Franchise and the cartel prohibition

Franchising holds a special position within competition law. It is inherent in a franchising formula that a franchisor protects the knowledge and intellectual property rights accrued and safeguards a uniform image of the formula. That protection is sometimes excessive and therefore in breach of the cartel prohibition. In civil proceedings the nullity of a contractual clause or a franchise agreement is regularly relied on by invoking competition rules (see also this blog).

A case in point is the judgment passed by the Court for Midden-Nederland (ECLI:NL:RBMNE:2018:1117) in a dispute between a former franchisee and a franchisor in the field of funeral arrangements. The former franchisee was prohibited from performing competing activities in the same field for a period of one year. In the franchisee’s opinion, that post-contractual non-compete clause was in breach of the cartel prohibition. The preliminary relief judge rejected that argument, partly on the grounds that the cartel prohibition does not apply to clauses that are essential to a franchise formula. The franchisee had failed to take this special position of franchise agreements within competition law into account in its arguments. It remains to be seen to what extent this judgment is in keeping with the Block Exemption for Vertical Agreements, in which a post-contractual non‑compete clause for a period of one year is exempt, provided that it is limited to the location (rather than the field) in which the franchisee operated.

Another example is a judgment passed by the Court of Appeal of Den Bosch (ECLI:NL:GHSHE:2018:2370) in a dispute between a franchisor and a group of franchisees in the field of training and courses. The franchisees argued that the franchise agreements were void because the regulations obligated the franchisees to charge a fixed price. The Court of Appeal found that this did indeed constitute a prohibited form of resale price maintenance, because it served to restrict competition. In the case in question it was not necessary to separately investigate the appreciability of the restriction of competition. That did not mean, however, that the entire agreement was void. In the Court of Appeal’s opinion it had been insufficiently stated or shown that the regulations and the franchise agreement were inextricably linked.

This blog was also published in the Snelrecht section of the Mr. journal.

The article can be found here.

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