Horizontal and vertical cooperation

In practice, purchasing organisations, whether or not in the form of a cooperative, sometimes function – partly – as a sales organisation. In addition to purchasing, such an organization sometimes feels the need to further streamline matters such as the assortment to be carried by the members. This may give rise to the idea of ​​concluding a franchise agreement or similar contract with the members of the purchasing organisation. Can these two forms of cooperation coexist?

The Guidelines on Vertical Restraints accompanying the Block Exemption Regulation for Vertical Agreements make it known that an association of retailers may make use of the benefits offered by the exemption regulation. This means that, like a franchise organization, they can enter into vertical agreements with their members. Clauses regarding exclusive purchasing, but also non-competition, must then comply with the competition-related vertical requirements that also apply to a franchise organization. It is also important that there are no (further) agreements between the members that could hinder the conclusion of franchise agreements from a competition point of view. Examples include the division of exclusive areas: this too must take place vertically, ie on the basis of, for example, a franchise agreement or a comparable contract. However, if the members make (horizontal) agreements about, for example, exclusive areas, this is not allowed. When assessing whether a joint venture correctly applies both vertical and horizontal agreements, it must first be examined whether the cooperating partners have made mutually permissible agreements (horizontal assessment). If this is in order, then it can be examined how the collaboration has been designed vertically and whether this is in accordance with what is permissible from a competition point of view (vertical assessment).

In concrete terms, a purchasing organization can therefore conclude a franchise agreement with its members, which may include an exclusive purchase clause, for example. It is of eminent importance that the board of the purchasing association then actually presents itself as a “franchisor” and that it is not at all an intention to shape mutual agreements vertically, if these are not permitted horizontally, as is the case, for example, with publishing of exclusive areas.

Ludwig & Van Dam franchise attorneys, franchise legal advice