Competition: the ‘far from my bed show’…?

If the adage ‘unknown makes unloved’ applies to anything, it is for a subject such as competition law and the provisions of the Competition Act. Due to its association with European law, which is often elusive for the layman, competition law is sometimes too quickly dismissed as unimportant for the day-to-day concerns that franchisors and franchisees have to deal with. However, the opposite is true for reasons that will be briefly touched upon.

In principle, almost every franchisor and buyer will be in favor of free market forces and will not want to carry out conscious actions that negatively affect the Dutch market. It therefore seems unlikely that the above will ever become a real problem in franchising; the parties are all well-observant entrepreneurs who steer clear of improper agreements in dark backrooms, aren’t they? However, practice shows that there are all kinds of franchise agreements that, intentionally or unintentionally, contain all kinds of clauses that are contrary to competition law.

Although the nature and scope of this article does not lend itself to providing a detailed overview of the various stipulations that are or may be null and void, it is of course nice to mention some concrete examples. What to think, for example, of clauses in the franchise agreement, which prescribe that the franchisees are obliged to charge a certain minimum price for their products and/or services? Such a clause may be understandable on the basis of the uniformity of the franchise formula, but is it also permissible under competition law? After all, the consumer is obliged to always pay at least the minimum price imposed by the franchisor, although healthy competition and market forces mean that entrepreneurs compete with each other, resulting in lower prices for the consumer.

Or what about a clause in the franchise agreement that prohibits the franchisee from maintaining a website on his own in order to offer his services and/or products? Again to follow with regard to the uniformity of the franchise formula, but strictly speaking an entrepreneur is limited in his possibilities to offer his products and/or services to the consumer.

It is then important for the franchisor and franchisee to obtain a timely inventory of the points on which the franchise agreement needs to be adjusted in order to avoid unpleasant surprises, such as a forced and drastic change in the way in which the formula is operated. The franchisee naturally also benefits from a franchise agreement, which enables him to optimally perform his role as an entrepreneur and does not hinder him in the performance of his activities by imposing all kinds of restrictions.

Should a conflict arise between franchisor and franchisor because of a clause that may be in conflict with competition law, it is also important that the parties are well prepared. After all, the Supreme Court recently ruled that (Article 6 of) the Competition Act does not contain a law of public order, with the result that the court does not have to apply it ex officio. In principle, therefore, the court will not independently detect infringements on this point, but the parties themselves will have to invoke the nullity sanction.

In short, it is important for all parties in a franchise relationship that the existence and usefulness of competition law is fully recognized and acknowledged, in order to avoid unpleasant surprises. Sound advice on this point is therefore essential.

Ludwig & Van Dam franchise attorneys, franchise legal advice

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