Prohibited Franchise Agreements: Conduct of Franchisees Among Others

Forms of franchising that do not involve a vertical relationship between the franchisor on the one hand and the franchisees on the other may be prohibited. On 23 October 2018, the Trade and Industry Appeals Tribunal, ECLI:NL:CBB:2018:526, imposed hefty fines on franchisees of healthcare laundries.

Franchise agreements sometimes contain agreements aimed at limiting competition in the industry with the network of franchisees. These agreements can, for example, concern joint purchasing, joint research and development activities, as well as emergency assistance and agreements about districts. Although such agreements between companies themselves can be seen as prohibited cartel formation, exceptions to the cartel prohibition apply to certain forms of franchising. It is often the franchisor who makes the accumulated knowledge and intellectual property rights available in the vertical relationship with the franchisees. The franchisor must be able to protect this and can therefore act in violation of the cartel prohibition. The so-called Block Exemption offers possibilities for this.

The Board is of the opinion that the laundries’ reliance on the Block Exemptions is unsuccessful because the franchise agreements are largely horizontal in nature. The relationship between the laundries involved was therefore not vertical. There was a horizontal collaboration between competitors, in which they divided territories as part of that collaboration and agreed with each other not to engage in acquisitions in each other’s territories and to respect each other’s existing relationships.

The Board takes the following circumstances into account:

• (i) all franchisees were shareholders of the franchisor;
• (ii) there were no shareholders of the franchisor other than the franchisees;
• (iii) the franchisees as shareholders were closely involved in the decision-making process regarding the (franchise) policy to be pursued by the franchisor, including division of territories, the acquisition ban and the entry of new franchisees or shareholders;
• (iv) the decisions taken by the shareholders’ meeting of the franchisor, including the alleged agreement, not only applied to the relationship between the franchisees on the one hand and the franchisor on the other, but also governed the relationship between the franchisees themselves, who mutually ( non-compliance with their obligations.

The exceptional position of franchising from the cartel prohibition is of great importance. It is essential that the agreements are vertical in nature, in the sense that the franchisor’s knowledge and rights are necessarily protected.

mr. AW Dolphijn – franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl