Internet sales in a franchise relationship

Internet sales are also enjoying increasing interest in conventional franchise circles. Particularly in retail, the turnover share and with it the interest in adding internet sales to the conventional formats is increasing rapidly. This phenomenon has not yet been taken into account in all franchise agreements. Particularly in those situations, the question of what is and what is not allowed arises more and more often. Is the franchisor or the franchisee free, without further agreements, to develop such activities or not? First of all, in this context, the franchisee may not be restricted in the possibilities of passive sales under competition law. The use of the internet and therefore internet sales can often be regarded as a form of passive sales. This means that the franchisor cannot simply prohibit the possibility of internet sales in the franchise agreement, or at least can only reserve this right for itself. The starting point is therefore that the franchisee must be allowed to operate its own website, provided that the internet sales are not actively aimed at sales in another issued exclusive territory or the area that is exclusively reserved for the franchisor.

Naturally, the franchisor can include rules in the franchise agreement, or preferably in the handbook, regarding the quality and formula-compliant appearance of websites and internet sales. Conversely, this is not necessarily the same. In situations where (absolute) district exclusivity has been granted, the franchisor is not automatically free to make internet sales in this exclusive district. First of all, not because the rule that passive sales must be allowed pertains to the vertical relationship from the franchisor to the franchisee and therefore does not automatically apply the other way around. If the franchisor does wish to reserve this option, it would therefore be wise for the franchisor to expressly include this in the franchise agreement. If it is not included, a discussion may arise afterwards about this form of competition by the franchisor within the exclusive territory. It is of course more obvious that the franchisor and franchisee will mainly use the possibilities of the internet to strengthen the formula. It is therefore particularly important that the (im)possibilities for this are recognized in time and that an arrangement is made for this in the franchise relationship. If such an arrangement has not been made, the franchisee may, under certain circumstances, believe that area exclusivity is being infringed improperly and file a claim for compensation for the damage suffered as a result.

Ludwig & Van Dam franchise attorneys, franchise legal advice