Trademark protection initially lasts for 10 years, with the possibility of unlimited extensions for subsequent 10-year periods.
A motion for invalidation of a trademark may be filed at any time after the registration based on absolute and relative refusal grounds. However, relative refusal grounds may only be raised by the holders of earlier trademarks, or earlier personal or economic right holders. Non-use cancellation is acceptable after five years of non-use, as long as there are no reasonable grounds for non-use. A non-use cancellation request may be filed by any person.
Brand protection is complementary to other intellectual property (IP) rights. A figurative or 3D mark can also be protected by copyright law or as an industrial design.
Transposition of the Directive has entailed changing the definition of a trademark, as the graphical representation requirement has been removed. The new definition that has been introduced provides that a trademark may consist of any sign that is capable of distinguishing the goods or services of one undertaking from those of other undertakings, and that can be presented in the register in a manner that enables third parties to determine the clear and precise subject matter of the protection.
Polish law recognises collective trademarks and guarantee trademarks. The amendment rephrased the definition of a collective mark. The legislators also decided to repeal the institution of collective guarantee marks from the Polish system, and replace them with newly added guarantee marks as stipulated in the Directive. Collective guarantee marks could be converted into guarantee marks within six months of the entry into force of the amendment.
In July 2020, an amendment to the Code of Civil Procedure (CCP) introduced specialised proceedings for intellectual property cases in Poland. Specialist IP departments have been established in the district courts in Warsaw, Gdansk, Lublin, Poznan and Katowice. These courts now have exclusive jurisdiction in all IP infringement matters. The parties must be represented by a professional representative (i.e., a trademark attorney, advocate or attorney-at-law), except for cases where the value of the claim does not exceed 20,000 zlotys.
Poland used to have a bifurcated system, in which trademarks could be invalidated only in proceedings before the PPO, while infringement cases were decided by the courts. However, as from July 2020, invalidity arguments may also be raised as a counterclaim defence in court proceedings in respect of both EU and national trademarks.
In cases where an invalidation action is pending before the PPO or the European Union Intellectual Property Office (EUIPO), the court will suspend the proceeding until the PPO or EUIPO has issued a final decision.
In Poland, preliminary injunction (PI) requests are decided in ex parte proceedings (i.e., defendants are not informed about the PI request and generally have no opportunity to defend their rights until the decision on the grant of the PI is issued and served upon them, unless a court schedules a hearing to consider the PI request). There is also no formal way of submitting 'protective letters' (common in Germany), as they are generally not legally recognised in Poland. To obtain an injunction, the trademark holder has to prove that infringement is probable and that the trademark holder has a legitimate interest in the injunction (e.g., the lack of an injunction may cause the trademark holder irreparable damage). In the event that a PI is granted, a claim should generally be filed within 14 days of receipt of the PI decision.
In general, an action should be brought before the district court of the defendant's seat. However, if the infringing product is available throughout the whole territory of Poland (e.g., through an online shop), the claimant may try to file a PI request or a claim with any of the five IP courts in Poland according to the place of an alleged infringement (although recently the courts have tended to reject such requests as forum shopping and transfer the case to the court of the defendant's seat).
In an infringement action the claimant may claim cessation of infringement, return of unlawfully obtained profits, publication of the final judgment (or information about it) and – in cases where the infringement is culpable – compensation for damage. Moreover, the court may also decide on the destruction, withdrawal from the market or transfer of ownership of the infringing goods.
In practice, seeking damages in trademark cases may be quite difficult from an evidential perspective. It is for the claimant to prove the actual damage it suffered and the adequate causal relation between the infringement and the damage. Damages can also be calculated based on the criterion of 'reasonable royalty', but this is very seldom used as there are serious doubts regarding its interpretation. Obviously, the most credible point of reference for a reasonable royalty would be the licence fee charged by the claimant in a similar case based on an existing licence agreement. This is, however, very rarely the case. Most typically, the rights holder rather claims the handing over of profits unlawfully obtained by the defendant, meaning revenues gained from sales of infringing products, as it is much easier to calculate this figure, and obtain reliable data on sales volumes and prices.
Following a recent amendment to the CCP, changes to the regulation of proceedings in respect of requests to obtain and secure evidence in IP cases mean that claimants can now obtain, for example, bank, financial or commercial documents within such proceedings.
Moreover, prior to or during infringement proceedings, upon the trademark holder's substantiated request and where necessary for pursuing the claim, the court can issue a disclosure decision and oblige the infringer to provide information on the origin and distribution networks of the infringing goods or services. If the court grants a disclosure order prior to initiating the infringement proceedings, the statement of claim should be brought no later than one month after the execution of the disclosure order.
The statute of limitations for all claims is three years, counted separately for each infringement from the time the right holder became aware of the infringement and the infringer but not later than five years from when the infringement took place.
iv Data protection and e-commerce
The EU General Data Protection Regulation5 has been fully implemented in Poland.
In the context of franchising relationships, in principle the franchisor or franchisee can be considered a data controller (data owner) or data processor (entity acting on behalf of a controller), or both of these, or joint controllers. If the franchisor as data controller outsources processing to a franchisee (or vice versa), both parties must conclude a data-processing agreement indicating at least the scope, purpose and duration of processing, the type of personal data and categories of data subjects, as well as the obligations and rights of the controller. If they are considered joint controllers, they must put in place appropriate arrangements regarding their respective responsibilities for compliance with their obligations and industry participants should reconsider their roles following European Court of Justice judgments giving a broad interpretation of joint controllership.6
The franchisee or franchisor (as controller) must have a legal basis for processing. In the context of its activity several legal bases for processing are possible, in particular, consent, legitimate interest of the data controller or data recipient, and performance of the contract with the data subjects (the latter would only be reserved to franchisees as a party to the agreement). For marketing purposes, the franchisee or franchisor can rely on legitimate interest to promote its own products or services (except for e-communication and telemarketing, where separate opt-ins are required). If, however, the franchisor would like to use the franchisee's clients' data for marketing purposes, it must first obtain an appropriate consent.
If the franchisee or franchisor, acting as a data controller, wants to transfer data to third countries that do not provide adequate levels of personal data protection, an additional legal basis is required. In practice, the most reliable legal basis would be entering into standard contractual clauses7 between the Polish franchisor or franchisee and the data importer from the third country. Standard contractual clauses have been issued by the European Commission as data transfer contract models and have just been reviewed by the European Commission.8 Following the decision in Schrems (C-311/18) invalidating EC decision 2000/520/WE on the Privacy Shield, it is no longer possible to rely on the Privacy Shield as a legal basis for data transfers to the United States.
The Data Protection Authority has already started imposing fines. It fined the online shopping platform morele.net approximately €650,000 for inadequate security measures and a data breach affecting more than 2 million users.
Mandatory provisions of Polish law protect consumers in business-to-consumer (B2C) relations. The protection exists regardless of whether the business is located in Poland. For example, if the business is located in Germany, it is obliged to follow Polish mandatory provisions protecting consumers if these are more restrictive than German law.
As an EU Member State, Poland has implemented the New Consumer Directive,9 which provides consumers with, inter alia, the right to withdraw from distance sales agreements within 14 days of signing and imposes obligations on e-businesses to appropriately inform consumers of relevant information.
B2C companies have to be mindful of 'abusive clauses', which cannot be included in standard agreements with consumers. Abusive clauses concern, for instance, limitation of liability of the service provider or seller towards consumers, and exclusive jurisdiction of the court applicable to B2C e-business. Clauses that the courts have held to be abusive (in cases initiated before April 2016) are contained in a register of abusive clauses, which currently contains more than 7,300 clauses. In April 2016, a legislative amendment came into effect whereby the Office of Competition and Consumer Protection Authority (UOKiK), rather than the civil courts, is competent to decide whether specific clauses are abusive (all decisions are available on the UOKiK website).10 The rationale behind the amendment is, inter alia, to curb the practice of suing entities being adopted as a business model. The regulator also has the authority to impose fines amounting to up to 10 per cent of the business's turnover as a maximum penalty.
Franchise contracts are not subject to specific regulation and the general principle of freedom of contract applies.
ii Pre-contractual disclosure
There is no mandatory pre-contractual disclosure requirement in Polish law, but there are some general rules that Polish law recognises, such as the pre-contractual principle of good faith (culpa in contrahendo) and certain other rules of the Civil Code. The confidentiality of trade secrets is protected under the Act on Combating Unfair Competition, even before entering into non-disclosure obligations.
i Polish tax system
The Polish tax system is a complex combination of direct and indirect taxes based on Polish regulations, international treaties and EU law.
Poland has been a member of the Organisation for Economic Co-operation and Development (OECD) since 1996. The OECD issued and systematically updates the Model Tax Convention on Income and on Capital, as well as the commentary to the Convention. Most DTAs to which Poland is a party are based on the Model Convention.
Individuals and companies receiving income sourced in Poland are subject to Polish income tax, personal and corporate, respectively. Within this scope, Polish law applies unless any international agreements – including DTAs – provide otherwise.
DTAs significantly affect the tax treatment of cross-border transactions, but privileges under a DTA apply if a taxpayer submits a valid tax residency certificate issued by its local tax authority. Foreign tax residency certificates remain valid for Polish tax authorities throughout the validity period provided in the document. If a tax certificate does not include an expiry date, from 4 January 2015, it will be valid for 12 months following its issuance date unless the taxpayer changes its domicile within this period.
On 1 January 2020, fundamental changes in collecting withholding tax in Poland came into force. In general, a new tax refund mechanism has been introduced, namely withholding tax will now be collected by the withholding tax agent in full even where exemption applies under a DTA. After proving the right to apply a preferential rate, tax will be refunded by the tax authority.
The new provisions apply when payments exceed 2 million zlotys in a given tax year. Should payments exceed this amount, it will still be possible to apply an exemption set out in a DTA, provided that the management board issues the required statement to the tax authority that all requirements for the exemption have been met. If the management board members issue a false statement, they can be subject to criminal sanctions. Because of the many factors involved, including covid-19, the entry into force of these new provisions was postponed. According to the most recently available information, they should enter into force as of 1 January 2021, but it is very likely that this date will also be shifted.
Poland is a member of the EU and thus is also a member of the harmonised VAT system.
ii Franchise taxation
Franchising is not expressly regulated under Polish contract and tax laws (mixed contract). Therefore, income and costs derived from franchising are taxed in a manner applicable to the taxation of those contracts to which franchising contracts are similar.
Under Polish law, following OECD guidelines, income derived from franchising should be divided for income resulting from certain sub-arrangements covered by the franchising relation, including provision of know-how, licensing and provision of services. Each part is then subject to the different tax treatment applicable to each particular type of income.
Moreover, in the event that any business arrangement – including a franchising contract – is set up between related parties (affiliates), transfer pricing regulations apply. If applicable, parties should draft and store transfer pricing documentation reflecting the market value of any payments made between parties under contract; any lack of relevant transfer pricing documentation may be challenged by the Polish tax authorities. Parties may also be required to pay increased tax as a result.
As of 1 January 2015, partnerships, in the same way as companies and individuals, are required to comply with transfer pricing regulations.
Impact of general law
i Good faith and guarantees
Parties to a contract are expected to act in good faith and the courts will take this into account.
ii Agency distributor model
Although Polish courts have not yet awarded franchisees the protection provided to agents under the Polish Civil Code,11 it is possible that this may happen in the future.
iii Employment law
Franchising is commonly regarded as a form of business activity.
The franchisee cannot be treated as an employee, and operates under its own name, bearing the economic risk of its own activities. The relation between franchisee and franchisor can be described as cooperation, not as employee–employer subordination. Also, the franchisor receives remuneration under a franchising agreement, while the employee receives remuneration in accordance with an employment agreement. Franchisees are not entitled to the same social protection as employees.
iv Consumer protection
As franchisees are considered businesses, they are not protected by Polish consumer law. However, in January 2021 a new law will come into force under which sole traders will obtain certain rights that have so far only been available to consumers. Sole traders will benefit from consumer protection in the area of abusive clauses, statutory warranties and the right to withdraw from distance or off-premises contracts. To benefit from these rights, a given contract must be concluded between a sole trader and another entrepreneur after 1 January 2021 and the contract must be directly connected to the sole trader's business but cannot be of a professional nature corresponding to the sole trader's economic activity. For instance, a franchisee (sole trader) operating a fast-food restaurant and buying new tables and chairs for the business in February 2021 would benefit from the above-mentioned consumer protection rights because such a purchase would be directly connected with the business activity but would not be considered of a professional nature since the franchisee does not operate in the furniture market.
Furthermore, franchisees must comply with Polish consumer laws if they offer products or services to consumers. Note also that Poland plans to extend the consumer protection powers of the UOKiK. The new powers will allow the UOKiK to carry out dawn raids in consumer-related proceedings. Additionally, the 'mystery shopper' tool will be changed, as the new law will make it possible to conclude purchases under a hidden identity. These changes are planned as part of the transposition into Polish law12 of EU Regulation 2017/2394 on consumer protection.13 The exact date of entry into force is not yet known.
v Competition law
A franchise agreement is a type of distribution (vertical) relationship between independent entities. Under certain circumstances, such a relationship may affect trade by restricting or distorting competition in the relevant market, as it usually contains a combination of different vertical restraints. The UOKiK has issued several decisions regarding franchising. In June 2013, it issued a notable decision concerning the fixing of resale prices by Sfinks Polska SA, one of the restaurant chains operating in the casual dining sector in Poland.14 That decision was appealed, and in January 2018 the Warsaw Court of Appeal confirmed that pricing arrangements between a franchisor and a franchisee may be considered anticompetitive. However, in the case at hand, the Court of Appeal significantly reduced the fine imposed as the potential anticompetitive impact was limited because of Sfinks Polska SA's limited share of the relevant market.15 In its judgment of 9 October 2019, the Supreme Court finally settled that dispute, confirming the fine amount set by the Warsaw Court of Appeal. According to the Supreme Court, any anticompetitive action violates the public interest, whether or not there is an effect of restricting or eliminating competition.16
Franchising is defined as a distribution system in which the franchisee is directly or indirectly obliged to resell goods that have been acquired from the franchisor or from a company designated by the franchisor, and to use intellectual property rights and know-how that have been licensed from the franchisor. Since the scope of this definition is broad, it is common in practice to apply a more specific definition made under EU rules.
If a franchise agreement contains anticompetitive clauses, it can be exempted from the prohibition on anticompetitive agreements provided that the aggregate market share of competitors in the relevant markets does not exceed 5 per cent, or the market share of each non-competing entity in the relevant markets does not exceed 10 per cent.17 This provision constitutes the de minimis principle, but it is not commonly applied to franchise agreements as they tend to contain 'hardcore restrictions' (such as price-fixing or market-sharing arrangements between parties), which cannot be exempted under the de minimis principle.
If the de minimis principle cannot be applied, a relevant block exemption regulation can exempt anticompetitive provisions specified in the franchise agreement from the application of Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) or its Polish equivalent. Depending on the geographical scope of a given franchise agreement, the EU Block Exemption Regulation (VBER), or the Polish Block Exemption Regulation, can be applicable.18 Both block exemption regulations contain the same principles and rules. There is thus no difference in the application of any of these two block exemption regulations. These block exemption regulations apply to agreements that do not contain hardcore restrictions, and where the individual market shares of the franchisor and the franchisee in the relevant markets, as a rule, do not exceed 30 per cent.
The VBER lists the hardcore restrictions that will cause a franchise agreement to fall outside the scope of the VBER. This list includes price-fixing or resale price management. In principle, a franchisor may impose maximum or recommended resale prices. Under certain exceptional circumstances, a franchisor may also set fixed or minimum prices for low-price promotional campaigns lasting between two and six weeks (in most cases).19 The list of hardcore restrictions also includes restrictions on territories or customers to which a franchisee can sell products or provide services, such as bans on passive sales outside an exclusive territory or customer group.
The VBER also lists grey restrictions, which are invalid themselves, but do not result in the invalidation of the entire agreement. One of these is the non-compete clause (see Section VI.vi).
Other provisions that should be analysed from a competition law perspective concern IP rights licensing, approving or restricting the franchisee's advertising campaigns, and exclusivity and reserved customer groups.
If the VBER market-share thresholds are exceeded or the franchise agreement contains hardcore restrictions, the agreement is not exempted under the VBER. Nevertheless, the parties to the franchise agreement can argue that it benefits from the individual exemption if it fulfils four cumulative criteria set out in Article 101(3) of the TFEU or its Polish equivalent on the basis that the franchising agreement results in more efficiency gains than anticompetitive effects in the relevant markets. In such cases, the burden of proof lies with the franchisor and the franchisee. In fact, the franchisor and the franchisee must self-assess the applicability of the individual exemption as neither the European Commission nor the UOKiK issues decisions confirming the applicability of the individual exemption to specific agreements.
Franchise agreements may also be examined in relation to the rules on prohibition of abuse of a dominant position and merger control applicable to transactions involving the acquisition of control (such as mergers, acquisitions and establishment of joint ventures). In such cases, the general competition law rules apply.
vi Restrictive covenants
Both the Polish Block Exemption Regulation and the VBER define non-compete clauses as the franchisee's obligation to buy more than 80 per cent of goods from the franchisor or its supplier, and the franchisee's obligation not to deal with goods that are substitutes for those offered by franchisor.
To be exempted under both block exemption regulations, in-term non-compete clauses have to be limited to five years or to the duration of the sublease if the franchisor owns the franchisee's premises. Non-compete clauses that are concluded for longer periods can be exempted under the individual exemption if all cumulative criteria are met.
To protect the franchisor's know-how, parties can conclude a post-termination non-compete clause that may last no longer than one year after the agreement's termination. Within that period the franchisee must agree not to deal with goods that are substitutes for those offered by the franchisor from the premises in which the franchisee operated during the franchise agreement.
If the franchisor provides the franchisee with know-how that is not in the public domain, the parties may consider concluding a post-termination non-compete clause for a longer period; however, such a non-compete clause would have to be exempted under the individual exemption of Article 101(3) of the TFEU or its Polish equivalent.
The franchise agreement is a long-term form of cooperation concluded for a fixed term (usually five, 10 or 20 years) or an indefinite period. There are two ways of terminating the agreement early under the Polish Civil Code: termination upon notice and rescission.
Termination upon notice occurs especially in the case of legal relations concluded for an indefinite period. The agreement can be terminated only upon notice ex nunc, which means that the notice is valid only for the future and not the past. Termination upon notice applies only to the relation expended in time. Generally, there is a notice period after which the agreement terminates (it might be a contractual, statutory or a customary term period). If a termination period is not provided, the agreement expires immediately after the termination notice is delivered.
Rescission is a remedy to a breach of contract – if one party commits a qualified delay in performing the contract, the other party may rescind it provided that the affected party notifies the defaulting party in writing of the intention to rescind, granting appropriate additional time for proper performance. If the set time limit lapses, the affected party is entitled to rescind the contract.
As mentioned in Section VI.vi, post-termination non-compete clauses of up to one year for franchise agreements are permitted under Polish law. A longer term for post-termination non-compete clauses can be established if the franchisor provides the franchisee with know-how that is not in the public domain.
It is advisable to include provisions on termination in the franchise agreement, including provisions concerning rescission. Explicit provisions can minimise the risk of confusion between the parties.
viii Anti-corruption and anti-terrorism regulation
Under Polish law, bribery is a crime committed by an individual giving or accepting a bribe. A person giving a bribe can avoid criminal liability if he or she informs the appropriate law enforcement institution of the circumstances of a crime before proceedings are initiated by that institution.
Organisations can be subject to criminal liability for crimes committed by employees or representatives only if the individuals have been convicted and the organisation failed to properly choose its executives, and at the same time the organisation benefited from the crime. Therefore, from a practical point of view, bribery committed by a franchisee will most likely not result in criminal liability of the franchisor.
ix Dispute resolution
In franchise disputes, the parties can choose between litigation and alternative dispute resolution (arbitration or mediation).
Arbitration is the most common form of alternative dispute resolution. Arbitration clauses are generally enforceable in Poland. To refer the dispute to the arbitration court, the parties are required to provide an agreement specifying the subject matter or the legal relationship out of which the dispute arose or may arise.
Mediation can be conducted on the basis of a mediation agreement or court order directing the parties to mediation. Mediation is voluntary and is not conducted if one of the parties does not agree to it.
The Polish court system remains slow, with litigation proceedings before the Warsaw courts being statistically the most lengthy. The duration of proceedings at first instance in a commercial case in Warsaw courts may be approximately 20 months. In addition, the covid-19 pandemic has meant legal proceedings have become even more drawn out. There is a noticeable tendency for courts to prolong proceedings by changing hearing dates and cancelling hearings without setting new hearing dates.
In the agreement, parties can decide which court has jurisdiction to decide in the event of a dispute.
If the parties include an arbitration clause in the agreement, they usually determine which arbitration court will decide in the event of a dispute. In Poland, permanent arbitration courts do exist, the most established being the Court of Arbitration at the Polish Chamber of Commerce and the Court of Arbitration at the Polish Confederation Lewiatan. Parties can choose between permanent arbitration courts or indicate in the agreement that the arbitration court be established ad hoc. Usually, the arbitration court is one instance, but the parties may agree otherwise in the contract. As ordinary proceedings often involve two instances, sentencing in arbitration is usually faster. The average length of arbitration proceedings is nine months.
Arbitration courts are not bound by proceedings rules, and so less complex procedures can be used. However, arbitration proceedings must comply with the fundamental principles of the law, otherwise they may be considered contrary to the basic principles of the legal order of the Republic of Poland and be set aside by a court.
Either party can file an appeal against the court's verdict if it is not favourable. It is also possible to challenge the arbitration court's award before the common court, but only on technical grounds – the merits of the case will not be examined. The arbitration court's verdict may be challenged only on the strict grounds indicated in the Civil Procedure Code.
Arbitration fees are usually higher than court fees, but the total cost of proceedings is usually lower in arbitration, as arbitration is statistically quicker and more specialised.
In Poland, the losing party is obliged to return the proceedings costs, including the costs of lawyers, to the successful party, but only within statutory limits that are not significant. So, in practice, in lengthy, complicated or high-value proceedings, each party bears most of its own legal costs. Obtaining reimbursement of proceedings costs may be difficult if the losing party to the proceedings has declared bankruptcy.
From an international franchisor's perspective, it is important to note that Poland is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and so foreign arbitral awards are enforceable in Poland. Also, since Poland is an EU Member State, Polish courts will recognise and enforce court judgments from other EU Member States (in accordance with the EU Regulation).20
Two major occurrences may shape the future landscape of the franchise market in Poland. The first is the covid-19 pandemic, which is affecting the economy in general and heavily influencing consumer behaviour towards more e-commerce and less traditional shopping. In addition, hotels and restaurants are having a difficult time because of the periodic lockdowns and this important franchise sector may suffer the most. The second development is the legislative initiative on franchising, which would be something new and would most likely strengthen franchisees' position. However, the legislative process is at a very early stage, and no conclusions or hard predictions should be made at this stage.
Nonetheless, as mentioned in the introduction, the prospects for the Polish franchise market are still bright, especially when account is taken of the development and implementation of new business support technologies.
1 Kuba Ruiz is counsel at Bird & Bird Szepietowski i wspólnicy sp.k.
3 Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trademarks.
4 Act of 30 June 2000 on Industrial Property Law (and its subsequent amendments).
5 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data and repealing directive 95/46/EC (General Data Protection Regulation).
6 Wirtschaftsakademie case No. C-210/16; Fashion ID case No. C-40/17; Jehovan todistajat case No. C-25/17.
7 Commission decision of 5 February 2010 on standard contractual clauses for the transfer of personal data to processors established in third countries under Directive 95/46/EC of the European Parliament and of the Council.
8 Information about public consultations on standard contractual clauses is available at https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12741-Commission-Implementing-Decision-on-standard-contractual-clauses-for-the-transfer-of-personal-data-to-third-countries.
9 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council.
11 Chapter XXIII of the Civil Code – Agency agreements.
12 Draft act amending the act on competition and consumer protection (in Polish) https://bip.kprm.gov.pl/kpr/bip-rady-ministrow/prace-legislacyjne-rm-i/prace-legislacyjne-rady/wykaz-prac-legislacyjny/r4035266659,Projekt-ustawy-o-zmianie-ustawy-o-ochronie-konkurencji-i-konsumentow.html (last accessed14 November 2020).
13 Regulation (EU) 2017/2394 of the European Parliament and of the Council of 12 December 2017 on cooperation between national authorities responsible for the enforcement of consumer protection laws and repealing regulation EC No. 2006/2004.
14 Polish Office of Competition and Consumer Protection decision, 25 June 2013, No. DOK-1/2013.
15 Warsaw Court of Appeal, 10 January 2018, court ref. No. VII AGa 828/18.
16 Polish Supreme Court, 9 October 2019, court ref. No. I NSK 89/18.
17 Article 7 Section 1 of the Polish Act on Competition and Consumer Protection (consolidated text, Journal of Law of 2019, item 369).
18 Note that the Polish and EU block exemption regulations should be interpreted in conjunction with the results of the European Commission's sector inquiry into e-commerce; the European Commission's final report on the e-commerce sector inquiry, as announced on 10 May 2017, is currently available at: https://ec.europa.eu/competition/antitrust/sector_inquiries_e_commerce.html.
19 Para. 225 of the European Commission's Guidelines on Vertical Restraints, OJ C 130/1, 19.5.2010, pp. 1–46.
20 Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.