1. Overview of Franchising in Poland

Since the beginning of the 1990s, Poland has been experiencing profound economic and social changes. The liberalisation of the economy has allowed the starting-up and running of companies almost in complete freedom, and consequently, the last 20 years have seen rapid development – both private and industrial. This expansion is based mainly on the numerical growth of private sector businesses and on their dynamism. With close to 40 million inhabitants, Poland is the largest and most populous of the countries that joined the European Union in 2004. The Polish market has come to be considered as one of the most dynamic emerging markets in Europe, with a GDP increase in the difficult time of crisis in the last years. Thanks to the reforms, Poland has started its own development in franchising. The first international franchising systems started to invest in the Polish market at the beginning of the 90s. The first to enter the market was adidas in 1990. Entering the market soon after adidas were McDonald’s and the French systems of Yves Rocher and Jean Louis David, followed shortly by Kodak and others. The mid 90s saw the start-up of the first domestic franchising systems like A.Blikle and Pozegnanie z Afryka.
According to the latest survey conducted by the ARSS franchise consulting company at the end of 2010, there are close to 600 franchising systems operating in Poland. In the last two – three years one could see new developments in the Polish franchise market. The basic change involved a sharp increase in the number of new franchisors entering the market. That proves that the popularity of franchising, construed as a method of running one’s own business, is on the rise. Poland’s EU accession and growing interest in the market on the part of foreign chain stores have also contributed to a greater number of networks. The number of systems operating in product distribution franchising (60% of the franchisors) is still higher than those operating in business format franchising (40% of the franchisors); in matured franchising markets, this relation is reversed with business format franchise systems in the majority. However, the number of business format franchise operators is steadily increasing, indicating that the Polish market is becoming more mature. Most of the franchisors operate in clothing & shoes retail (120 franchisors), gastronomy (90 franchisors), grocery (80 franchisors), banking, financial and insurance services (60 franchisors). These four sectors constitute a 60% share in the franchise market.
Out of 600 franchisors there are approximately 76% Polish franchise systems and 24% foreign ones. The majority of the foreign franchise systems are being developed by subsidiaries of foreign franchisors, but the share of Polish master franchisees introducing the foreign systems grows. Most of the foreign systems come from France (19), USA (16) and Germany (16). German franchisors operating in Poland include such brands as Triumph, Bosch Car Service, Premio, TUI, Neckermann, Villeroy&Boch, Alois Dallmayr, Schülerhilfe, Mortimer English Club, Town & Country and Portas.
The table below presents basic data about foreign franchisors operating in Poland:

The most significant problem that franchisors meet in their attempt to establish their networks in Poland (apart from macroeconomic factors applicable across the national economy) is the shortage of potential franchisees with, firstly, sufficient capital resources to pay the franchise fees and to finance the initial investments; and secondly, the required management expertise and knowledge of franchising. Most opinions on the advantages of franchising for franchisees were expressed on the basis of experiences in Western Europe and the United States (for instance, no significant initial capital required, no need to have experience in running a business, etc.). However, one should remember that what is referred to as “no significant initial capital” in those countries with a developed market economy often constitutes a remarkable amount for Polish entrepreneurs. It is also obvious that foreign franchisors launching operations in emerging markets (of which they have little knowledge) will be reluctant to entrust their reputation to people with no experience of conducting commercial activities and no knowledge of franchising. Education with regard to franchising therefore plays a very important role in relations between franchisers and franchisees. Unfortunately, in Poland there are no business educational courses on franchising organised or at least sponsored by the state.

2. Franchising within the framework of Polish Civil Law

In Polish law, a franchise agreement is not regulated in a direct manner. As a result, it is impossible under Polish statutory law to name the characteristics of a franchise agreement, which would enable us to classify it as one of the co-called “nominate” contracts and to specify its entire contents. Under these circumstances, it is worthwhile to note the importance of customs for franchise agreements used in business dealings. This is so due to the provision of Art. 56 of the Civil Code, which s that an act in law produces not only the effects expressed therein, but also those stemming from the relevant legislation, the principles of social co-existence and well-established customs. Customs are extremely important also when it comes to the principles for interpreting declarations of intent, which should be construed as required, due to the circumstances in which they were made, by the principles of social co-existence and well-established customs (Art. 65 of the Civil Code). Customs may be identified only in relation to those “innominate” contracts which are repeatedly used in business dealings and which have given rise to widespread practice. In the case of franchising, the solutions applied by Polish entrepreneurs were strongly influenced by their counterparts in the EU and the U.S. As a result, Poland has adopted the franchising model established in the West, reflecting the ideas and solutions accepted in the local jurisdictions.
As was noted above, in Polish law a franchise agreement belongs to so-called “innominate” contracts, i.e., contracts that are not regulated in the Civil Code or in any other provisions of civil law. Under Polish law, franchise agreements may be concluded (just like leasing agreements in the past) on the basis of the so-called freedom of contract principle, as set forth in Art. 3531 of the Civil Code, whereby the contracting parties may shape their legal relationship at their own discretion, so long as the subject matter or the purpose thereof does not conflict with the character (nature) of the relationship, statute or the principles of social co-existence. The above-cited provision is a general clause and indicates that franchise agreements may operate in Polish law as innominate contracts within the limits circumscribed by the freedom of contract principle. In regard to franchising, such limits are laid down by the mandatory provisions of the Competition and Consumer Protection Law.
As a criterion for restricting the freedom of contract, statutory provisions are the easiest to use of all the criteria mentioned in Art. 3531 of the Civil Code. The other two, i.e., the principles of social co-existence and the nature of a relationship, present major interpretative problems. These problems stem from the fact that the principles of social co-existence are in the nature of a general clause, and that Polish jurisprudence has not yet worked out an interpretation of the principles of social co-existence principles with respect to franchise agreements. In this regard, it would be easier to determine [business] customs, to which Art. 3531 does however, not refer however. The term “principles of social co-existence” was adopted in Polish law as a Soviet concept after World War II. Although it has a completely different meaning in the present-day political system of Poland, many people – especially foreign businesspeople – may still associate it with a socialist moral doctrine. This is why there are ever-increasing attempts at replacing it with similar terms used in business before the war, such as “good faith”, “principles of fair dealing”, “good customs” or “principles of equity.” These are usually translations of terms established by, and well-known to, Western jurisdictions.

2.1 Language of the Franchise Agreement

Polish law does not require franchise agreements to be drawn up in Polish. If an agreement is drawn up in the language of the franchisor’s country and in the Polish language, it may stipulate that the foreign language version is binding in the event of a dispute. However, in such a case a Polish court will require the foreign language version to be translated into Polish by a sworn translator [i.e. a translator certified by the President of the competent Polish court]. It should be borne in mind that, despite speaking fluently the language of an agreement, a sworn translator does not have to be conversant in legal terminology. This is why translations of agreements should be approached with a great degree of caution.
Petrol distributor ARAL (currently BP) learned the hard way the painful consequences of errors in the translation of an agreement drawn up in a foreign language. In 1966, the company concluded a franchise agreement for the operation of a gas filling station. The Polish text of the agreement was a translation from German. The agreement in question contained a provision to the effect that, should the agreement be terminated, the franchisee shall be entitled to demand reimbursement of expenses incurred in connection with the conclusion and performance of the agreement. However, pursuant to a different provision of the same agreement, the franchisee was obliged to pay any and all amounts due to the franchisor. After signing the agreement, ARAL discovered that contradiction - the result of a mistranslation of the German version of the agreement, which contained a provision to the effect that “the franchisee is not entitled to demand reimbursement of expenses...” (the word “not” was omitted in the Polish text) - and suggested that the offending provision be amended. However, the franchisee refused to comply, explaining that it was precisely because of such wording that he had chosen to conclude the franchise agreement with ARAL. The agreement was terminated in 1998. At the time of termination, the franchisee owed approx. PLN 80,000 to ARAL in outstanding fees, such as for the fuel supplied, among others. The franchisee refused to pay the amount requested, alleging offset of the amounts due to the franchisor against the expenses made by the franchisee under the franchise agreement, for which, in accordance with the above-mentioned contractual provision, the franchisee should have been reimbursed after the termination of the agreement. The Regional Court found the offset justified and dismissed the action for payment brought by ARAL. The Court of Appeals expressed a similar view on the matter and dismissed ARAL’s appeal. It was not until October 2004 that the above judgment was quashed by the Supreme Court. In the justification for its ruling, the latter stated that the above-cited provision was self-contradictory and that payment of remuneration constituted an inherent feature of franchising.

2.2 Choice of law issues

Under Polish Private International Law, contracting parties may choose the governing law for their relations; however, their choice is limited to the law which bears a relation to the obligation at issue. If the parties choose a different governing law, a court may annul their choice.
A franchise agreement between a foreign franchisor and a franchisee domiciled in Poland may provide that it will be governed by the law of the franchisor’s country and that all disputes will be submitted either to a court in the franchisor’s country or to arbitration in the franchisor’s country or in a third country. There are no restrictions on the rules of arbitration applied in an arbitration proceeding. Foreign judgments and arbitral awards are readily enforceable in Polish courts.

3. Financial Aspects

3.1 Franchisor Revenues

The initial franchise fees for a single unit franchise range from 1 PLN for the new franchisors entering the market up to 130 k PLN for well established, reputable franchisors like McDonald’s. However, the latter seems to be the exception to the rule. Generally, initial franchise fees range from several to several thousand PLN. What is interesting is that as much as 45% of franchisors do not charge any initial franchise fee.
Continuing fees charged by franchisors are, on average, on the level of 5% of a franchisee’s net income. The continuing fees are not charged by 44% of franchisors. However, it often happens, particularly in product distribution franchising systems, that both initial and continuing franchise fees are incorporated in the price of goods delivered by the franchisor to the franchisee. Such treatment allows for potential franchisees that have insufficient initial capital to buy the franchise, and concurrently excludes any dispute over whether or not the amount of franchise fees is justified.
Polish law does not impose any caps on the initial or continuing fees that may be charged by franchisors to franchisees. Fee payments are tax-deductible for franchisees.

3.2 Advertising Contributions

Polish franchisors generally require their franchisees to make periodic contributions to a marketing or advertising fund, but very often these contributions are not stipulated in the franchise agreement and they simply form a part of the continuing franchise fees charged by franchisors. This arrangement does not create a trust fiduciary or agency relationship between the franchisor and the franchisee and does not otherwise change or affect their legal relationship with respect to such fund or in general. Such contributions are treated as the franchisor’s revenue for tax and accounting purposes.

3.3 Financial Sources

Franchisees may finance their operations only with their own or with a franchisor’s funds, mainly by using trade credit or by paying the initial franchise fee through installments. Unfortunately, to date, Polish banks have not introduced any financing schemes for franchisees. Governmental agencies (such as the Polish Agency for Entrepreneurial Development) as well as loan and surety funds grant financial support to small entrepreneurs primarily by using EU funds. However, as the institutions in question have not worked out a systemic approach to franchisee financing, they apply the same criteria toward franchisees as they would toward all small-size entrepreneurs applying for financial assistance.

3.4 Incentives

In Poland there are no agencies or programs that grant financial or tax incentives specifically to foreign franchisors. According to the rule of equal treatment of all entities, the companies with foreign shareholding generally operate their businesses on the same principles as Polish firms.

4. Intellectual Property

4.1 Trademark/Service Mark Protection

Under the Polish 2000 Industrial Property Law, every marking that can be presented in a graphical manner may constitute a trademark, provided that the goods of an enterprise bearing such marking may be distinguished from those of another. More specifically, a word, drawing, ornament, color scheme, spatial form, including the form of a good or packaging, as well as a tune or other sound signal, may constitute a trademark. Polish law does not make a distinction between trademarks and service marks. These terms are synonymous. The Industrial Property Law expressly indicates that whenever it refers to trademarks, it means service marks as well. With respect to trademarks, under the very definition of a product, the latter is synonymous to a service.
In Poland, trademarks are registered with the Patent Office of the Republic of Poland. In order to register a given trademark, an entity or person does not need to be using it at the time of filing an application for registration. However, in order to ensure that the protective right to a trademark does not expire, the applicant should, within 5 years from the issuance of a decision on granting a protective right to a trademark, begin to actually use the trademark in business dealings marking with it the goods and services covered by the registration.
As soon as Poland joined the European Union, Community Trademarks (CTM) became subject to protection in Poland. Trademarks submitted for registration in the countries belonging to the Madrid Agreement and/or the Protocol to the Madrid Agreement may also obtain protection in Poland. The owners of the above-mentioned trademarks are entitled to the same protection in Poland, the same way as the owners of domestic trademarks. If the use of a foreign trademark in Poland runs contrary to the public order or morality, it may be banned. However, the registration itself may not be challenged. Similarly, the owners of Polish trademarks may apply for international registration, either via WIPO or via community registration for the entire EU.
Provisions of law envisage only two situations in which non-registered trademarks are granted specific rights. In the first, the right of gratuitous use to a marking, which was subsequently registered as a trademark by another entity, is granted to a person who, while conducting small-size business activities, used it prior to registration in good faith. Following registration of that trademark in favor of someone else, the person involved may continue to use the marking, provided that s/he does not exceed the scope of use. However, it does not amount to a protective right for the exclusive use of a marking for specified goods or services.
The other situation applies to a commonly known trademark. Even if a trademark is not registered, the person entitled to it may demand cessation of use of an identical or similar mark with respect to identical or similar goods, where such use may mislead recipients as to the origin of the goods.
In Polish law, a distinction is drawn between commonly known and renowned trademarks. A trademark is deemed commonly known upon joint satisfaction of the following conditions: (1) it must be known in most of Poland; (2) it must be commonly known to more than 50% of prospective domestic buyers. It may be very difficult to prove that a given brand is commonly known, especially due to insufficient legal regulations and conflicting jurisprudential views in this regard. Renowned trademarks form a distinct category. Renowned trademarks include, for example, Coca-Cola and McDonald’s. A renowned trademark is construed to mean a type of trademark which guarantees the high quality of a product and, therefore, “attracts customers by itself”, as it were. Such a trademark may promote any goods or services other than those for which it was originally used. Renowned trademarks enjoy special protection, whose scope exceeds the confines of specialization. This means that a ban on using a renowned trademark may be issued also with respect to goods of a different type, which are not competitive vis-a-vis those for which a given trademark was registered with the Patent Office of the Republic of Poland.
There is no requirement to translate foreign names into Polish and one does not need to use a foreign mark translated into Polish. A problem may arise in a situation where someone would want to register a word trademark denoting the type of a product in the Polish language. The Polish word “sok” [Eng. “juice], which does not denote a beverage in any foreign language, but which may be the name of a given firm’s product, may serve as an example. Such a trademark will not be registered in Poland. The same is true of marks containing derogatory subject matter in Polish or misleading recipients as to the geographic origin (e.g., by referring to the name of a locality in Poland).

4.2 Effect of Registration

Protection of a trademark is obtained by registration with the Patent Office of the Republic of Poland. The right in a trademark remains in effect for ten years from the date of correct submission of a trademark, and not from the date of registration. Priority in obtaining the rights from the registration of a trademark depends on the date of correct submission thereof to the Patent Office. The trademark is protected as of the date of submission. It is subject to so-called temporary protection, which is granted on condition that the trademark is registered thereafter.
The protective right to a trademark may be annulled, in whole or in part, at the request of anyone who has a legal interest in it being annulled, provided that s/he can prove non-fulfillment of statutory requirements for that right to be obtained. The Patent Office may, also at the request of a person having a legal interest in the matter, issue a decision on the expiration of a protective right if that right was not used, lost its distinctive features, or due to actions capable of misleading recipients as to the character, the properties or the geographic origin of a product.
Protection of a trademark may be extended for another ten years. In order to obtain such extension, the person entitled to a trademark must file an appropriate application prior to the lapse of the previous period of protection, but not earlier than one year prior to the lapse of such term. In addition to the application, the applicant must make the requisite payment for extension. Therefore, there is a possibility of uninterrupted extension of a protective right to a trademark.
In the event of an infringement of a protective right, the owner of a trademark or a licensee may file suit against the infringing person or firm with the regional court having jurisdiction over the seat or place of residence of the infringing party.

4.3 Licensing

The person entitled under the registration of a trademark may authorize another enterprise or another person to use that trademark for goods covered by the registration by concluding a license agreement with it. A license agreement has to be executed in writing; otherwise, it shall be null and void. At the request of the interested party, a license must be recorded in the register of trademarks maintained by the Patent Office of the Republic of Poland and expires upon expiration of the protective right to a trademark. The above principles also apply to non-registered trademarks that were submitted for registration, unless otherwise agreed by the parties.
Due to the fact that the protective right to a trademark is transferable and inheritable, should a licensed right pass to another entity, a license agreement shall be effective with respect to that entity.
A licensee may grant a sub-license to use a trademark, but only with the consent of the licensor and only within the scope of authorization granted. Further sub-licenses, however, are prohibited by operation of law.
If a licensee breaches the provisions of a license agreement on the effective term and territory thereof, the form of trademark licensed, the specification of goods for which the trademark may be used and the quality thereof, the licensor may demand that the licensee cease such breaches and cure the effects thereof pursuant to general terms. The above principle applies to a sub-license accordingly.

4.4 Abuse of Foreign Marks

In the past, infringements of intellectual property and foreign trademarks have been a fairly common problem. Nowadays they are less common. There are several reasons for this state of affairs. Firstly, foreign firms are taking better care of their trademarks – they are aware that the registration of a trademark in Poland guarantees full protection. Moreover, since Poland signed the Madrid Agreement and became an EU member, the owners of foreign trademarks have enjoyed the same protection of their trademarks as in their country of origin. Moreover, the legal requirement to use a trademark upon registration helps entrepreneurs prevent situations where a foreign trademark would be registered only for the purpose of depriving the owner of a possibility of using it in Poland and (possibly) reselling the protective right.

5. Franchise Regulation

Poland does not have any laws regulating or otherwise specifically focused on franchising. Franchisors are not required to register with any government agency or to obtain any governmental or other approvals or licenses. Also, they are not required to make any specified disclosures to prospective franchises prior to the grant of a franchise. There are no limitations imposed by law relating to:

• the term of a franchise;
• the amount of fees, royalties or other sums payable by a franchisee to a franchisor;
• an obligation of the franchisee to operate only the franchised business or to devote his or her working time exclusively to that business;
• restrictions on the products or services sold by the franchisee;
• territorial rights granted to the franchisee;
• quality and other standards of controls imposed by a franchisor on the franchisee.

The modified quality standards are enforceable if they obligate the franchisee to invest additional capital or incur higher operating costs. There are no limitations on interest rates which may be lawfully charged in the event of default, however the market practice shows that usually these are statutory interest rates. Sub-franchising is permitted and is not restricted in any way.

5.1 Protection of Know-How/Confidential Information

The Law on Combating Unfair Competition of April 16, 2003 defines the term “business secret” as unpublicized technical, technological and organizational information of an enterprise or other information of economic value, with respect to which the entrepreneur has taken the requisite actions to keep it secret.
An act of unfair competition is construed to mean an act of transmitting, disclosing or using another’s information constituting a business secret or an act of obtaining it from an unauthorized person, if the same jeopardizes or infringes the entrepreneur’s interest.
In order to effectively assert claims under the provisions of the Law on Combating Unfair Competition, a franchisor who discloses his or her know-how and confidential information to a franchisee should obligate the latter, preferably in writing, to keep it secret. Moreover, the franchisor should precisely describe the essence of the know-how which s/he protects in order to be able to prove any possible breach of confidentiality in the future.
If a franchise agreement entitles the franchisee to use the franchisor’s trademark and know-how solely for the effective term of the agreement, upon termination or expiration of the agreement the franchisee may not use the said rights. A franchise agreement may require the franchisee to transfer all innovations and improvements made by the franchisee to the franchisor and to discontinue use of such innovations and improvements after termination or expiration of the agreement. However, if during the effective term of a franchise agreement, the franchisee itself invents and introduces a new form of a product being accepted within the entire network, the franchisee is the author thereof in accordance with the law and is therefore entitled to any royalties and the author’s moral rights. To be on the safe side, the franchisor may insert a clause in an agreement stipulating that any royalties to any works invented by the franchisee belong to the franchisor. In that case, the franchisee will be entitled solely to the author’s moral rights to the work concerned.
Generally, experts in Poland believe that there are sufficient tools for combating dishonest entrepreneurs. That said, it should be noted that overlong court proceedings are a major obstacle to enforcement of rights. Disputants are made to wait for up to 12 months for the first hearing to be scheduled by the Commercial Court. The subsequent hearings are scheduled at two-month intervals. Consequently, disputants have to wait even several years for the final judgment in a lawsuit.

5.2 Termination Issues

There are no restrictions on the rights of a franchisor to terminate a franchise agreement or to grant a new franchise to another person for the same location or territory after the franchise has expired. It is advisable that the termination notice be done in writing in order to preserve ad probationem form. There are no limitations on the grounds which may be specified in a franchise agreement for termination of a franchise, for non-extension of an expired franchise or for the franchisor’s right to refuse to grant another franchise to the original franchisee. The death or permanent disability of a franchisee, or the principal or managing owner of the franchisee are the proper grounds for termination of the franchise. The franchisor is not required by the operations of law to purchase inventory from or pay any other compensation to a franchisee upon termination or non-extension of its franchise or the franchisor’s refusal to grant another franchise to the franchisee. If a franchisor owns the real estate at which the franchisee’s business is located, the franchisor may take over and operate the business formerly operated by the franchisee after the franchise agreement has been terminated or has expired.
The franchisor may take over and operate the franchisee’s business after the termination or expiration of the franchise by exercising: (1) an option to purchase the real estate at which the franchisee’s business is located; (2) an option to acquire the lease for such real estate; or (3) an option to buy the franchisee’s business. If the prices to be paid upon the exercise of any of these options are drastically outside the fair market prices they might, in the event of a dispute, be reviewed by the court with the use of the principle of so called rules of the social cohabitation.

6. Polish Competition Law and Franchising

As Poland is a EU member Polish competition law has been harmonized, although in case of franchising with some problems discussed in detail below, with EU competition law. This is not intention of this article to explain extensively the EU completion law however, one should remember that for international contracts which have an impact on trade relations between EU member countries EU competition law overrides the national regulations on competition. For contracts on international franchising or distributorship it is enough to say that as long as they conforms to internationally accepted standards then there should not be problems with their execution with regard to Polish market.
Polish Competition and Consumer Protection Law of December 15, 2000, which applies to purely national situations, prohibits agreements aimed at, or resulting in, eliminating, restricting or otherwise impairing competition in the relevant market. Such agreements are null and void in whole or in their relevant part. Under a discretionary power accorded to it in the Law, on November 19, 2007 the Council of Ministers issued a regulation on excluding specified vertical agreements from the prohibition on competition-restricting agreements. Excluded from the prohibition are, among others, vertical agreements creating franchising distribution systems if the share of the distributor and the capital group to which it belongs in the relevant market for the sale of goods covered by the agreement concerned does not exceed 30%. It should be noted that the regulation does not refer to franchising systems; instead, it makes use of the term “franchising distribution” which is defined as a distribution system in which the distributor (franchisee) undertakes, directly or indirectly, to resell the goods covered by the agreement from the distributor (franchisor), using the latter’s set of intellectual or industrial property rights or know-how in exchange for direct or indirect remuneration.
The above provision seems to indicate that only product distribution franchising systems are excluded under the Regulation and that the Regulation does not apply to business format franchising systems, which would undoubtedly complicate their situation under competition protection provisions. In this author’s opinion this is probably an oversight, rather than an intended act, on the part of the drafters of the Regulation, which stems from their incomplete knowledge about franchising. This obvious inconsistency should be remedied as soon as possible, although on the other hand it should be noted that, during the effective term of the exclusion, it produced no negative consequences for any of the business format franchising systems operating in Poland. It seems certain that this situation will not change until the end of the exclusion’s effective term, i.e., until May 31, 2011.
The exclusion does not apply to vertical agreements which contain “hardcore” restrictions, such as those restricting the purchaser’s right to establish a resale price by the supplier imposing minimum or fixed sale prices for the goods covered by the agreement, restricting the area or group of customers to whom the purchaser may sell the goods covered by the agreement etc.

6.1 Competition by Franchisees

Under the Regulation, entrepreneurs are allowed to incorporate into franchise agreement broad non-competition clauses. The group of persons who might be affected by a non-competition clause may practically be unlimited, in that the franchisee’s obligation to refrain from competitive activities may be indirect in nature. Unfortunately, there is no case law that would specify the limits of the franchisee’s possibility for contracting such obligations. Moreover, Polish law does not require that the franchisor use any special efforts to justify its demands toward franchisees in this regard.

6.2 Remedies and Enforcement

The Chairman of the Office for Competition and Consumer Protection initiates antitrust proceedings on competition-restricting practices either upon request or ex officio. The Chairman does not initiate any proceedings on competition-restricting practices if one year has expired from the end of the year in which such practices ceased. If the Chairman of the Office for Competition and Consumer Protection declares a breach of the prohibition set forth in the Law, he issues a decision on finding such practice to be restrictive for competition and on ordering the breaching party to abstain from it. A fine for a breach of the prohibition set forth in Art. 5 or in Art. 8 of the Competition and Consumer Protection Law or for a breach of Art. 101 or Art. 102 of the Treaty on the Functioning of the European Union is no more than 10% of the revenue generated by an entrepreneur in the settlement year preceding the year in which the fine was imposed. It is the Chairman of the Office for Competition and Consumer Protection who levies the fine. Appeals against decisions issued by the Chairman of the Office are reviewed by the Court of Competition and Consumer Protection. To date, the Polish antitrust authority has not worked out any clear stance on franchising.
The Competition and Consumer Protection Law safeguards the public interest (protection of the freedom of competition), with private interests being safeguarded by the 1999 Law on Combating Unfair Competition, which is intended to protect fair competition principles. The said Law defines an act of unfair competition as an act contrary to the law or good practice if it jeopardizes or contravenes the interest of another entrepreneur or customer. More specifically, the Law sets forth the following acts of unfair competition: (i) misleading labeling of a business, (ii) false or fraudulent labeling of the geographic origin of goods or services, (iii) misleading labeling of goods or services, (iv) breach of a trade secret, (v) inducing a party to terminate or fail to perform an agreement, (vi) copying products, (vii) slandering or unfair praise, (viii) hindering others’ access to the market, (ix) bribing a public servant, (x) unfair or forbidden advertising, (xi) organizing a pyramid selling system, and (xii) conducting or organizing syndicated operations.

7. Liability Issues

7.1 Potential Liabilities of Franchisors to Franchisees

Under the provision of Article 84 §1 of the Civil Code, in the event of an error relating to a legal act, a person may avoid the legal effects of his declaration of intent. If, however, such declaration of intent was made to another person, one is allowed to avoid its legal effects only when the error was provoked by that person (even through no fault of his own) or if such person knew of the error or could have easily noticed it. A person may only plead an error which warrants the assumption that if the person making a declaration of intent had not acted under the influence of error and had assessed the situation in a reasonable manner, s/he would not have made the declaration of intent (material error). In this regard, an error is construed to mean a discrepancy between objective reality and its reflection in a person’s awareness.
Distortion of a declaration of intent by a person triggers the same effects as an error made in the act of making a declaration.
If an error was provoked by the other party through deception, a person may avoid the legal effects of a declaration of intent made under the influence of an error also when the error was not material and when it did not pertain to the subject matter of the legal act concerned (Art. 86 §1 of the Polish Civil Code). Deceptive conduct is construed to mean a deliberate act of misleading another person or confirming such person’s misapprehension with the object of inducing him or her to make a specific declaration of intent. Deception is also construed to mean a deliberate act of withholding certain information – but only when the actor was obliged to disclose it. It should be noted at this point that Polish statutory or case law does not require that a franchisor disclose information about itself prior to concluding an agreement with a franchisee.
Among those who may avoid the legal effects of their declaration is also a person who made a declaration under the influence of an illegal threat of the other party or a third party if the circumstances show that the said person could feel concerned that he or another person was exposed to serious danger involving the personal safety of such person or his or her assets.
A person avoids the legal effects of a declaration of intent, which was made to another person under the influence of an error or threat, by making a declaration to such person in writing. The right to avoid [the legal effects of one’s declaration of intent] expires: in the event of an error – upon lapse of one year from detection thereof; and in the event of a threat – upon lapse of one year from the time the condition of concern has ceased to exist. Avoidance of the legal effects of a declaration of intent results in the extinguishment of all legal consequences related thereto, effective from the time a defective declaration of intent has been made (ex tunc). However, the beneficiary may not demand any change in the subject matter of a defective declaration of intent.
That being said, Polish law is not explicit with regard to liability for damage incurred as a result of negotiations conducted in a disloyal manner. Indeed, general provisions of law do not refer to losses suffered only as a result of negotiations, as one cannot establish liability for a “potential” fault until such time as an agreement has been concluded. However, a deceived business partner may assert his rights under the culpa in contrahendo doctrine. Art. 415 of the Civil Code provides the grounds for liability for negotiations conducted in a disloyal manner: “Whoever caused damage to another person through his own fault is obliged to remedy it.” Liability is determined on the basis of the following prerequisites: (i) occurrence of a culpable event which triggers by law an obligation to compensate for damage; (ii) occurrence of damage; (iii) causal relation between the event and the damage. The majority of Polish legal commentators subscribe to the view that, in this case, compensation does not include lost profits. Inclusion of lost profits might restrict the scope of the freedom of contract principle, the more so as the phase of negotiations does not involve any obligation; instead, it involves a duty of loyal conduct. The freedom of contract principle in Polish law and the necessity to accept the so-called negotiation risk are among the arguments used to justify this assertion.

7.2 Potential Liability of Franchisors to Third Parties

As each franchisee is acting in its own name and on its own behalf, a franchisor has no liability to third parties as a result of the acts or omissions of its franchisee. The full responsibility of franchisees for their acts or omissions is one of main advantages of franchising for franchisors. The Polish laws do not, so far, impose any liability on franchisor based on the acts or omissions of its franchisee. Therefore, a franchisor cannot be liable for contract claims by persons who contracted with its franchisee, nor can he be liable for claims of personal injury or property damage raised against its franchisees. A sign on the premises of the franchisee’s business notifying customers that the business is independently owned and operated by a franchisee is sufficient, but not necessary, to preclude third party claims against a franchisor. But the market practice shows that Polish franchisors very rarely require their franchisees to put such signs on their premises. By consequence there is no need for any insurance to defend and indemnify a franchisor against such claims. An indemnification by a franchisee is valid and enforceable (at least to some extent) although not customary. A franchise agreement may effectively oblige a franchisee to indemnify a franchisor against liability arising out of the franchisee’s operations.

Conclusion

Although Poland does not have any laws regulating or otherwise specifically focused on franchising and there is yet not much case law on franchise relationships it has so far not hindered the positive development of Polish franchising. The market practice shows that Poland has adopted the franchising model established in the West, which has been confirmed by Polish courts as legally binding and enforceable in several court cases on franchising. Therefore, if the franchisor makes an effort to respect the general principles of Polish law when drafting a franchise contract he should not face any major legal problems in developing his franchise network in Poland.