Although the franchising relations appeared much earlier than the laws, enacting the new Civil Code of Lithuania has consolidated the practical and theoretical side of franchising.

Section XXXVII of the 6th book of the Civil Code of Lithuania provides regulations towards franchising in Lithuania.

Legislation regulating commercial activities in Lithuania

The main legal acts regulating commercial activities in Lithuania are the Civil Code of Lithuania (enacted since July 1, 2001) and laws regulating different types of enterprises in Lithuania. In Section XXXVII of the Civil Code of Lithuania there is Article XXXVII, which provides for and regulates the franchising agreement and sub-franchising agreement, as well as duties and rights of the franchisor and the franchisee. Moreover there are several laws, which regulate each type of enterprises in Lithuania. These laws are the Law on Individual (Personal) Enterprises (enacted since January 1, 2004), the Law on Partnership (enacted since January 1, 2004), the Law on Private and Public Companies (enacted since January 1, 2004), and the Law on Agricultural Companies (enacted since May 30, 2001).

Legislation regulating intellectual property protection in Lithuania

Protection of copyright and related rights is granted upon having created (performed) a certain work. Objects of copyright and related rights are not registered in Lithuania. Industrial property rights are recognized and protected only after being registered according to the procedure prescribed by the laws of the Republic of Lithuania.

The law regulating the intellectual property is Lithuania’s Design Law, enacted on January 1, 2003, which complies with the EU Directive 98/71/EC of the European Parliament and of the Council of 13 October 1998 on the legal protection of designs. Legal protection is applied to design registered in the Design Register of the Republic of Lithuania managed by the State Patent Bureau. Only new design with unique features may be registered.

Lithuania’s Trademark Law, enacted on January 1, 2001 was adopted in accordance with the First Council Directive of 21 December 1988 to approximate the laws of the member states relating to trademarks (89/104/EEC). In Lithuania trademarks are registered with the Register of Trademarks of the Republic of Lithuania, administered by the State Patent Bureau. Only registered trademarks are protected, unless a trademark has been recognized as well known by the court. The laws establish the rights of the owner of a trademark, including the right to prevent any third persons from illegal use of that mark or similar one in commercial activity.

The Patent Law of Lithuania, enacted on December 21, 2000, provides for protection of inventions in the form a patent granted by the State Patent Bureau. Only patentable, new and industrially applicable inventions are registered. The owner of a patent has the right to prevent other persons from using a patented method of manufacturing a product, as well as manufacturing, selling, importing etc. of a patented product or a product manufactured using a patented method of manufacture, without his authorization. It should be noted that the Patent Law also provides for the conditions of extension of an international patent application or European patent.

The Law on Copyright and Related Rights, enacted since March 21, 2003, is applied to original literary, scientific and artistic works which are the result of creativity of an author expressed in any objective form.
Owners of copyright and related rights are entitled to grant the authorization for the exercise of their economic rights to associations of collective administration of copyright and related rights established for this purpose.

Other legislation related to franchising agreement in Lithuania

The laws of the Republic of Lithuania protect freedom of fair competition by restricting and/or prohibiting the following anti-competitive actions: unlawful anti-competitive agreements, abuse of a dominant position, concentration and other actions of competition.

Applicable legislation is the Law on Competition of the Republic of Lithuania No. VII-1099 dated 23 March 1999. The institution, which verifies competition situation in the Republic of Lithuania, is the Competition Council of the Republic of Lithuania.

Lithuania’s competition law is harmonized with the legal provisions and regulations on competition of the European Union.

Application of legal provisions on competition
Legal provisions on competition are applicable to all enterprises or groups thereof, including enterprises registered outside Lithuania, if their economic activities restrict competition in Lithuania’s domestic market.

Prohibited agreements restricting competition
Agreement restricting competition means a contract concluded in any form (written or verbal) between two or more enterprises, or concerned groups of enterprises, including decisions of any combination of enterprises or of representatives of such combination, which create barriers to compete in the relevant market or which may weaken, distort or otherwise negatively affect competition. All agreements, which have the restriction of competition as their object, or which may restrict competition, shall be prohibited and shall be null and void from the moment of conclusion, unless they fall under block or individual exemptions. All agreements with the aim to restrict competition are prohibited and are null and void from the moment of their conclusion.

Prohibition of abuse of dominant position
The Law on Competition prohibits abuse of dominant position within the relevant market by carrying out actions, which restrict or may restrict competition, unreasonably limit the possibilities of other enterprises to act in the market, or violate the interests of consumers.

A company may be considered to have a dominant position in the relevant market in case its market share is no less than 40%, as well as if each of a group of three or a smaller number of enterprises with the largest relevant market shares, jointly hold 70% or more of the relevant market.

Prohibitions of other actions of unfair competition
Enterprises are prohibited from performing any actions contrary to fair business practices and good customs, if such actions may be detrimental to other enterprise’s possibility to compete, such as unauthorised use of a mark of other company, misleading of enterprises by providing them with incorrect or unjustified information.

Essential features of the franchising agreement in Lithuania

The legal regulations with respect to franchise agreements are provided in the Civil Code of Lithuania, enacted since July 1, 2001. Franchise agreements must be executed in writing and can be used against the third parties only if the fact of entering the agreement was duly registered with the Register of Legal Persons. The Civil Code establishes several mandatory obligations for both the franchisor and the franchisee. The obligations shall remain obligatory even if not incorporated into the franchise agreement. Therefore, the franchisor shall always be obligated to provide the franchisee with technical and commercial documentation and other information, which is necessary to implement the rights granted to the franchisee. The franchisor shall also have to grant all licenses agreed upon in the franchise agreement and guarantee due formalization of all the licenses therein. On the other hand, the franchisee shall be always obliged to use the granted rights only in accordance with the conditions of the franchise agreement, shall have to preserve due quality of goods or services under the franchise agreement, to follow franchisor’s directions, such as decoration of interior of the premises, provide customers with additional services, which the customers could have reasonably expected, if he/she had ordered the services from the franchisor. The franchisee shall not disclose confidential information, and shall expressly inform customers that the franchisee’s activity is maintained under the franchise agreement.

Where a license of an object of industrial property (a patent, trademark and/or design) is a part of a franchise agreement, the fact of the execution of the franchise agreement has to be registered in the same Register in which the object of industrial property transferred by the agreement is registered.

Lithuania has all relevant legal regulations harmonized with the EU laws, necessary for establishing and developing franchise business in the country. Lack of implementation practice of franchise regulations in Lithuania could be admitted as a present problem, but it will definitely be solved during several oncoming years. Speaking about legal effective regulation and necessary conditions for franchising business formation in Lithuania, we need to pay attention that there is not enough franchising legal regulation in the Civil Code of Lithuania or other with European Union harmonized legal deeds. In this case economical and political situation in the country, the government attitude towards small and medium business, tax system and overall countries economic strategy have an important effect on franchising, as well as on other types of business.

Enterprise registration in Lithuania

Depending on the type of an enterprise, other actions must also be taken prior to the registration: in public companies, a public offering of shares should be registered with the Securities Commission; the initial contributions to the authorized capital should be paid to the company's accumulative account; a permission of the owner of rented premises, where the enterprise will be registered, should be obtained; in public companies, the incorporation reports should be prepared and audited; the founding meeting of shareholders should be convened to approve the Articles of Association, elect the managing bodies, etc.

The Registrar should decide on registration within 15 days from the date the documents were submitted to the Centre of Register of Legal Persons.

Company name registration
Prior to starting a business in Lithuania, each business entity must apply for registration of the company’s name with the Centre of Registers by filing an application, at a charge of LTL 30. A person, willing to register a company’s name, must submit an application to the State Patent Bureau, LTL 70 is being charged for submission of the application, and LTL 10 - for an excerpt from the register). The firm name shall be an inseparable part of a registered enterprise, which is given protection during the active life of the enterprise. A firm name can be transferred only together with the firm, and for an additional one year after termination of its activities. When a new Register of Legal Persons is established, firm names will no longer require separate registration.

Registration related charges
Upon establishment of the Register of Legal Persons the notaries shall approve the founding documents, verify the data to be included into the Register and implementation of pre-registration procedures. Notaries typically charge fees for the performance of notarial acts and legal and technical services, the amount of which is established by the Ministry of Justice of the Republic of Lithuania. The fees concerning the registration of legal persons are the certification of the incorporation contract - 100 to 300 LTL, the verification of compliance of incorporation documents with the provisions of laws (for registration - a personal (individual) enterprise – 170 LTL; a state or municipal enterprise – 250 LTL; a commercial partnership, limited partnership, agricultural partnership, co-operative society – 300 LTL; a company or private company – 350 LTL; an association, public organization, charity and sponsorship fund – 85 LTL; a commercial bank, credit union or another credit institution, a company authorized to engage in insurance activity – 500 LTL; a public institution, partnership of multi-storey dwelling houses or another legal person – 200 LTL), the verification of compliance of a branch or representative office regulations with the provisions of laws – 50 percent of the fee for a respective juridical form of a legal person, finally, the verification of authenticity of documents (data about legal persons) which are produced to the registrar of the Register of Legal Persons (for example, business name, juridical form, head office, code of a legal person, etc.) – 10 to 20 LTL per piece of data.

State charges
Before submitting all necessary papers to the Register of Legal Persons the following payments of state charges must be made for the registration of legal persons, their branch or representative offices (a company or private company – 120 LTL; a commercial partnership, limited partnership, agricultural partnership, co-operative society – 100 LTL; a personal (individual) enterprise – 60 LTL; a state or municipal enterprise – 80 LTL; an association, public organization, charity and sponsorship fund – 25 LTL; a commercial bank, credit union or another credit institution, a company authorized to engage in insurance activity – 200 LTL; a public legal person – 10 LTL; another legal person – 90 LTL; A branch or representative office – 50 percent of the fee for a respective juridical form of a legal person; a branch or representative office of a foreign legal person or other organization – 100 LTL).

Before starting activities
Once the company is registered, before it may commence its activity it should perform all of the following steps:

• registration with the local tax inspectorate;
• registration at the local office of the State Social Insurance Board;
• production of a corporate seal of the company;
• opening of a settlement bank account;
• obtaining any other permissions or licenses, if required;
• if needed, registration as a value-added tax (VAT) payer.

According to the Regulations of the Register of Legal Persons, a legal person shall be registered within 5 regular business days as of the day on which all necessary documents (listed in the Civil Code Art. 2.64 paragraph 2) have been produced.

Registration of intellectual property in Lithuania

Lithuanian legislation differentiates three different forms of intellectual property, rights to which can be registered in the country. Those forms are - trademarks, registered design, and patents of inventions. A thorough description of each of the intellectual property forms and the procedure of their registration is given below.

Trademarks
A trademark as defined by the State Patent Bureau of Lithuania means any sign capable of distinguishing the goods or services of one person from those of other persons and capable of being represented graphically. The registration of trademarks in Lithuania is undertaken by the State Patent Bureau of Lithuania.

The Patent Bureau examines trademarks only with respect to absolute grounds for invalidation of registration of the trademark. Grounds for trademark registration cancellation can be, for example, lack of distinctiveness of the trademark; the sign of the trademark has become customary in the current language, and other. If a sign applied for registration is similar to an earlier applied trademark, the owner of the earlier mark is entitled to oppose registration of the later sign. The State Patent Bureau of Lithuania does not examine if the trademark has been applied for registration before. Therefore, the applicant should examine the sign applied for registration with respect to similarity of the sign to earlier registered marks.

The duration of a trademark registration is 10 years from the date of filing of the application. If the owner of the trademark wishes to prolong the registration period, he must appeal to the State Patent Bureau to get the trademark registration renewed, which is possible for every 10 years. The process of trademark registration in Lithuania takes up about one year. The costs of the registration are up to EUR 200. Foreign legal and natural persons shall file applications with the State Patent Bureau through a patent attorney of the Republic of Lithuania.

Registered designs
Registered designs protect the appearance of the whole or a part of a product. This can include contours, colours, shape, texture or ornamentation. The definition of what can be registered as a design in Lithuania is quite wide and would include things like clothing designs or patterns on fabrics, the contours of a desk lamp, the shape of packaging and even some things that would normally be thought of as trademarks, such as stylised lettering and logos, unless they were accessible to the public before the application was made to register the design or the priority date.

A registered design allows the company to prevent others from producing articles that look the same as those designed by this company. The registration of the design is relatively quick, taking usually only up to 3 months. The registered design is also rather inexpensive to obtain and can protect the companies design for up to 25 years.

Lithuanian registered designs are national rights that are administered by the Lithuanian Patent Office. Foreign legal and natural persons shall file applications with the State Patent Bureau through a patent attorney of the Republic of Lithuania.

Patents of inventions
The Lithuanian legislation defines that an invention will qualify for patent protection in Lithuania, provided it is new, involves an inventive step and is capable of industrial application. The maximum term of protection of invention in Lithuania is 20 years.

To apply for the patent of invention, the applicant must provide a number of documents in support of an application, the most important of which is the specification of the invention. The legislation provides for the specification to disclose the invention in such full and clear terms as to enable any person skilled in the art to which it pertains to use the invention.

Foreign legal and natural persons shall file applications with the State Patent Bureau through a patent attorney of the Republic of Lithuania.

To grant extended protection for patents that relate to medicinal or plant protection products for a period not exceeding 5 years, there is issued a special certificate in Lithuania, called a Supplementary Protection Certificate (‘SPC’). Since patented products of this type cannot be marketed until government authorities have conducted safety tests and issued a marketing authorisation, the introduction of such products can be delayed for years during which the normal 20 year term of patent protection continues to run. Based on the consideration that this can work unfairly for the owner of such patent, a certificate can be issued to extend the normal 20 years of protection for up to another 5 years period.

* 1 EUR = 3.447 LTL (on May the 1st, 2004)