The exclusive purchase clause before the court, competition

Facts

By judgment in summary proceedings of 26 November 2013, the preliminary relief judge of the District Court of Rotterdam ruled against a franchisee of a cheese and delicatessen organization regarding the exclusive purchase clause contested by this franchisee. The franchisor operates a chain of delis exclusively on a franchise basis. Furthermore, it largely supplies the range of products carried in those stores and obliges its franchisees, on the one hand, to carry the range it has put together as fully as possible in the shops and to offer it to the public, and, on the other hand, to purchase that range from the franchisor or from the suppliers to be designated by the franchisor. The franchisor has modified that exclusive purchase clause in its handbook in the sense that the 100% purchase obligation from the franchise agreement has been converted into a 90% purchase obligation. 10% of the range may therefore be purchased elsewhere by the franchisee. The franchisor bases this obligation in particular on the requirements of hygiene, freshness, quality control and logistical efficiency, leading further to optimal purchasing conditions.

The franchisee involved in these proceedings, who had committed himself to the exclusive purchase clause as described above by signing his franchise agreement, considered himself no longer bound by it, arguing that the price level used by the franchisor was too high. The franchisee then actually proceeded to purchase “foreign” from third parties. After being duly summoned, the franchisor then brought the franchisee involved in preliminary relief proceedings, claiming that the franchisee should be ordered to comply with the provisions regarding the carrying of the formula range and the purchase obligation from the current franchise agreement, on pain of a penalty. The franchisee put forward a defence, primarily arguing that the franchisor should declare inadmissible due to a mediation clause included in the franchise agreement, and further arguing that he would not be bound by the exclusive purchase proceedings because of the, in a nutshell, non-market pricing on the part of the franchisor.

The assessment

Receptivity

The appeal against inadmissibility on the part of the franchisee on the basis of the mediation clause in the franchise agreement is set aside by the preliminary relief judge. The parties have been in talks for a long time to reach a solution to the impasse. Furthermore, it has not been argued or shown that the franchisee has at any time insisted on mediation by an independent third party, such as a mediator, under which circumstances a reasonable interpretation of the mediation clause entails that the franchisor is admissible and that this clause is therefore admissible for these proceedings. is set aside. Furthermore, in the opinion of the Court in preliminary relief proceedings, the urgent interest of the franchisor in the requested relief is a given, so that the outcome of a potentially lengthy mediation procedure cannot or need not be awaited.

Exclusive purchase clause: the existence thereof

First of all, the preliminary relief judge concludes that the existence of the exclusive purchase clause has been established in this case. It has not been established in these proceedings that different agreements were made, as the franchisee has argued. The preliminary relief judge concludes that it appears from both the text of the franchise agreement and the handbook on the one hand, and the established party intentions on the other hand, that the franchisee must simply purchase at least 90% of the purchase value from the franchisor.

Competition

The franchisee argued at the hearing that the exclusive purchase clause would be invalid due to competition law objections, arguing that the high purchase price level would limit the franchisee’s freedom to set its own price to such an extent that there is indirect price maintenance. Furthermore, a purchase obligation such as this would have to be regarded as an (additional) non-competition clause.

The preliminary relief judge considered that the exclusive purchase clause can indeed be regarded as a non-competition clause. However, there were no competition law objections in this case, because competition was not appreciably restricted in the relevant market as a result. The franchisor argued at the hearing that it only had an extremely limited market share on the total cheese and delicatessen market. The Court in preliminary relief proceedings followed the franchisor in this, partly because the franchisee did not make any submissions with regard to the concept of a relevant market, for example. Furthermore, the franchisor was followed in his argument that there were no mandatory fixed or minimum resale prices in any way. Only suggested retail prices were mentioned. In this context too, therefore, the preliminary relief judge has not found any objections under competition law. The Court in preliminary relief proceedings did, however, test the defense regarding possible resale price maintenance separately. That in itself is remarkable, now that the most recent developments in competition law point to an increasingly important role for the concept of appreciability, which was therefore the primary defense on the part of the franchisor. In my view, the preliminary relief judge could therefore have left it at the conclusion that there was no appreciable restriction of competition. In any case, this consideration made no difference to the end result.

The franchisee is ultimately ordered to comply with the exclusive purchase clause and ordered to pay the costs of the proceedings.

Conclusion

In franchising practice, exclusive purchase clauses are not often subject to judicial review. That is what happened in the present case. The franchisee involved more or less took a gamble and thought that, assuming that he was being charged too high prices, he could escape the exclusive purchase clause in this way. That gamble failed. In a sense, the ruling is a variant of the old pacta sunt servanda: the franchisee has committed himself to the exclusive purchase clause and must simply comply with it. Invoking alleged competition law objections was also of no benefit to the franchisee in this case. It should be recalled that competition law defenses must at all times be substantiated extremely carefully and completely. That did not happen in this case. The franchisee has not defined the relevant market, has not supplied market share calculations, has not submitted a description of the sector, etc. Competition law is not applied ex officio, anyone who invokes competition law objections will have to fully prove it. In any case, this case is another example of the increasing role of the appreciability requirement from a competition law perspective, although the preliminary relief judge did devote some separate considerations to the question of whether there was alleged resale price maintenance. In my opinion, as stated, he need not have done so, since the appreciability test can also stand in the way of an appeal to resale price maintenance.

The conclusion of all this is that exclusive purchase clauses cannot simply be set aside. Here too, the main thing that applies is that the agreements between the parties must be faithfully fulfilled.

Ludwig & Van Dam franchise attorneys, franchise legal advice