Legislation regulating commercial activities in Estonia

According to the State Chancellery of the Republic of Estonia and the Estonian Ministry of Justice, the Commercial Code and other legal acts regulating company law in Estonia have been harmonized with all of the nine effective company law directives enacted on the basis of the Treaty establishing the European Community.

In Estonia the following laws regulate commercial activities: Commercial Code entered into force on 1 September 1995, Commercial Activities Act entered into force on 15 April 2004, Economic Activities Register Act entered into force on 15 April 2004, Consumer Protection Act entered into force on 15 April 2004 (this new Act is to update the Consumer Protection Act entered into force in 1994), Competition Act entered into force on 01 October 2001

Legislation regulating intellectual industrial property protection in Estonia

Industrial property rights do not arise by themselves, but as a result of the management’s own actions. To come into existence, industrial property rights require the applicant’s initiative a decision by the authorities in the country where the applicant wishes the rights to be valid. Harmonization of industrial property rights laws in Estonia continues successfully, and at present the following laws enable the applicant to protect the industrial property rights in Estonia: Patents Act entered into force on 23 May 1994, Utility Models Act entered into force 23 May 1994, Layout-Designs of Integrated Circuits Protection Act entered into force on 16 March 1999, Trademarks Act entered into force on 1 May 2004 (this new Act is to update the Trademarks Act entered into force in 1992), Industrial Design Protection Act entered into force on 11 January 1998, Geographical Indication Protection Act entered into force on 10 January 2000, Principles of Legal Regulation of Industrial Property Act entered into force on 1 May 2004.

Apart from the above, several international conventions have made it possible to apply the rights in more than one country, including Estonia, by one application.

Other legislation related to franchising agreement in Estonia

There is another recommendation for companies entering into marketing agreements in foreign jurisdictions including Estonia. They should have the local law checked in advance for adapting the agreement under the local law. This way they can protect their rights before the court, should the other party violate the agreement. It is preferable to make a careful check to ensure that the domestic law they have chosen to apply does not conflict with the terms of the agreement.

Usually the parties may choose between arbitration and litigation for the resolution of disputes arising from the agreement. The general principles of the civil law of Estonia are provided by the General Part of the Civil Code Act entered into force on 1 July 2002.

General provisions applicable to franchising agreement on the basis of existing legislation in Estonia

A successful license transfer agreement between parties covers all elements of long-term relationship, defines the parties’ rights and obligations clearly, and provides for machinery to deal effectively with unforeseen circumstances.

The Law of Obligations Act of Estonia establishes general requirements for all kinds of agreements, including license agreements in general and franchising as a type of license agreement.

General principles related to license agreements are mentioned in Chapter 18 of the Law:

Definition of licence agreement.
By a licence agreement, a person (the licensor) grants the other person (the licensee) the right to exercise the rights arising from intellectual property to the agreed extent and on the agreed territory, and the licensee undertakes to pay a fee (the licence fee) for this.

Prerequisites for validity of right of use.
In cases provided by the law, in order to establish the right of use arising from a licence agreement, an entry is to be made in the register where the relevant property has been entered.

The licensee shall exercise the rights arising from a licence agreement if the licensor has a legitimate interest in the rights arising from the licence agreement implemented, particularly if the existence of the rights arising from the licence agreement depends on the exercise of these rights.

Non-exclusive licence agreement and exclusive licence agreement.
In case of a non-exclusive licence agreement, the licensor may also exercise the right, which is the object of the agreement, or grant the right of use to other persons besides the licensee.

An exclusive licence agreement grants the licensee the right to exercise the rights arising from intellectual property to the agreed extent and precludes the right of use of other persons and of the licensor to the same extent.

If the right of use to which a licence agreement extends is not clearly specified in the agreement, the extent of the right of use shall be determined pursuant to the objective of the agreement.

The right of use arising from a non-exclusive licence agreement before the right of use arising from an exclusive licence agreement shall remain valid in respect of the person who was granted the right of use on the basis of the exclusive licence agreement.

Transfer of right of use arising from licence agreement

1) It is presumed that the right of use arising from a licence agreement may be transferred only with the consent of the licensor. The licensor shall grant consent if this can be expected of the licensor based on the principle of good faith.

2) The provisions of subsection (1) of this section do not apply to transfer of an enterprise if the right of use belongs to the enterprise.

Communication of information
The licensor shall deliver documents and communicate information necessary for exercise of the rights pursuant to the agreement to the licensee within a reasonable time after entry into the agreement.
The licensee shall maintain confidentiality of documents delivered and information communicated to the licensee unless:

• the licensee communicates the information to persons who work in licensee's enterprise and who are required to maintain confidentiality of the information;
• the licensor cannot be expected to intend to maintain confidentiality of the information based on the agreement or the nature of the delivered documents and communicated information.

After expiry of the agreement, the licensee shall return to the licensor the documents that have been delivered to the licensee and maintain confidentiality of the received information.

Protection of rights
If a third party hinders a licensee in exercising the rights thereof arising from a licence agreement, or if a third party violates these rights, the licensee shall promptly give notification thereof to the licensor, who shall immediately take all necessary measures to enable the rights arising from the licence agreement to be exercised and to terminate violation of the licensee’s rights. If the licensor takes such measures, the licensee shall co-operate with the licensor to the necessary extent.

Cancellation of the agreement entered into for an unspecified term
Either party may cancel an agreement entered into for an unspecified term by giving at least one year's notice.

Franchise agreement

Chapter 19 of the Law of Obligations Act regulates the franchise agreement.

Definition of the franchise contract.
According to the Estonian Law of Obligations Act by a franchise contract a person (the franchisor) undertakes to grant to the other person (the franchisee) a set of rights and information, which belongs to the franchisor, for use in the franchisee’s economic or professional activities, including the right to the franchisor’s trademark, commercial identifications and know-how.

Obligations of the franchisor.
The franchisor is required to provide the franchisee with instructions for the exercise of the rights thereof and to provide permanent assistance related thereto to the franchisee.

Obligations of the franchisee.
The franchisee is required:

• in the activities thereof, to use the franchisor’s commercial identifications;
• to ensure that the quality of the goods manufactured or services provided by the franchisee pursuant to the contract is the same as those manufactured or provided by the franchisor;
• to follow the franchisor’s instructions which are directed at the exercise of rights on the same basis and in the same manner as the franchisor;
• to provide clients with all additional services which they could expect upon acquiring goods or contracting for services from the franchisor.

The franchisor's right to check.
The franchisor has the right to check the quality of the goods manufactured or services provided by the franchisee on the basis of the franchise contract.

The Law of Obligations Act establishes also a large number of new rules. Application of many rules emphasises good faith, reasonableness and other standards that are established in the course of human activity by agreement. It is necessary to introduce selected parts of this law that concern the franchise agreement.

Format of the agreement.
The law provides for a freedom of format. However, if the formalities stipulated by law are disregarded, the transaction is void.

Principle of good faith and reasonableness.
The Law of Obligations Act imposes on the parties an obligation to act in good faith in their mutual relations. Nothing arising from the law, usage or an agreement shall apply to an obligation if it is contrary to the principle of good faith. With regard to an obligation, reasonableness is to be judged by what persons acting in good faith would ordinarily consider to be reasonable in the same situation. In assessing what is reasonable, the nature of the obligation, the purpose of the agreement, the usages and practices in the fields of activity or professions involved and other circumstances shall be taken into account.

Preliminary contract.
A preliminary contract is an agreement under which the parties undertake to enter into a contract in the future under the terms agreed upon in the preliminary contract. If, pursuant to the law, a contract is to be entered into in a specific format, the preliminary contract shall also be entered into in the same format. The main purpose of the preliminary contract is to require the parties to the transaction to conclude the basic agreement when the preconditions are stipulated. A written basic contract requires a written preliminary contract; a notarised contract requires a notarised preliminary contract, etc. It is important to conclude a preliminary agreement in the same format as the basic agreement since the conclusion of the basic agreement may be requested on the basis of a valid preliminary agreement.

Amendment and termination of the contract.
A contract may be amended or terminated by agreement of the parties, or on another basis prescribed by the contract or the law. It is no longer necessary to have recourse to the court in order to declare a transaction void. It is sufficient to make a declaration to the other party within six months after cessation of the circumstances serving as the basis. Everything received under a void transaction must be returned. In case of a dispute, if the court still considers the contract to be valid, the party demanding revocation shall bear the risk of compensation for damage and payment of penalties.

As franchise is a licence agreement regulating in particular a trademark and trade name use by a franchisee, it is important to protect the rights to a trademark of the agreement in the jurisdiction of the agreement.

There are 4 possibilities to acquire legal protection for trademarks in Estonia:
1) registration in the state register of trademarks and service marks (registration application shall be filed with the Patent Office);
2) registration in the register of the International Bureau of the World Intellectual Property Organization (WIPO) at the request to acquire legal protection in Estonia;
3) registration in the European Union by filing a Community application.
4) if the trademark becomes well-known in the Republic of Estonia (the majority of the target group of the relevant goods or service knows the trademark and connects it with its manufacturer).

All these possibilities are regulated by the Estonian Trade Marks Act entered into force on 1 May 2004.
Concerning the requirement to register a license agreement in respect of a trademark in the State Trademark Register, the new Act specifies that an entry in the register concerning a licence shall be made at the request of a party to the licence agreement. Moreover, there is the condition that a licensee may only transfer the rights acquired from the owner of a mark to third persons under a license by the trademark owner’s permission.

It is reasonable to underline that the Estonian official fee for trademark registration has been lowered from 1 May 2004. The official fee for filing a trademark application is 2200 EEK for the first class and 700 for each additional class now. The official fee for entering a trademark into register is 700 EEK.

The date when at least the following information is submitted to the Office shall be deemed to be the trademark application filing date:

• a request for the trademark registration,
• a reproduction of the trademark,
• a list of goods and/or services,
• the applicant’s name and address.

Information concerning the state fee payment, a priority claim and an authorisation document issued to the representative of the applicant shall be filed within two months as of the date of receipt of an application by the Estonian Patent Office.

Documents certifying a priority claim shall be filed within three months from the filing date.

Unless an applicant submits information concerning the state fee payment or files an authorisation document in time, the application shall be deemed to be withdrawn.
Applications will be examined for distinctiveness and against prior rights listed as “relative grounds” which preclude legal protection. Applicants will be allowed time to try to overcome any objections.

Unless the decision to register a trademark is opposed, and provided information concerning the registration fee payment is submitted within four months from the date of publication, a registration shall be made.

The scope of legal protection of marks is based on, for a well-known trademark - the form in which it became well known, for registered marks - the representation of the mark as entered in the register.

The registration owner may take action to prevent infringement before the court. This will mean unauthorised use of the same or similar goods or services for which the mark is registered or is well-known to relevant public or business sector in Estonia.
The use of a trademark on the Internet is considered to be use of the trademark only if such use has commercial consequence in Estonia.

The owner of an earlier trademark has no right to prohibit the use of a later trademark, if the owner of the earlier trademark was aware or should have been aware of the later trademark and has acquiesced, for a period of five consecutive years, in the use of the later trademark.

The trade name and other signs of the enterprise are increasingly more important in the legal business. Global exclusive right, however, cannot be acquired to a trade name or its catchword, unless it is simultaneously used as a sign of a product or a service, and that can be registered as a trademark.

Enterprise registration in Estonia

Commercial enterprises, sole proprietors, branches of foreign companies, non-profit associations, foundations and commercial pledges are registered and entered in the Commercial Register attached to Municipal Courts or Circuit Courts of Estonia.

Filed documentation will be reviewed within 15 days. In case deficiencies are revealed, a decree will be issued pointing out such deficiencies and a deadline will be set for liquidating them. When an application is satisfied, an entry will be made within 5 working days and the undertaker will be informed within 10 days by a registered letter sent to the address of the enterprise as entered into the Commercial Register.

State fees for the Commercial Register entry are to be paid to the Tax Board.

Registration related charges
In Estonia charges related to the company registration can be distinguished according to the enterprise form to be registered. The following section will describe main fees in relation to the organizational form.

Registering sole proprietors, general partnerships, limited partnerships
A sole proprietor (SP) as a rule is registered at the local office of the Tax Board. Registration at the Tax Board is free of charge and an identification document must be presented. The obligation to enter into the Commercial Register will arise when the sole proprietor becomes a taxable person (i.e. his taxable income from the beginning of the calendar year exceeds 250 000 EEK*). A general partnership (GP) and a limited partnership (LP) are entered into the Commercial Register upon foundation. Foundation of a GP and a LP provides for signing a partnership agreement between the partners, and such document need not be notarized. These commercial enterprises do not have statutes or formal management bodies. Upon entry into the Commercial Register all enterprises receive their Registry Codes and are equal with other commercial enterprises for all purposes.

The state fee for founding a SP, GP, LP is 500 EEK to be paid to the Tax Board. Additional costs will involve the signature certification on the entry application and specimen signatures (10 EEK per signature).

Registering a private limited company
The foundation costs of a private limited company with share capital of 40 000 EEK are:

• State fee 3 000 EEK.
• Notarization fee of the foundation resolution and statutes 330 EEK. In case the number of founders exceeds one, the fee will be 660 EEK.
• Signature certification on the entry application and specimen signatures 10 EEK per signature.
• Certified copy of the registry card from the Commercial Register 15 EEK.
• Certified copies of other Commercial Register documents (statutes) 15 EEK per page.

Registering a public limited company
The foundation costs of a public limited company with share capital of 400 000 EEK are:

• State fee 4 000 EEK.
• Notarization fee of the foundation resolution and statutes 710 EEK. In case the number of founders exceeds one, the fee will be 1420 EEK.
• Signature certification on the entry application and specimen signatures 10 EEK per signature.
• Certified copy of the registry card from the Commercial Register 15 EEK.
• Certified copies of other Commercial Register documents (statutes) 15 EEK per page.

Registering a commercial association
The foundation costs of a commercial association are:

• State fee 3 000 EEK.
• Notarization fee of the foundation resolution and statutes 660 EEK.
• Signature certification on the entry application and specimen signatures 10 EEK per signature.
• Certified copy of the registry card from the Commercial Register 15 EEK.
• Certified copies of other Commercial Register documents (statutes) 15 EEK per page.

On 15 April 2004 the Economic Activities Register Act decreed that the data currently entered in the State Register of Enterprises Operating in Areas of Activity Subject to Special Requirements shall be considered data of Economic Activities Register.
Registering the data of an enterprise in the Economic Activities Register provides for payment of the state fee of 300 EEK.

Registration of intellectual property in Estonia

Estonian legislation differentiates three different forms of intellectual property, rights to which can be registered in the country. These forms are - trademarks, industrial designs, and patents. Thorough description of each of the intellectual property forms and their registration procedure is given below.

Trademarks
As recognized by the Estonian Patent Office a trademark is any sign or combination of signs capable of being represented graphically and consisting of letters, words, numerals or designs, or being three-dimensional. Such sign or combination of signs may be registered as a trademark provided such signs distinguish the goods and services of one natural or legal person from those of others. A trademark may be registered in colour or black-and-white. A trademark, which is registered in black-and-white, shall be protected in all colour combinations; therefore its legal protection is broader.

The scope of legal protection of a trademark is determined by the reproduction of the trademark and by the list of goods and services. The reproduction of the trademark should not be changed after filing a registration application; the list of goods and services can be restricted.

When applying for trademark registration the following documents should be filed: (1) the request for a trademark registration (2 copies); (2) the reproduction of the trademark (in case of figurative, combined or three-dimensional trademarks - also ten cut reproductions (80x80 mm) suitable for the Archives); (3) the document certifying the state fee payment; (4) the document certifying the authority of the patent attorney, if the registration application is filed through a patent attorney; (5) the statutes of the collective mark, if the registration application concerns a collective mark; (6) documents certifying the claim to convention priority, if such claim has been filed; (7) documents certifying the claim to exhibition priority, if such claim has been filed.

Information concerning the state fee payment, a priority claim and an authorisation document issued to the applicant’s representative shall be filed within two months as of the date of receipt of an application by the Estonian Patent Office. Documents certifying a priority claim shall be filed within three months from the filing date. Unless an applicant submits information concerning the state fee payment in time or files an authorisation document, the application shall be deemed to be withdrawn.

Applications will be examined for distinctiveness and against prior rights listed as “relative grounds” which preclude legal protection. Applicants will be allowed time to try to overcome any objections. Applications may be refused on “absolute grounds” – that is, lack of distinctiveness or the likelihood that the public would be deceived or the application for the registration was submitted in bad faith. Applications may also be refused if they conflict with earlier rights. This will include earlier trademarks registered or applied for registration in Estonia, business names and trademarks which became well known earlier, copyrights, the names of proprietary medicinal products registered in Estonia, etc.

A trademark filed for registration may include elements, which are not subject to protection unless this decreases the distinctive character of the trademark or violates the rights of other persons. If, during subsequent use, an element of a registered trade mark, which is not subject to protection, becomes well-known in the Republic of Estonia within the meaning of Article 6 bis of the Paris Convention for the Protection of Industrial Property and acquires a distinctive character thereby, new registration of the registered trademark may be applied for to extend protection to the whole mark.

The Estonian Trademarks Act does not regulate the examination period; normally it takes about one year. After receiving the decision for registration, a trademark application will consequently be published in the Estonian Trademark Gazette, and unless persons concerned oppose it within two months from the date of publication, the trade mark will be entered into the State Register and the Trademark Registration Certificate will be issued. If information concerning the registration fee payment has been submitted within four months from the date of publication, a registration shall be made.

The trademark registration retains its validity for the period of 10 years from the date of entry into the State Register of Trade and Service Marks of the Republic of Estonia. Such validity may be extended for another 10 years more than once. In order to extend validity the trademark owner is to file an extension application and to pay the respective state fee. The costs for a trademark registration in respect of three classes of goods and/or services in Estonia are approximately EUR 615 (together with the service charge of the local attorney), unless official actions are issued during the examination.

Industrial Designs
An industrial design is a two-dimensional or three-dimensional solution of the product appearance. The concept of an industrial design includes all possible appearances of a product, which do not serve solely to obtain a technical result and which consist, either separately or in combination, of the form, the configuration, the ornament, the colour(s), the texture and the material. There is a restriction that the appearance of a spare part or a component that is not visible in normal use, when assembled in the product, is not considered an industrial design.

The registration application may cover a single industrial design, variants of one industrial design or a set of industrial designs. The variants of an industrial design should produce a similar overall impression, whereas differences are solely in unimportant details from the point of view of overall impression.

Legal protection of industrial design in the Republic of Estonia shall be granted to industrial designs that have each of the following characteristics: novelty, individual character, ability to manufacture products of industry or of handicraft; are registered in the State Register of Industrial Designs.

The registration application for legal protection of industrial design shall be filed with the Estonian Patent Office. Application documents for registration of Industrial Design are: (1) a request for the registration of an industrial design (3 copies); (2) a reproduction of the industrial design (3 copies); (3) a document certifying the state fee payment; (4) an authorisation document if the application is filed through a patent attorney; (5) documents certifying a priority claim if priority is claimed.

The Patent Office does not examine the novelty, individual character or industrial applicability of the industrial design, or the applicant's right to file a registration application. The Patent Office shall examine only the formal requirements of the registration applications, such as the form and contents of the documents, the filing dates, etc. The industrial design owner is responsible for the novelty, individual character and industrial applicability of the industrial design and the right to become its owner, whereas these requirements are considered to be met and the rights of the industrial design owner valid, unless otherwise proved in the court.

Rights of the industrial design owner shall be valid for 5 years from the filing date of the registration application. The term of the registration may be renewed by five years for the total of no more than 25 years from the filing date of the registration application. The average costs for obtaining an industrial design for one or two variants in Estonia are about EUR 330, if the application is filed through a patent attorney.

Patents
Although an invention is not defined in the legal acts, an invention stands for a technical solution to a technical problem. Therefore discoveries, managing or business ideas are not regarded inventions and they are not patentable. In case of application for patent protection the subject of an invention can be equipment, process, material, including biological material, or their combination. Methods for treatment of the human or animal body and diagnostic methods practised on human or animal body are not patentable in Estonia.

A utility model is another kind of legal protection of an invention. The same subject matter, which is protected by patents, can be protected as utility models, except inventions in the field of biotechnology. Supplementary protection of medicinal products and plant protection products has been in force since 1 January 2000, and the term of supplementary protection shall be up to 5 years from the date of expiration of the basic patent. The supplementary protection application shall be filed within six months from the date of granting the patent. Equipment, process and material can be protected as utility models.

The patent application shall contain the following documents: (1) the request for the grant of a patent (1 copy); (2) the description of the invention (3 copies); (3) the patent claims (3 copies); (4) the drawing or other illustration material, if required (3 copies); (4) the abstract of the subject matter of the invention (2 copies); (5) the document certifying the fee payment; (6) the document certifying the deposit of biological material in case of a biotechnological invention, unless the description discloses the subject matter in a sufficiently clear manner; (7) an authorisation document if the application is filed through a patent attorney; (8) the priority documents if the priority claim is based an earlier patent or utility model application. As a rule, the patent application shall be filed in the Estonian language. In case of foreign applicants additional original documents are in the foreign language. The translation into Estonian shall be added to the documents in the foreign language.

The average duration of the examination of a patent application is 4-5 years and the average duration of the processing of a utility model application is 3 months. When determining patentability of an invention the Patent Office shall examine if it is new, involves an inventive step and is industrially applicable. No request for examination is required.

Inventions considered to meet the conditions for patentability shall be registered with the Register of Patents. Registration of an invention shall be considered the grant of a patent. The person, who applied for the patent (the applicant), shall automatically become a patentee upon the invention registration. The patentee shall receive the letters patent as proof of the grant of the patent. The term of the patent shall be up to 20 years from the filing date; for maintaining the patent, a renewal fee must be paid for each year of validity. The first term of a utility model protection is 4 years from the filing date. Thereafter the term of protection may be renewed for up to 10 years: initially for 4 years and for another 2 years thereafter, paying the renewal fee.

The average cost for obtaining a national patent (from filing till grant) is approximately EUR 2000, if the patent application is filed through a patent attorney, provided the original description to be translated comprises 5000 words, and no official actions are issued during the examination.

* 1 EUR = 15,670 EEK (on May the 1st, 2004)