Brazil

• Author: Luiz Henrique O. do Amaral - Eduardo Turkienicz
• Pages: 68-86

68 International Franchise Sales Laws

Brazil

I. What Is a Franchise?

A. Scope of Law

While the term “franchising” may not be entirely understood in all its facets by the

Brazilian market and legal community, aspects of the typical franchise relationship

have been present in Brazil for the past few decades. Brazilian entrepreneurs in the

retail sector, for example, have made use of simple distribution and license arrange-

ments in order to expand their businesses within the Brazilian market. Today, fran-

chising is very popular in Brazil, especially as foreign franchisors, looking to expand,

seek to enter the Brazilian marketplace.

Brazilian Law Number 8955/94 (the Franchise Law), which was adopted on

December 15, 1994, and became effective on February 14, 1995, requires

Franchisors to provide pre-sale disclosure to prospective Franchisees. The Fran-

chise Law is a disclosure law; it does not contain provisions affecting the franchise

relationship per se. The governmental agency responsible for administering the reg-

istration of franchise agreements is the Brazilian Institute of Industrial Property

(Instituto Nacional da Propriedade Industrial) (INPI).

Article 2 of the Franchise Law defines a “commercial franchise” as “a system

whereby a Franchisor licenses to the Franchisee the right to use a trademark or

patent, along with the right to distribute products or services on an exclusive or

semi-exclusive basis and, possibly, also the right to use technology related to the

establishment and management of a business or operating system developed or

used by the Franchisor, in exchange for direct or indirect compensation without,

however, being characterized as an employment relationship.”

B. Applicability to Master Franchises

Under Article 9 of the Franchise Law, the terms “Franchisor” and “Franchisee” also

refer to a “Sub-franchisor” and a “Sub-franchisee,” respectively. The Franchise Law

does not, however, specifically define the terms Franchisor, Franchisee, Sub-

franchisor, or Sub-franchisee.

The term “Master Franchisee” is not used in the Franchise Law. However, the

term Sub-franchisor is understood in Brazil to mean Master Franchisee. Therefore,

the Franchise Law does apply to Master Franchises.

Brazil 69

C. Exemptions

The Franchise Law does not provide for any exemptions, exclusions, or exceptions

as to what is considered a franchise. For example, partnership relationships, trade-

mark licenses, wholesale distribution arrangements, and credit card services ar-

rangements are not necessarily excluded from the scope of the Franchise Law.

Likewise, there are no explicit exemptions under the Franchise Law relating to spe-

cific sectors or industries, such as automotive or petroleum dealers.

D. Discretion of Regulatory Authorities

If an agreement does not constitute a franchise, the INPI may refuse to register it as

such. Article 211 of Brazilian Law Number 9279/88 (the Industrial Property Law)

sets forth that the INPI shall register franchise agreements and similar contracts,

although registration is not mandatory (See Section VI.G.). There is no clear-cut

definition of what would be a franchise “related” agreement. Normally, INPI regis-

ters franchise area development agreement.

E. Jurisdiction

Article 8 of the Franchise Law states that the “provisions of this law apply to the

franchising systems established and operated in the national territory.” However,

Article 2 is generally understood to mean that the Franchise Law is applicable to

offers or sales related to a franchise business or system as long as they occur in

Brazil, regardless if such sales or offers were made to citizens of foreign countries

(temporarily in Brazil) or to Brazilian citizens. The Franchise Law applies to any

franchised business operated in Brazil. In case the offer to a potential franchisee

occurs in Brazil, but the franchised business would be operated abroad, it is unclear

whether the Franchise Law would apply. The previously mentioned situation has

not been examined by Brazilian courts and is very unlikely to take place in Brazil.

II. Who Must Provide Disclosure?

A. Franchisor

Under Article 3 of the Franchise Law, a Franchisor must provide a prospective Fran-

chisee or Sub-franchisor, who is being granted limited rights, with a written Disclo-

sure Document presented in “clear and comprehensible language.”

B. Master Franchisee

All requirements imposed on a Franchisor by the Franchise Law are also imposed

on a Master Franchisee, which Article 9 of the Franchise Law refers to as a Sub-

franchisor. Thus, Master Franchisees are required to provide disclosure to prospec-

tive Sub-franchisees.