More clarity on online sales through renewed block exemption regulation for vertical agreements
As of June 1, 2022, the renewed block exemption regulation for vertical agreements entered into force. To promote competition, this European regulation restricts the commercial freedom of parties when making vertical agreements, such as in a franchise agreement. The legislation has been modernized: more clarity is being created about the (im)possibilities in the field of online activities.
Under the old regulations, the franchisor was already not allowed to prohibit a franchisee from using a website. The renewed Vertical Agreement Block Exemption Regulation adds (or at least clarifies) that the franchisor is also not allowed to prohibit online sales. The amount of online sales (the volume) by the franchisee may also not be limited by the franchisor. This is a so-called hardcore restriction.
The franchisor is still allowed to set quality requirements for the website. It is also permitted to regulate the manner of online sales. As a result, under certain circumstances it is permitted, for example, for a franchisor to prohibit the sale of the products via online platforms such as Bol.com. Within these quality requirements, the franchisor is not allowed to prohibit the use of the trademark and/or the brand name, nor is it allowed to impose a general ban on the use of price comparison websites.
With the rise of internet sales for many years now and the possibility for the franchisee to sell his goods unlimited via the internet, people will in some cases wonder what the need for a physical point of sale is. Nevertheless, the franchisor is still allowed to require the operation of a physical point of sale.
It seems that the new regulations have tried to accommodate the franchisor in a different way with regard to the shift in the market towards more online sales. With the entry into force of the renewed Vertical Agreement Block Exemption Regulation, the franchisor is allowed to set different prices for online sales compared to the prices charged for the brick-and-mortar stores. Naturally, these price differences may not be such that it is only attractive for the franchisee to sell goods via a physical point of sale. The price difference must be explained on the basis of the difference in costs incurred by the franchisee for an online sale compared to a sale from a physical point of sale.
In addition to the clarification regarding online sales, the renewed Vertical Agreement Block Exemption Regulation has, among other things, clarified the tacit renewal of the franchise agreement after five years (this is allowed, subject to reasonable notice and termination conditions). The implementation of this new legislation also allows the prohibition of active sales (outside, for example, an exclusive area) to be extended to the customers of the franchisee (if they also proceed to resale). In addition, the franchisor is allowed to allocate an exclusive territory to a maximum of five franchisees instead of just one franchisee (this is only possible if the franchise agreement also allows this).
In short, it is important to test the agreements between franchisor and franchisee against the renewed block exemption regulation for vertical agreements. The renewed block exemption regulation may also offer opportunities for your franchise formula. In any case, you must comply with this new legislation no later than 1 year after its entry into force. However, agreements concluded after 1 June 2022 must immediately comply with the renewed block exemption regulation for vertical agreements and cannot make use of this transitional law.
Ludwig & Van Dam lawyers, franchise legal advice.
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