In the past few years, franchises have gained importance in Ecuador. This is due not only to a growth in number and economic value, but also because of the increasing openness of relevant markets. This openness has been prompted by the elimination of investment and trade restrictions.
The legal regime that applies to franchises is subject to the will of the parties to the contract, under the framework of civil and commercial legislation that is generally applicable to contracts. Any consequence of the contract that is not expressly prohibited by law will be valid.
However, this regime has been complemented by other rules that do place limits on the validity of franchise agreements. These rules are generally those contained in legislation that relates to industrial property, transfer of technology and licences.
Franchise agreements are executed under a comprehensive framework that generates different links and obligations for the parties. This allows the parties to obtain certain advantages in addition to royalties. Licence sub-contracts are also considered an indispensable part of principal franchise contracts.
The practical importance of franchises (which can be a good source of economic exploitation of trademarks) has had an impact on the development of trademark legislation. For example, the Intellectual Property Law of Ecuador has been affected.
Decision 486 of the Andean Community (which recently came into force in Ecuador) also contains clear rules for the use of trademarks and licences. For example, if a licence is not registered, it cannot be used against third parties. Local law in each member country must determine whether lack of effectiveness precludes the licensee from acting against third parties. The use of a trademark by an unregistered licensee is not considered valid use of the mark, in defence against an action based on lack of use.
For further information on this topic please contact Maria Cecilia Romoleroux at Bustamante & Bustamante by telephone (+593 2 562 680) or by fax (+593 2 564 628) or by e-mail ([email protected]).
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