Vigo court dismisses Cash Converters’ claims against Locotoo

Pontevedra Commercial Court No. 3, based in Vigo in north-west Spain, has dismissed two lawsuits brought by Cash Converters España against its seven former stores in Galicia and the companies and directors behind Locotoo. According to a report by Cadena SER on 6 October, the judge found that the stores were justified in leaving the network and rejected the allegations of unfair competition.

A dispute that began with the departure of seven stores

The dispute dates back to 2022, when the stores left the Cash Converters network and launched an independent business under the Locotoo brand. Among other claims, the franchisor sought €1.2 million in damages for an alleged breach of the franchise agreement and infringement of intellectual property rights.

Cash Converters argued that the former franchisees had opened their stores by drawing on its know-how, brand and reputation. It also alleged that they had copied its website. These allegations formed part of the dispute over the circumstances of the contractual split and the subsequent development of Locotoo.

The defendants maintained that their unilateral departure was a response to persistent breaches by the franchisor. They said that, from 2018 onwards, they had stopped receiving essential franchise services: ongoing training, supervision, operational support, advertising campaigns and access to databases.

Support and know-how at the heart of the ruling

The ruling focuses on the franchisor’s obligations. According to Cadena SER’s report, the judge stated that Cash Converters had failed to establish what its know-how consisted of or to demonstrate that it had provided the necessary technical and business support to the franchised businesses.

The judgment concludes that the company ‘failed to fulfil essential obligations incumbent upon it’. On that basis, it finds that the stores’ unilateral termination of their contracts was ‘justified and lawful’.

The reasoning thus distinguishes between the claimant’s allegations and what was established during the proceedings. The issue is not simply whether the stores continued trading after leaving the brand: it also concerns the services and knowledge they had received during the contractual relationship.

For the franchise sector, this is the central aspect of the case. Support and the transfer of know-how are treated here as specific obligations whose fulfilment must be demonstrable, rather than merely elements described in general terms in a sales proposal.

No unfair competition or copying of the website

The court also rejected the allegation of unfair competition. The judgment notes that ‘imitating the offerings and business initiatives of others is permitted’, except where they are protected by a legally recognised exclusive right, cause confusion or improperly exploit another business’s reputation.

In this case, the judge stated that Cash Converters could not complain of imitation of its know-how because it had failed to prove that it had supplied that know-how to the franchisees. The ruling adds that Locotoo’s website has a design, functionality and structure that are ‘entirely different’ from those of Cash Converters.

The court also found no breaches of Spain’s Intellectual Property Act, Trade Secrets Act or Unfair Competition Act. It further noted that the two businesses operated different store models. These findings relate to the circumstances examined in this particular dispute and should not be interpreted as blanket permission to copy elements of another network.

What to review in a franchise relationship

Locotoo described the ruling as ‘an endorsement of the decision to develop an independent business and of the defence maintained throughout the proceedings’.

Beyond that assessment, the case offers a practical point of reference for franchisors and franchisees: training, assistance and support obligations should be clearly defined, and records of their delivery retained. It is also advisable to specify the know-how being transferred and the protected elements of the brand.

The practical conclusion is straightforward: before terminating a contract or starting an independent business, seek legal advice to review the obligations, available evidence and restrictions applicable to the particular case.