Deductible: substantial know-how and obligation to provide assistance

In a decision of 22 May 2025, the Dijon Court of Appeal (Dijon Court of Appeal, 22 May 2025, No.22/00599) issued an analysis relating to the determination of the substantial nature of the know-how in the context of a franchise agreement. It also specifies the outline and limits of the franchisor’s obligation to provide assistance.

The facts

Company D. operates a 360° virtual tours and photos business under the V.S. brand. Since 2014, it has operated a franchise network of four registered trademarks.

On 23 December 2016, the company D. – franchisor – entered into a franchise agreement with Mr E. – franchisee. The related obligations were subsequently taken over by company A., registered in August 2017.

Following a deterioration in relations, the company D. terminates the franchise agreement, due to the franchisee’s achievement of an annual turnover of less than €30,000 over the period from March ^{1, 2018 to February 28, 2019.}

On 5 March 2020, company A. sued company D. for nullity and, in the alternative, for termination of the franchise agreement.

By judgment of 24 March 2022, the Commercial Court of Dijon dismissed the claims of company A. The latter therefore lodges an appeal against the decision rendered at first instance.

As in the first instance, company A. intends to obtain the nullity of the contract (I) or in the alternative its termination at the fault of the franchisor (II). The Court of Appeal rejects the franchisee’s argument on each of these two grounds.

I. On the rejection of the application for a declaration of invalidity in view of the existence of substantial know-how and the absence of a defect in consent

The franchisee intends to rely on Article 1128 of the Civil Code to request the nullity of the contract.

As a reminder, this article provides that:

“The following are necessary for the validity of a contract:

1. The consent of the parties;

2. Their ability to contract;

3. Lawful and certain content. ”

The franchisee considers that the contract would be devoid of know-how (A), and that its consent would have been flawed (B).

A. The court’s assessment of the substantial nature of the know-how

The franchisee claims on this basis that the franchise agreement would be void because:

• no commercial and technical know-how likely to give it a competitive advantage would have been transmitted by the franchisor; and that
• the know-how alleged by the franchisor would be devoid of substantial character and profitability.

In the arguments put forward by the franchisee, the court held that the various elements of know-how set out in the franchisor’s “bible” do not separately present any originality. These could be known to the franchisee by their distribution to the public.

However, the court notes that the franchisor “has developed, from its own experience as a web marketing consultant specializing in virtual tours, a methodology resulting from the combination of digital and commercial techniques as well as the determination of the technological options best suited to the quality of the result it wished to offer its customers“.

The judges consider that the development of this method constitutes know-how, contrary to what the franchisee claims. The court considers that it is indeed the reproduction of these techniques – having allowed the success of the franchisor – that allows the franchisees to exercise the licensed activity with a “turnkey” process. The provision of this know-how thus exempts them from having to acquire prior mastery of the required technologies, and the implementation of the equipment.

The existence of know-how is therefore characterized in that the franchisor, through these supports, makes the franchisees immediately autonomous in their commercial approach, and therefore gives them a competitive advantage.

The early termination clause of the contract provided for possible termination in the event of turnover below the sum of 30,000 excl. tax for the franchisee. As such, the franchisee also maintained that the franchisor guaranteed it a turnover at least equal to this sum.

The court rejects this argument and recalls that although the franchisor transmits know-how, it is not the guarantor of the franchisee’s activity. The latter remains an independent contractor. The court thus concluded that this stipulation was only intended to characterize a breach by the franchisee in its obligation to participate in the development of the network.

B. The rejection by the court of the plea alleging a defect in consent

The franchisee claims that its consent would have been flawed due to an overly succinct pre-contractual information document not sufficiently presenting the state of the market and the share occupied by the franchisor, and not providing any information relating to the local market.

The Court notes that the pre-contractual information document (“PID”):

• described the market in which the franchisor was involved;
• quantified the different customer targets specific to said market;
• declined the activities to which the conceded virtual tour technique was applicable;
• compiled a state of both national and local competition; and
• specified the market development prospects by geographical segment based on the criterion of tourist accommodation and real estate activities.

In view of these elements, the court considers that the dip did indeed include a presentation of the local market.

It also recalls that it was the responsibility of the franchisee, as an independent contractor, to complete this market situation with more in-depth market research and a forecast of activity.

The franchisee’s argument that the contract is null and void is therefore rejected.

II. On the rejection of the request for termination of the contract with regard to the Franchisor’s performance of its obligation to provide assistance

The franchisee also relies on contractual breaches by the franchisor to request the termination of the contract.

To this end, it argues that the franchisor:

would
• not have fulfilled its obligation of assistance due to the absence of training proposals, network facilitation, and intervention in the face of the difficulties encountered in the implementation of the franchise;
• would charge a fee for technical services without real compensation;
• would perform services in its exclusive area of establishment.

The Court notes that the Franchisee does not provide evidence of having – during the execution of the Franchise Agreement – solicited training, assistance or advice from the Franchisor. It notes that “the obligation of assistance can only be envisaged in a personalised manner, since it aims to provide the franchisee with an individualisation of know-how to the particular situation of his business“.

It thus notes that the claims made by the franchisee do not in fact concern the franchisor’s obligation to provide assistance, but aim to put the economic model of the contract in question.

Finally, concerning the performance of services in its exclusive area of establishment. The court considers on the one hand that the franchisee does not provide proof of the franchisor’s intervention in the said area. It further notes that the franchisee, not having achieved the annual turnover to which the exclusivity was conditioned, the grievance is not constituted.