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Q&A on Distribution Agreements

Part 1: Legislative framework

Q1. Please specify the legislative framework generally applicable to the conclusion and execution of distribution agreements (a)? Please include a link to the official publication of the applicable rules (e.g., relevant link to the Official Gazette) (b) and, if available, to the English translation of the legislative framework (c).

a.  Legislative framework:

Italian Civil Code, Book IV, Title V, Chapter V, supply agreements
Law no. 129/2004 on Franchising
Italian Civil Code, Book IV, Title II, general rules applicable to agreements

b. Link(s) to official publication:

The Dutch version is accessible via this link

The French version is accessible via this link

c. Link(s) to English translation:

Not available.

Q2. Other than for agency agreements pursuant to Directive 86/653 (EEC) on the coordination of the laws of the Member States relating to self-employed commercial agents, are there specific rules depending on the distribution format (e.g. franchising, exclusive distribution)?

Yes. 

If yes, which general rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and to the English translation of the regulatory framework (c).

a. Specific rules depending on distribution format

Under Italian Law distribution agreements are ‘atypical’ agreements meaning that the Italian Civil Code does not provide for the distribution agreement as a specific format of contract. Therefore, specific rules may apply depending on the format of contract used. Reference has to be made, in particular, to the provisions of the Italian Civil Code on supply agreements and to franchising, where applicable to the implemented distribution format.

Supply Agreements
Art. 1559-1570 Italian Civil Code regulate supply agreements. 
The supply agreement is the contract whereby one party undertakes, in return for a price, to perform, for the benefit of the other, periodic or continuous supply of things.
If the amount of the supply is not determined, the amount agreed is that corresponding to the normal needs of the party entitled to it, with regard to the time of the conclusion of the contract. If the parties have only established the maximum and minimum limits for the entire supply or for the individual services, it is up to the party entitled to the supply to establish, within these limits, the quantity due. If the amount of the supply is to be determined in relation to the needs and a minimum quantity has been established, the party entitled to the supply is obliged to pay the quantity corresponding to the needs if this exceeds the minimum.
In periodic supply agreements, the price is paid at the time of the individual services and in proportion to each of them. In the case of continuous supply, the price is paid according to the usual due dates.

The term established for the individual services is presumed to have been agreed in the interest of both parties. If the party entitled to the supply has the right to fix the expiry date of the individual services, he must give the supplier adequate notice.
If the duration of the supply is not established, either party may terminate the contract, giving notice within the agreed period or within the period established by custom or, failing that, within a reasonable period having regard to the nature of the supply.
In the event of non-performance by one of the parties in relation to individual services, the other party may request the termination of the contract, if the non-performance is of considerable importance and is such as to undermine confidence in the accuracy of subsequent performance. If the party entitled to supply is in default and the non-performance is of minor importance, the supplier cannot suspend the execution of the contract without giving reasonable advance notice.
Parties may agree to include in the contract a covenant of preference by which the party entitled to the supply undertakes to give preference to the subcontractor in the stipulation of a subsequent contract for the same object. Such covenant is valid as long as the duration of the obligation does not exceed the term of five years. If a longer term is agreed, this is reduced to five years. The party entitled to the supply must inform the supplier of the conditions proposed to him by third parties and the supplier must declare, under penalty of forfeiture, within the established term or, failing this, within the term required by circumstances or customs, whether he intends to avail himself of the right of preference.

Parties may also include an exclusive clause in the agreement.
If an exclusive clause is agreed in favor of the supplier, the other party may not receive services of the same nature from third parties, nor, unless otherwise agreed, may they use their own means to produce the things that are the subject of the contract. If the exclusivity clause is agreed in favour of the party entitled to supply, the supplying party may not carry out, in the area for which the exclusivity is granted and for the duration of the contract, either directly or indirectly, services of the same nature as those which are the subject of the contract.

Franchising Agreements
Law no. 129/2004 on Franchising regulates franchising agreements in Italy. 
According to Art. 3 of Law no. 129/2004 on Franchising the agreement must be in writing, otherwise the contract is null and void. If the contract has a fixed term, the franchisor must guarantee the franchisee a minimum duration of not less than 3 years and the right to early termination for non-performance.

The contract must expressly specify:

  • The amount of investment and entry-level expenses that the franchisee must incur, if any, prior to commencement of the business;
  • The methods of calculation and payment of royalties, and the possible indication of a minimum amount to be collected by the franchisee;
  • The scope of any territorial exclusivity;
  • The specification of know-how provided by the franchisor to the franchisee, if any;
  • The methods of recognition of the contribution of know-how by the franchisee, if any;
  • The characteristics of the services offered by the franchisor in terms of technical and commercial assistance, planning and setting up, training;
  • The conditions of renewal (express or tacit), termination (e.g.: express termination clause) or possible assignment of the contract.

The exclusivity clause is not an essential element of the contract, and therefore may not be provided for.

The agreement may also provide for a non-competition clause, whereby the franchisee undertakes not to carry out activities in competition with those exercised by the franchisor also for a certain period of time following the termination of the contract. The non-competition clause is not an essential element of the contract.

b. Link(s) to official publication:

The Italian Civil Code is accessible via this link.
Law no. 129/2004 on Franchising is accessible via this link

c. Link(s) to English translation:

Not available.

Q3. Other than general contract law and competition law, are there other rules which may generally restrict the parties when drafting and concluding distribution agreements (e.g., rules in relation to unfair contract terms in B2B contracts, specific requirements in the context of a prohibition of abuse of economic dependence)?

Yes.

If yes, which general rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and to the English translation of the regulatory framework (c).

a. General rules

Abuse of economic dependence

According to Art. 9 of Law no. 192/1998 (on the abuse of economic dependence) the abuse of a client's or supplier's state of economic dependence in regard to one or more business is forbidden. 

A state of economic dependence exists when a business finds itself in a position to bring about excessive imbalances in the rights and obligations pertaining to its commercial relations with another business. The assessment of economic dependence also accounts for any real possibility for the abused subject to find satisfactory alternatives elsewhere in the market.
An abuse may consist in the refusal to sell or refusal to buy, the imposition of unjustifiably burdensome or discriminatory contract conditions or the arbitrary interruption of established commercial relations.

Any agreement aimed at abusing economic dependence is null and void. 
The Italian Competition Authority is entitled to issue warnings and impose penalties against any company found liable for abuse of economic dependence which is relevant to the protection of competition and the free market, in response to complaints from third parties and after using its own investigative powers.

b. Link(s) to official publication:

The official publication is accessible via this link.

c. Link(s) to English translation:

The English translation is accessible via this link

Part 2: Pre-contractual phase

Q4. Are there mandatory provisions in relation to the disclosure of pre-contractual information prior to concluding and/or executing distribution agreements?

Yes.

If yes, which mandatory provisions apply (a) and which information must be disclosed (b)? Where available, please also include a link to the official publication of the applicable rules (c) and, if available, to the English translation of the regulatory framework (d).

a. Mandatory provisions:

(i) Art. 1337 Italian Civil Code; (ii) Art. 1338 Italian Civil Code.

b. Information to be disclosed:

General Rules
Art. 1337 Italian Civil Code requires that the parties, in the conduct of negotiations and in the formation of the contract, must behave in good faith.
According to Art. 1337 Italian Civil Code the party who, being aware or having to be aware of the existence of a cause of invalidity of the contract, has not given notice to the other party is obliged to compensate the damage suffered by the latter for having relied, without its fault, on the validity of the contract.

Franchising Agreements
According to Art. 6, of Law no. 129/2004 on Franchising, the franchisor must promptly provide any data and information that the franchisee deems necessary or useful for the purposes of entering into the contract, unless such information is objectively confidential or the disclosure of which would constitute a violation of the rights of third parties and give reasons for any failure to provide the information and data requested by the same.
The prospective franchisee must provide the franchisor, in a timely manner and in an accurate and complete manner, with all information and data whose knowledge is necessary or appropriate for the purposes of entering into the contract, even if not expressly requested by the franchisor.
According to Art. 4, of Law no. 129/2004 on Franchising at least 30 days before the signing of a contract, the franchisor must deliver to the prospective franchisee a copy of the contract, together with the following annexes:

  • principal data relating to the franchisor, including the name and capital stock and, at the request of the prospective franchisee, a copy of the financial statements for the last three years or from the date of commencement of business, if less than three years have elapsed;
  • an indication of the trademarks used, with the details of the registration or deposit, or of the license granted to the franchisor by the third party who may have ownership of the same, or the documentation proving the concrete use of the trademark;
  • a brief illustration of the elements characterizing the affiliated activity;
  • a list of the franchisees currently operating in the system and of the franchisor's direct points of sale;
  • an indication of the annual variation in the number of franchisees and their location over the last three years, or from the date of commencement of the franchisor's business, if this has been less than three years;
  • a summary description of any legal or arbitration proceedings brought against the franchisor which have been concluded in the last three years in relation to the commercial affiliation system under review, whether by affiliates, private third parties or public authorities.

c. Link(s) to official publication:

The Italian Civil Code is accessible via this link.

Law no. 129/2004 is accessible via this link

d. Link(s) to English translation:

Not available.

Q5. Is there a standstill obligation linked to the requirements imposed for the pre-contractual phase?

No. 

Q6. Does the relevant regulatory framework impose sanctions if the pre-contractual obligations are not (fully) respected?

Yes.

If yes, which sanctions apply (e.g., nullity of contract, penalty payment)?

According to Art. 8 of Law no. 129/2004 on Franchising if one party has provided false pre-contractual information, the other party may request the annulment of the contract as well as compensation for damages.

According to Art. 1338 Italian Civil Code the party who, being aware or having to be aware of the existence of a cause of invalidity of the contract, has not given notice to the other party is obliged to compensate the damage suffered by the latter for having relied, without its fault, on the validity of the contract.

Q7. Can a party be held liable if it terminates the pre-contractual negotiations?

Yes.

If yes, on what grounds (a); under what conditions (b); and what consequences are generally linked to such liability (c)?

a. Grounds for precontractual liability:

Art. 1337 Italian Civil Code.

b. Conditions for precontractual liability:

Any party is free to terminate pre-contractual negotiations, but it is required to negotiate in good faith. Therefore, terminating pre-contractual negotiations in itself is not wrong, unless the party terminating the pre-contractual negotiations is acting in bad faith and terminated the negotiations wrongly (e.g. on the basis of deceptive behaviour, by means of very limited motivation or demonstrably untimely).  

c. Consequences of precontractual liability:

The damaged party may be entitled to damages by the party that is held liable for the improper termination of the pre-contractual negotiations. 

The damages for breach of the duty of good faith cover the expenses and losses incurred in negotiating or entering into the contract (the so called danno emergente) and the loss of benefit that the party could have obtained from another, more advantageous contract (the so called lucro cessante).

Q8. Are there other relevant rules and/or restrictions that apply during pre-contractual negotiations between supplier and distributor?  

No.
 

Part 3: Contractual phase

A. Form of distribution agreements

Q9. Must a distribution agreement be executed in writing to be valid and enforceable?

Only in certain instances.

If only in certain instances, please explain when a written agreement is required.

When concluding franchising agreements (see, Q3 above).

Q10. Are there any (other) requirements as to the form of the distribution agreement for it to be valid and enforceable?

No. 

B. Content of distribution agreements

Q.11 Other than restrictions imposed by EU competition law (including Regulation (EU) 330/2010), do specific rules and/or restrictions apply in distribution agreements with respect to

  • the territory in which or the customers to whom the goods/services will be sold;
  • an exclusivity granted to the distributor;
  • (exclusive) sourcing/purchasing obligations;
  • resale prices;
  • non-compete clauses

No.

Q12. Do specific rules and/or restrictions apply in distribution agreements with respect to

  • obligations of the supplier vis-à-vis the distributor, including in relation to the remuneration of the distributor;
  • obligations of the distributor vis-à-vis the supplier or vice versa;
  • a non-solicitation clause during and/or after the term of the distribution agreement;
  • minimum sales quota imposed on the distributor;
  • specific sector rules?

No.

C. Term and termination

Q13. Are there particular rules and/or restrictions in relation to the term (incl. renewal) of distribution agreements?

No.

Q14. Are there any specific rules and/or restrictions with respect to the termination of distribution agreements (e.g. minimum notice period, statutory right to compensation (goodwill or other))?

No.

Q15. Is it possible to terminate the distribution agreement based on certain grounds for termination (breach or other) included in the distribution agreement?

Yes. 

If yes, is prior judicial intervention required in order for the termination of the agreement to take effect?

No.

Part 4: Post-contractual phase

Q16. Is the supplier required to repurchase the stock that is still at the distributor’s disposal when the distribution agreement ends?

No.

Q17. Are there other post-contractual obligations that generally apply to either of the parties in the context of the termination of the distribution agreement?

No. 

Part 5: Dispute resolution

Q18. Do specific rules and/or restrictions apply as regards the choice of forum and/or jurisdiction?

Yes. 

Q19. Can the parties opt for arbitration?

Yes.

If yes, are there any rules and/or restrictions as regards the enforceability of arbitration clauses in distribution agreements?

Yes.

If yes, what do these specific rules and/or restrictions entail?

According to Art. 1341 Italian Civil Code arbitration clauses must be specifically approved in writing.

Q20. What is the statute of limitations applicable to claims regarding the performance of a distribution agreement?

According to Art. 2946 Italian Civil Code any damages claim for breach of performance of an agreement is limited to 10 years.

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