Investing in Italy: Commercial Contracts

Italy offers a wide range of opportunities for foreign investors, especially those interested in acquiring Italian technologies, brands and distribution channels to secure a gateway to Europe.

In recent years the Italian Government has undertaken additional economic and legal reforms in a variety of areas in order to increase the country’s long-term growth, foster competitiveness worldwide and harmonise its domestic legal system with the rest of Europe.

This second article in a series of five delves into what investors such as private equity and venture capital firms need to know about the business contractual landscape in Italy.

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Foreign companies wishing to enter the Italian market to sell their products and services may decide to appoint an agent or a distributor as an alternative to establishing a subsidiary in Italy.

Under Italian law, a commercial agent, who has a duty to promote the sales of the principal’s products or services on a continuous basis, may or may not be granted a special power of attorney to enter into contracts, but will not be considered to be a party to the relevant contractual relationship entered into by the principal and the end client.

On the other hand, a distributor is usually a reseller of products and services which are purchased by the distributor from the principal and then resold to the end client. In other words, the distributor acts as the principal in the relevant contract with the end client.

Agency agreements are regulated under Italian law, which contains a number of mandatory rules for the protection of the agent. Agency contracts may be also subject to collective agreements, supplementing the provisions of law. The rules applicable to agency agreements include, under certain circumstances, the right to compensation upon termination of the agreement, a minimum advance notice requirement for the principal to terminate the agreement and strict limitations on non-competition clauses.

Distribution agreements are not specifically regulated under Italian law. This means that there is no legal standard (i.e., no pre-determined rights and obligations of parties to a distribution agreement set out by Italian law), therefore the parties have greater freedom in determining the contents of the agreement, even though they will need to comply with general mandatory principles of Italian law. Commercial practice has developed atypical forms of distribution agreements, which, in the absence of the express will of the parties (i.e., where the parties did not specifically agree on a given matter), are regulated by reference to market practice.

Franchising is also regulated by Italian law that provides, among other things, that the franchising agreement must have a 3 years minimum term and must expressly regulate at least the following matters:

1. expenses and investments to be made beforehand by the franchisee;
2. methods of accrual and payment of royalties and minimum turnover thresholds (if any);
3. scope of exclusive territorial rights (if any) with particular reference to other exclusive rights granted to other franchisees in the network, or to other sales channels and/or points of sale run directly by the franchisor;
4. details of the know-how provided by the franchisor to the franchisee;
5. rights of the parties in case of improvements to the know-how derived from the franchisor’s contribution; and
6. details of the services offered by the franchisor (g., technical and commercial assistance, setting-up and furnishing of the outlet, training), as well as conditions for the renewal, termination or assignment to third parties of the agreement.

If a foreign company prefers to enter the Italian market through direct marketing, it should be aware of the existence of strict regulatory requirements, in particular with respect to marketing and sales to private consumers. The Italian law on business-to-consumer (B2C) contracts specifically covers the areas of unfair contract terms and practices, misleading advertising, legal warranties and product liability^[1].

Specific provisions have been introduced in order to ensure compliance with safety requirements of all consumer goods: unsafe products may be recalled and/or banned from being used in Italy and banned from being exported to foreign countries. In the event of damages or injury caused by a defective product the strict liability rule applies, meaning that the victim only has to prove the defect and the connection between the defect and the damage/injury.

Finally, a foreign investor should also be aware of the existence of the European and Italian data protection regulation which governs the processing of information relating to individuals and in relation to which the Italian Data Protection Authority has extensive enforcement and sanctioning powers.

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Fabio Ilacqua is a Partner at Gianni & Origoni. Connect with him on LinkedIn here.

[1] Italian law sets out a general concept of “unfairness” in B2C standard contracts: terms and conditions that are found to be unfair are, even if accepted by the consumer, considered unenforceable. The courts consider the fairness of a clause on a case-by-case basis. For instance, clauses excluding the seller’s liability, imposing time limits on claims or excluding consumer remedies are unlawful and are prohibited. In addition, if a product is defective, the consumer is usually entitled to obtain a remedy such as its repair, its replacement, a price reduction or termination of the sale contract. In case of agreements entered into as a result of distance marketing, the consumer has the right to examine the goods and withdraw from the agreement within a brief term if not satisfied with the product (i.e., regardless of whether it is defective or not), without penalty.