Franchisee competition ban: error in forecasting and transfer of know-how?

In preliminary relief proceedings, a franchisee demands that the franchisor not enforce the postal non-competition prohibition. The judge dismissed the claim. See District Court of Gelderland 16 February 2021, ECLI:NL:RBGEL:2021:1875

The franchise agreement contains provisions that in fact mean that the franchisee may not operate a pet specialty business in the same contract area or work at a pet specialty business from the termination by cancellation of the agreement until one year after the end of the franchise agreement, because the there is a chance that the franchisee would continue to do so according to the (various parts of the) Pets Place formula made available to the franchisee by the franchisor.

The franchisee essentially relied on three grounds. First, it was argued that the franchisee had erred when entering into the franchise agreement, because the franchisor had made an incorrect forecast at the time. The location analysis. It has been established, for example, that the location analysis does not include (in any case) one competing pet specialty store within a radius of three kilometers from the franchisee’s store. The judge in preliminary relief proceedings ruled that this could justify the conclusion that it is plausible for the time being that the franchisee would not have concluded the franchise agreement if the facts had been correctly presented and that the franchisee would have erred in this regard.

It also appears that the franchisee was already aware of the errors in the location analysis from the end of 2012 or the beginning of 2013. Now that a legal claim for annulment of a legal act in the event of an error pursuant to Article 3:52 paragraph 1 sub c of the Dutch Civil Code lapses after three years after the error has been discovered and [eisers] were already aware of the error from the end of 2012 or the beginning of 2013, the franchisee can no longer appeal to annulment. The franchise agreement and the non-compete clause contained therein are therefore not voidable on the grounds of error. The claim cannot be allowed on this ground.

The franchisee also argues that the franchisor is not entitled to invoke the non-compete clause laid down in the franchise agreement, because there is no demonstrably transferred know-how to the franchisee that is worthy of protection. The franchisor proposes to provide the franchisees with specific knowledge about the most optimal assortment in the store, floor plans, shelf planning, the optimal ‘routing’ in the stores and the positioning of (promotional) items. The franchisor also offers knowledge and advice on the automation, appearance, presentation and layout of the store and assists franchisees in the operation of their stores. The franchisor further points out that it has a team of thirty employees who are involved on a daily basis in determining and optimizing the Pets Place range, tailored to needs and price/quality, and that this knowledge is transferred to the franchisee. In addition, franchisees are updated twice a year on market trends and new products. They also regularly receive a newsletter from the franchisor about developments in the market and franchisees are informed about specifications and possible uses of products. It must therefore be assumed that a non-compete clause as agreed for its protection is valid.

Finally, the franchisee argues that, in accordance with standards of reasonableness and fairness pursuant to Article 6:248 paragraph 2 of the Dutch Civil Code, it is unacceptable for the franchisor to adhere to the non-compete clause because the franchisee is still bound by a rental agreement for three years after the franchise agreement has expired. the owner of the property. However, the franchisor has indicated that it can be discussed with it about taking over the lease by means of substitution. In view of the foregoing, it cannot therefore be said that, according to standards of reasonableness and fairness, it is unacceptable for the non-compete clause to be adhered to.

It would have been obvious that the franchisee had also put forward an appeal to tort (more emphatically) in connection with the unsound prognosis. the limitation period is longer and can be interrupted. This may lead to a different outcome for the franchisee.

mr. A.W. Dolphijn
Ludwig & Van Dam lawyers, franchise legal advice.
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