Ipol Stu (2016) 578978 en

DIRECTORATE GENERAL FOR INTERNAL POLICIES
POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC POLICY
Franchising
STUDY
Abstract
This document was prepared by Policy Department A at the request of the Internal
Market and Consumer Protection Committee.
It presents the evolution of franchising regulation in the European Union and
comparative analysis of franchising regulation in selected legal systems. It
identifies problems in the area of franchising and indicates the impact of the EU
rules on functioning of the franchising. Recommendations indicate at a need for a
profound review of market conditions in the EU and corrective legislative and
regulatory actions.
IP/A/IMCO/2015-05 April 2015

PE 578.978 EN
Policy Department A: Economic and Scientific Policy
This document was requested by the European Parliament's Committee on Internal Market
and Consumer Protection.
AUTHOR
Dr. Aneta WIEWIÓROWSKA – DOMAGALSKA, Osnabrück University
RESPONSIBLE ADMINISTRATOR
Mariusz MACIEJEWSKI
LINGUISTIC VERSIONS
Original: EN
ABOUT THE EDITOR
Policy departments provide in-house and external expertise to support EP committees and
other parliamentary bodies in shaping legislation and exercising democratic scrutiny over EU
internal policies.
To contact Policy Department A or to subscribe to its newsletter please write to:

[email protected]
Manuscript completed in April 2016

© European Union, 2016
This document is available on the Internet at:

http://www.europarl.europa.eu/studies
DISCLAIMER
The opinions expressed in this document are the sole responsibility of the author and do not
necessarily represent the official position of the European Parliament.
Reproduction and translation for non-commercial purposes are authorised, provided the
source is acknowledged and the publisher is given prior notice and sent a copy.
CONTENTS
EXECUTIVE SUMMARY 9
1.1. General 9
1.2. EU regulatory franchising framework 9
1.3. Regulation 330/2010 at a national level 10
1.4. National franchising regulation 10
1.5. Conclusions (the questions of the European Parliament) 11
1.6. Recommendations 13
GENERAL INFORMATION: RESEARCH CHALLENGES AND

METHODOLOGY 17
2.1. Franchising – what is it? 17
2.2. Distinctive features of the franchising contract 18
2.3. Advantages of franchising 19
2.4. Franchising on the EU market 20
2.5. Retail sector and franchising 21
2.6. Implication of franchising regulation for the single market and for consumers 22
2.7. The impact of competition law on private law relations 23
2.8. Establishing the real situation on the franchising market 24
2.8.1. The aim of the report and the available materials 24
2.8.2. The challenges of preparing the report 24
2.8.3. Establishing the real market situation - the Dutch example 27
2.9. Methodology 27
2.9.1. Sources 27
2.9.2. The scope of the research 28
2.9.3. The value of the collected materials 29
2.10. Limitations of the report 29
FRANCHISING: THE PRESENT EU REGULATORY FRAMEWORK 30

3.1. Introduction 30
3.2. Article 101 TFEU 31
3.3. The scope of application of Regulation 330/2010 31
3.3.1. Thresholds 32
3.4. Hard-core restrictions and excluded restrictions 32
3.4.1. Hard-core restrictions 32
3.4.2. Excluded restrictions 32
3.5. Application of the Regulation to franchising contracts 33
FRANCHISING: EU REGULATORY FRAMEWORK 36

4.1.1. Why presenting evolution of the EU regulatory is important? 36
4.1.2. Overview of the evolution 36
4.2. Pronupia case 38
4.2.1. Introduction 38
4.2.2. Provisions necessary for the protection of the provided know-how or for
the maintenance of the network’s identity and reputation 38
4.2.3. Provisions not essential for achieving the aims of franchising
contract 39
4.2.4. Provisions that share markets 39
4.2.5. Provisions that impair the franchisee’s freedom to determine his own
price 39
4.3. Commission’s decisions 40
4.3.1. Contractual obligations not restrictive of competition 40
4.3.2. Clauses essential to prevent the know-how supplied and the assistance
provided by the franchisor from benefitting competitors 40
4.3.3. Clauses that aim at securing the common identity and the reputation of
the network 41
4.3.4. Contractual obligations restrictive of competition 42
4.3.5. Market sharing 42
4.3.6. Pricing policy 43
4.3.7. Provisions not relevant to competition 43
4.3.8. Conditions for individual exemption 44
4.3.9. Consumer benefits 44
4.4. Commission Regulation 4087/88 on the application of Article 85(3) of the
Treaty to categories of franchise agreements 45
4.4.2. Scope of application 45
4.4.3. Market thresholds 46
4.4.4. Restrictions of competition - general 46
4.4.5. Restrictions to which the exemption applied (Article 2) 46
4.4.6. Restrictions to which the exemption applied, notwithstanding the
presence of certain obligations (Article 3) 46
4.4.7. Restrictions to which the exemption applied on certain conditions
(Article 4) 48
4.4.8. Restrictions to which the exemption did not apply (Article 5) 48
4.5. Shift in the approach 49
4.5.2. The Green Paper on Vertical Restraints in EC Competition Policy – the
main assumptions 49
4.5.3. The Green Paper on Vertical Restraints in EC Competition Policy –
options for developing the EU strategy 50
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4.5.4. Communication from the Commission on the applicability of the

Community competition rules to vertical restraints: the foundations of the new
policy 51
4.5.5. Safe harbour 51
4.5.6. General rules for the evaluation of vertical restraints 52
4.5.7. Economic approach and market-share thresholds 52
4.5.8. New policy towards franchising 52
4.6. Regulation 2790/1999 53
4.6.1. Scope of application 53
4.6.2. Threshold 53
4.6.3. Vertical restrictions in Regulation 2790/1999 53
4.6.4. Regulation 2790/1999 and franchising 55
REGULATION 330/2010 AT A NATIONAL LEVEL 57

5.1.1. Application based on self assessment and conflicting opinions of the
industry 57
5.1.2. Conflicting opinions of the representatives of franchisees and
franchisors 57
5.2. National level - general overview 58
5.3. Typical problems with application 60
5.4. Case law 60
5.5. Specific clauses in practice 66
5.5.1. Long-term competition clauses 66
5.5.2. Purchase options 67
5.5.3. Multi-franchising 67
5.5.4. Block exemptions 67
5.6. Overall assessment of the functioning of 330/2010 Regulation on a national
level 68
NATIONAL PRIVATE LAW APPLICABLE TO FRANCHISING – GENERAL

OVERVIEW 70
6.1. General overview 70
6.1.2. National regulatory solutions in nutshell 71
6.2. Systems with comprehensive regulation: Romania and Italy 71
6.2.1. Romania 71
6.2.2. Italy 73
6.3. Systems with less comprehensive regulation: Spain, Estonia, Belgium 75
6.3.1. Spain 75
6.3.2. Estonia 77
6.3.3. Belgium 78
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6.4. No specific rules: France, Germany, the Netherland and Poland 80

6.5. Application of general contract rules to franchising contracts 81
6.5.1. Only (general) contract law 81
6.5.2. General contract law next to specific regulation 82
6.6. Unfairness control 82
6.6.1. Overview 82
6.6.2. Unfairness control - national solutions 83
6.7. Typical problems in franchising contracts – an overview 85
6.7.1. Pre-contractual information duties 86
6.7.2. Post-contractual non-compete clause 88
6.7.3. Termination of the franchising agreement 90
6.7.4. The duty to provide know-how and assistance 91
6.7.5. Definition and interpretation of franchising contracts 93
6.8. Country specific problems 93
6.8.1. Germany: status of the franchisee before concluding the contract,
contract revocation 93
6.8.2. Spain: lack of payment by franchisees and IPR 94
6.8.3. Belgium: e-commerce 95
6.9. Reform plans - overview 95
6.9.1. The Netherlands 95
6.9.2. France 96
6.9.3. Italy 96
6.9.4. Spain 97
6.9.5. Belgium 97
6.9.6. Germany 97
NATIONAL PRIVATE LAW APPLICABLE TO FRANCHISING – SPECIFIC

ISSUES 99
7.2. Pre-contractual issues 99
7.2.1. Overview 99
7.2.2. Providing misleading or incorrect information through forecasts offered
by the franchiser to interested franchisees regarding profit margins, turnover and
growth 100
7.2.3. Limiting access to information and advice on complex franchising
contracts through a duty of confidentiality with severe penalty clauses 103
7.2.4. Oral pre-contractual information divergent from the actual
contract 103
7.2.5. Limiting reflection time for concluding the contract in order to place
pressure on the conclusion of the contract. No cooling off time after the
conclusion of the contract. 104
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7.2.6. Switching status from employee to franchisee without sufficient

information and reflection time 105
7.3. Contractual issues 106
7.3.1. Overview 106
7.3.2. Imposing unbalanced obligations in contracts, such as an obligation to
acquire additional services or goods for above the market prices, often attached
to franchising contracts as side-letters or appendixes during the duration of the
contract; lack of transparency and ad-hoc unilateral contract changes 106
7.3.3. Changing contractual terms or the entire contract retroactively 109
7.3.4. Limiting access to attractive products (the franchisor may give
preference to its own outlets when introducing new products) or using the
possibility of limiting supply as a contractual threat 110
7.3.5. Restrictions on the franchisor acquiring additional outlets, or a
prohibition on franchisers from opening additional outlets in the same sector with
other franchisees 111
7.3.6. Limiting access to legal and financial (independent) advice 113
7.3.7. Taking over know-how and information (franchisers claim franchisee
know-how and information as their property) 113
7.4. Contractual issues with post-contractual consequences 115
7.4.1. Overview 115
7.4.2. Unfair clauses leading to the termination of a franchising contract (e.g.
if turnover targets are not met due to reasons independent of franchisees) 115
7.4.3. Insufficient protection upon the termination of a franchising contract
resulting in a substantial loss in investment 117
7.4.4. A non-competition obligation permitted after the expiry of a franchising
contract that substantially drives up entry barriers 119
7.4.5. Unfair compulsory purchase options below market price 121
7.4.6. Specific issues - Spain 122
7.5. Franchising in a cross-border dimension 123
7.5.1. Available data 123
7.5.2. Legislative solutions 124
7.5.3. Contractual practice 124
THE QUESTIONS OF THE EUROPEAN PARLIAMENT –

CONCLUSIONS 127
8.1. What is the effect of existing EU-legislation on the well-
functioning/malfunctioning in the area of franchise? 127
8.1.1. Introduction – the focal points 127
8.1.2. The impact on the parties’ behaviour 127
8.1.3. Approach of national courts 128
8.2. Does EU Regulation No 330/2010 need any adjustments concerning long-term
competition clauses, purchase options, multi-franchising or block
exemptions? 128
8.2.1. Introduction – position of the stakeholders 128
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8.2.2. Various perspectives for answering the question 129

8.2.3. Updating the Guidelines 130
8.2.4. E-commerce 130
8.3. Does existing EU legislation simply need better enforcement? 130
8.3.1. What is “better enforcement”? 130
8.3.2. Enforcement and fear factor 131
8.4. Could possible European solutions be found in self-regulatory initiatives such as
the European Franchising Code of Ethics, or an improved reporting or complaint
system (e.g. using SOLVIT, Your Europe or another appropriate general or
dedicated tool)? 131
8.5. What are the current systems in place at a European level regarding cross-
border cooperation and the exchange of best practices in the field of
franchising? Would additional action, e.g. the introduction of a new EU
instrument be necessary? 131
RECOMMENDATIONS 132
9.1. A better balance in representation 132
9.2. Establishing the content of franchising contracts 132
9.3. Establishing the competition law impact 133
9.4. Verifying the correctness and effectiveness of competition law solutions in the
franchising area 133
9.5. Possible further actions 135
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EXECUTIVE SUMMARY
1.1. General
[Competition law impact] The main conclusion that follows from the research is that the
direct impact that competition law (Regulation 330/2010) has on functioning of
franchising contracts on the EU market might have an adverse effect, when it
comes to both: the development of franchising market and the relationships between the
parties to a franchising contract. Within the given frame of the research, this conclusion
comes from the analysis of the evolution of the EU competition policy towards franchising,
as well as the interviews with stakeholders who claim to observe the requirements of
330/2010 Regulation when drafting their contracts, and the policy adopted by national
courts who use the Regulation as a yardstick to establish the boundaries of the allowed
content of franchising contracts.
[The real market situation] Establishing the real market situation in the area of
franchising constitutes a challenge, since it is obscured by several factors:
• The lack of market transparency. On the basis of the methodology given for
this research, it is not possible to fully verify how franchising contracts really
function on the EU market. The number of court cases involving franchising is not
great, generally speaking (though it varies from country to country), and there is
no access to out-of-court proceedings. Even national agencies responsible for
applying the Regulation have no real record of the practical issues, since the
application of the block exemption relies on self-assessment.
• A fear factor on the part of franchisees. The lack of cases can be (at least
partially) explained by the fear factor on the part of the franchisees. This is a well-
recognised phenomena signalised in the unfair commercial practices context.
Franchisees, being very often dependent on franchisors, are afraid that defending
their rights will lead to the termination of the legal relationship with franchisors, so
they refrain from defending their own rights. The cases are mostly initiated when
the franchisees have nothing to lose (i.e. when the contractual relationship is over).
• The lack of balanced representation of the parties. There is a clear disparity
between the representation of the franchisors (well-established and functioning)
and the representation of franchisees (non-existent in the EU context). This
impedes obtaining and verifying data on the functioning of the market. This also
necessitates weighting the opinions present on the market and creates challenges
when it comes to introducing and evaluating self-regulation.
• Various stages of development on the national markets: The development
of franchising started in the “old” Member States back in the 1970s. The “new”
Member States became familiar with the phenomena at least 20 years later. It
seems that this gap in the stages of the market development has not yet closed,
and that the markets of new and old Member States might be facing different
challenges. This means that it is difficult to say whether, and to what degree, the
observed market tendencies are characteristic of the EU market in general.
1.2. EU regulatory franchising framework
[Evolution of EU franchising model] Initially, EU law approached franchising as a

distinct business model. It focused on specific features, i.e. the conditions necessary to
make the franchising system operational: the need to protect the know-how and the need
to uphold the network’s identity. This approach was established by the Court of Justice of
the European Union in the Pronupia judgement, and continued in a series of Commission
PE 578.978 9
decisions in franchising cases as well as in Regulation 4087/88, which dealt exclusively

with franchising contracts.
Together with the reform of the EU competition policy towards vertical restraints, EU law
began to treat franchising as one type of selective distribution system, and the specificity
of franchising was, to a large extent, lost. This is the approach adopted in Regulations
2790/1999 and 330/2010. As a result, franchising is no longer given a “preferential
treatment” (as the Commission called it), and is nowadays seen as an exclusive distribution
with some extra IPR issues.
1.3. Regulation 330/2010 at a national level
[Shortage of data] In general, there is little information available on the functioning of

Regulation 330/2010 in the franchising context at a national level. The self-assessment of
the applicability of the block exemption means that the potential problems arising on the
basis of the Regulation do not reach official instances.
[Specific clauses] When it comes to specific clauses – long-term competition clauses,
purchase options, multi-franchising, and block exemptions – the research revealed case
law only with regards to two of them. First, in Belgium and in the Netherlands the long-
term competition clauses are probably the most frequent subject of court cases. Second,
purchase options occasionally surface in the Belgian court practice.
The lack of data on the functioning of the Regulation in practice cannot, however, be seen
as confirmation that the Regulation does not cause any problems, in particular that it does
not impact the franchising market in an unintended way. It might be assumed that the
potential side effects of the Regulation remain undetected.
[Last resort weapon] It is worth stressing that there is a visible tendency in Belgium and
in the Netherlands to invoke the Regulation as a “last resort weapon” by franchisees
wanting to free themselves from franchising contracts. It seems, however, that those
attempts are mostly unsuccessful, based on the procedural problems the franchises face
in proving their cases.
[Self-assessment and accessibility] The application of the Regulation is based on self-
assessment. It means that the parties to a franchising contract must decide themselves
whether or not they fall under the scope of application of the Regulation. However, the
Regulation is formulated in a complicated way that makes it very difficult to understand
even for a trained lawyer. This problem came up often during the discussions with the
industry.
1.4. National franchising regulation
[Specific national legislation] Specific national regulation of franchising contracts exists

in several legal systems from among those researched. The most comprehensive rules
are present in Romania, where the legislation follows the Code of Ethics of the European
Franchising Federation, and in Italy, where the rules are (at least partially) inspired by
European legislation. Estonia provides less elaborated rules contained in the Civil Code,
whereas Spain and Belgium focus on pre-contractual information duties. In Belgium there
are additional rules applicable on termination. In France, Germany, the Netherlands
there is established case law in the area of franchising, and additionally in the Netherlands
a new self-regulation was adopted very recently. Only in Poland no franchising-specific
rules is accompanied by a shortage in terms of case law.
[Content of national rules] If a legal system has rules on franchising, the rules usually
contain pre-contractual obligations aimed at protecting the franchisee, very often
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Franchising
accompanied with rules on termination. In several legal systems also rules on the
content of the contract are provided. Franchising is typically qualified as an innominative
contract, even in legal systems where there are franchising rules. In systems with no
specific franchising regulation, general contract rules apply.
[Unfairness control] All the researched legal systems have certain measures for
unfairness control in franchising contracts. Italy, Estonia, France, Germany, the
Netherlands, Spain and Romania simply allow judicial control of unfairness, sometimes
subject to specific restrictions, coming from the professional character of the franchising
relation. In Belgium and in Poland there is no unfairness control as such, though in Belgium
all agreements must be executed “in good faith”, and in Poland the potential control of
franchising contract is given through the application of general clauses (but not frequently
invoked by courts). At a national level, the content of vertical restraints allowed by
330/2010 Regulation construes the limits of the unfairness control and establishes the
standards for the accepted business behaviour.
[Typical national problems] Problems characteristic for most of the legal systems
include the pre-contractual information duties of the franchisor, the non-compliance of
the franchisee with its post-contractual non-compete clause, and the grounds and
consequences of terminating franchising contracts. Common problems (to some degree)
are: the extent of know-how and assistance that the franchisor has to provide and the
definition of franchising. Additional problems specific for given legal system appear
in Belgium, Germany and Spain. In Estonia and in Poland it is difficult to define typical
problems that the parties experience in practice.
1.5. Conclusions (the questions of the European Parliament)
The Parliament formulated several specific questions concerning franchising. The answers
to these can be summarised in the following way:
1) Does EU Regulation No 330/2010 need any adjustments concerning long-

term competition clauses, purchase options, multi-franchising or block
exemptions?
The outcome of the research suggests that Regulation 330/2010 needs an adjustment
even in the scope exceeding the clauses mentioned in the question. Establishing the
concrete scope of the adjustments, however, requires further field studies on the market.
From a competition policy point of view (an economic analysis of the market required),
one should establish whether the market development still needs such support as provided
by the Regulation, and (if so) whether (1) the contents of the current vertical restraints
are effective, proportional, and up-to-date considering the recent market developments;
and (2) the model of the franchising contract adopted by Regulation 330/2010 reflects the
market reality (franchising as one type of distribution contract).
From the perspective of the relations between the parties of franchising contract, the
answer relates to establishing whether the adverse effect (the impact that the exempted
vertical restraints have on the content of franchising contracts) is proportional, when
compared to the market advancement they allow. In this respect, the materials gathered
during the research suggest some of the problems encountered on the franchising market
have their roots in the content of the Regulation, in particular the problems stemming from
the exempted post-contractual clauses, or purchasing obligations.
PE 578.978 11
,However, the problems relating to the long-term competition clauses, purchase options,
multi-franchising and block exemptions not exhaust the list of problems observed on the
franchising market. The problems relating to the lack of balance between the parties to a
franchising contract (which Regulation 330/2010 strengthens, so it has an indirect effect
also in these areas), remain outside the interest of the EU at the moment. The research
revealed that national legal systems have begun to react normatively to the problems that
can be observed there. This means that quite a paradoxical situation exists at the moment
in the franchising area: the EU is using competition law tools in an attempt to eliminate
the barriers hindering market development, turning a blind eye on the contractual
repercussions of the introduced rules (presumably to accelerate the process). At the same
time, the Member States are reacting to the problems encountered in the contractual
dimension of franchising (which are fortified by the EU competition law instruments), and
are introducing laws that are supposed to (generally speaking) support the position of the
franchisee, creating market barriers for the franchisors. What is clearly missing at the EU
level is the wider perspective on EU competition law that would take into account not only
the direct market related effects of the introduced rules, but also the less visible indirect
consequences that appear at national level. Here, new market barriers can appear, which
are inspired (even if only indirectly) by EU law.
2) Does existing EU legislation simply need better enforcement?
While effective enforcement is a key aspect of any legislation, limiting the necessary
changes to bettering enforcement would amount to lightening the problems encountered
on the franchising market. That being said, two observations in this area can be made.
First, the enforcement in case of EU franchising rules is characterised by an automatic
application of the exempted restraints (application of the exempted restrains without
verification whether or not they are necessary in a given case). Second, proper
enforcement will always constitute an issue for contractual relationships with a high level
of fear factor (and franchising contracts constitute a prime example of such relations).
Therefore, specific actions should be undertaken to mitigate the effects of the fear factor
(first of all, institutional support to self-organisation of franchisees).
3) Could possible European solutions be found in self-regulatory initiatives

such as the European Franchise Code of Ethics, or an improved reporting
or complaint system (e.g. using SOLVIT, Your Europe or another
appropriate general or dedicated tool)?
The self-regulatory initiatives can undoubtedly benefit the market and its organisation.
However, for constructing a proper self-regulation model, certain requirements must be
met. One of the most important is equal and independent representation of the interested
parties. This condition is not met at present on the EU franchising market. In order to
rectify this, an action supporting self-organisation of franchisees is required. On the other
hand, an improved reporting or complaint system would definitely be beneficial, as it could
allow information to be gathered about the market situation.
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Franchising
4) What are the current systems in place at a European level regarding cross-
border cooperation and the exchange of best-practices in the field of
franchising? Would additional action, e.g. the introduction of a new EU
instrument be necessary?
The only functioning system is organised by the European Franchising Federation, around
the European Franchise Code of Ethics. This is absolutely not adequate, considering the
role that franchising already plays on the EU market and the potential it carries for market
development. What is definitely lacking is the cooperation and self-organisation of
franchisees, at both a national and EU level. Any initiative in this regards should be strongly
supported.
1.6. Recommendations
If the Parliament would consider taking further steps in the area of the EU franchising
market, the following recommendations can be given:
(1) Better balance in representation
The research clearly showed that the franchising market suffers from a lack of balance
in the representation of the parties to the franchising contract. The franchisors have
a well-organised net of organisations at national, EU and world level. These
organisations are very active and effective in representing and protecting the interests of
franchisors. This is certainly an important and positive aspect of the market (self)
organisation. However, these actions are very often presented as industry initiatives,
whereas they seem to be driven by the franchisors. On the other hand, franchisees are
underrepresented. A franchisee is normally a small business that lacks resources (in
terms of both time and money) to become engaged in any extra activities (even self-
representation). However, if the voice of the franchisees is not heard properly and on an
equal footing with the voice of the franchisors, there can be no attempt at self-regulation.
Only balanced representation of the parties can ensure that self-regulation will consider
the interest of the parties in an unbiased way (it would be utterly naive to believe in the
altruistic behaviour of strong market players). In the situation of unbalanced
representation, even the public consultation of hard law solutions is biased (the franchisors
present their view, whereas the franchisees present no view). Therefore, actions should be
taken promptly to strengthen the impact of the franchisee organisations and assure a
proper institutional role for them in the EU law making process.
(2) The content of contracts
The main challenge in preparing this report was the inaccessibility of the franchising
contract content. Any action undertaken without first first confirming the types of problems
that normally occur in practice will be based only on “declaratory evidence” provided by
the interested parties. To gather the necessary data, the Parliament could:
1) demand the European Commission to open a contact point that would allow
anonymous information on the problems encountered by the franchisees in their
business relations, e.g. through Your Europe
2) organise a collection of information on the content of contracts after the bankruptcy
of the franchisee.
PE 578.978 13
(3) The competition law impact
Gathering information on the content of franchising contracts should also allow an

evaluation of how deep the competition law solutions impact private law relations
in the area of franchising. Competition law pursues its specific market-oriented aims, but
the impact of competition law goes deeper than shaping the market functioning. Cases
decided in Germany, the Netherlands and Spain prove that national courts use competition
law as a yardstick to decide what is and what is not allowed in private law relations (it
follows the line of thinking that: if competition law allows it, private law must accept it).
(4) Verifying the correctness and effectiveness of competition law

solutions in the franchising area
Last, but not least, two issues require verification in light of the need to prepare a new
block exemption regulation.
1) Whether the model of franchising, as adopted by Regulation 330/2010 answers the

needs of the franchising market;
Box 1: Verifying the adopted franchising model
Franchising has been present in EU competition law for almost four decades. Within this
period, the competition law approach towards franchising has evolved substantially. At
the beginning (the Pronupia case), franchising was seen as a self-standing, distinct
business method with specific characteristics that clearly distinguished it from other
forms of business cooperation. As such, franchising required a specific approach that
would allow it to maintain its character. This attitude was continued in a series of the
Commission’s decisions and Regulation 4087/88. With the new approach of the
Commission towards widely understood distribution contract (as in
Regulations 2790/1999 and 330/2010), franchising was put into one basket
with all other methods of distribution between the business parties. It was
reduced to an exclusive distribution with some IPR issues. The change of approach was
not explained by the Commission (the Action Plan simply stated that the approach had
changed, but did not explain the reasons for aligning franchising with other methods of
distribution and its consequences).
The results of the research do not allow an evaluation of whether the franchising model
adopted by EU law reflects the market practice (due to the lack of transparency and the
methodology used). Undoubtedly, this aspect requires further analysis, for which one
must first establish market practice. The question is whether franchising has really lost
its distinctive features to a degree that it is no different from other distribution contracts,
and whether a uniform approach is appropriate. The Commission has so far
presented no convincing argumentation in this regard.
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2) Whether the content of exempted vertical restraints is proportional, adequate, and

up-to-date, taking into account the stage of development of the franchising market
in EU, and the digitalisation of trade.
3)
Box 2: Exempted vertical restraints
Discussions with franchisees and franchisors revealed that there is quite a fundamental
difference between them when it comes to evaluating the content of the
exempted vertical restraints. While the franchisors praise the content of the
Regulation, the franchisees accuse it of not only further strengthening the position of
franchisors against franchisees, but also restricting the entrepreneurial spirit of
franchisees, which in turn translates to “freezing” market development instead of
accelerating it.
The content of vertical restraints has not changed substantially since the adoption of
Regulation 2790/1999. This provokes the question whether the once exempted
restraints remain effective and proportional in the present market situation. This refers
not to the impact of the restraints on private law relations, but on the market – i.e. the
primary target of competition law. In addition, the question appears whether the
Regulation (and the Guidelines) takes into account in an appropriate manner the new
market developments that refer to the digitalisation of trade (the Internet) and the use
of big data.
Also, the EU competition policy that aims at removing market barriers, supports
franchisors and turns a blind eye on the consequences in brings about at the national
level, where Member States introduce rules that aim at protecting franchisees. In other
words, while removing one type of barriers, it creates others (there is no such
thing as a free lunch). This aspect, i.e. the private law consequences of the competition
law solutions should be taken into account during legislative works in the future.
(5) Possible further actions
The outcome of the research suggests several measures that would allow the problems
revealed in the legal and social environment of franchising in the EU to be addressed. The
recommended actions can be undertaken together, or separately (to address specific
issues).
[Parliament resolution] The Parliament could call upon the Commission with a
resolution:
• With the intention of ensuring that retail market legislation is more thoroughly
evidence-based, particularly as regards the need to adequately examine and
understand the impact of legislation on small businesses, as advocated by the
PE 578.978 15
Parliament in the Resolution on a more efficient and fairer retail market of 25 May 2011
(2010/2109(INI)
a) to set up an online complaint channel (e.g. through Your Europe) that would
allow complaints to be filed concerning the use of unfair trade practices in
franchising contracts;
b) to start public consultations with a view to: correcting the model on which the
future block exemption regulation is based; establishing the concept of a franchising
contract to be used in any future EU legislation; and establishing a need for possible
action in the area of private law.
• With a view to facilitating the self-assessment process of any future regulation:
since the application of the regulation is primarily based on self-assessment, the
regulation must be drafted in a way that takes this into consideration. It should be easy
for the businesses that apply it to understand which contractual terms and practices
are allowed, and which are prohibited. In this context, creating a list could be
considered.
• With a view to ensuring a balanced representation of the parties to franchising
contracts: to take action to strengthen the self-organisation of franchisees at the EU
and national level, in order to grant franchisees equal access to the public debate on
franchising and establish a level playing field for any future self-regulatory action.
• With a view to correcting market failures in relations between franchisors,
through legislative action, either in by tackling unfair trading practices or by better
regulating retail, contract law or/and competition law.
[Further actions, subject to the outcome of the consultations] The information
gathered through the complaint channel and the public consultation should allow the
verification of the franchising market practices. The following issues should be
addressed in light of the established findings:
• Regarding the regulation in force at the moment: the possible adjustment of
the guidelines accompanying Regulation 330/2010 with a view to making it more
up-to-date with the current technological advancements (the Internet) and market
developments (for example: the relation between franchising and exclusive
distribution);
• Regarding any future regulation: (1) verifying the impact that the horizontal
approach adopted in Regulation 330/2010 has on the functioning of franchising; (2)
testing whether the franchising model adopted by the present regulation reflects
the market reality, and correcting it if necessary; (3) assessing the effectiveness
and proportionality of the allowed vertical restraints, taking into account also the
fact that they directly impact the franchising market by establishing market
standards; (4) establishing a list of issues that should be addressed in the new
guidelines.
[Possible private law instrument] In light of the findings relating to the franchising
market practice, the possibility of adopting a private law regulation dealing with certain
aspects of franchising contract at the EU level could also be considered.
[Workshop] In addition, to initiate a debate, the Parliament could organise a workshop
to discuss the results of the research, and open up the debate among the stakeholders.
Any such event should ensure the proper representation of the franchisees and franchisors.
16 PE 578.978
Franchising
GENERAL INFORMATION: RESEARCH CHALLENGES

AND METHODOLOGY
KEY FINDINGS
• The direct impact that competition law (Regulation 330/2010) has on the
functioning of franchising contracts on the EU market might have an adverse effect
when it comes to both: the development of the franchising market and the
relationship between the parties.
• The most significant challenge to researching the EU franchising market lies in
establishing the real situation on the market, which is obscured by several factors:
the lack of market transparency, the lack of a balanced representation of the
parties, a fear factor on the part of franchisees, and different phases of development
on the national markets.
• Franchising contains features that distinguish it from other contracts between
professionals. It includes provisions that are counter to the normal behaviour of
traders on the market: the franchisor discloses its trade secrets to the other party,
while the franchisee gives up part (sometimes a major part) of its entrepreneurial
freedom. In addition, the franchisor is normally in a structurally stronger position
as compared with the franchisee, which means that the concurrence of the relations
between the parties is atypical and unusually complicated.
• Research into franchising market should focus on establishing how, why and to what
result the competition rules set standards in private law relations. In order to
achieve this, a proper methodological approach as well as a clear recognition of its
limits are necessary.
2.1. Franchising – what is it?

Franchising is not officially defined under EU law. 1 There are, however, certain indicators,
about what is understood as a franchising contract.
In the Pronupia case 2 (the only case decided by the Court of Justice of the European Union
that dealt with franchising), the Court analysed the functioning of the distribution
franchising and described it as a system whereby the franchisor grants independent
traders, for a fee, the right to establish themselves in other markets using its business
name and the business methods that have made it successful. The Court stressed that this
is rather a method for deriving financial benefit from one’s expertise without investing its
own capital, rather than a method of distribution. Distribution franchising, as the Court
said, gives traders who do not have the necessary experience access to methods that they
could not have learned without considerable effort, allowing them to benefit from the
reputation of the franchisor’s business name. As a system that allows the franchisor to
profit from his success, franchising does not in itself interfere with competition.
The Court further distinguished among: (1) service franchises, where the franchisee offers
a service under the business name or symbol and sometimes the trademark of the
franchisor, in accordance with the franchisor’s instructions; (2) production franchises,
under which the franchisee manufactures products according to the instructions of the
franchisor and sells them under the franchisor’s trade mark; and (3) distribution franchises,
1
One should distinguish here between franchising as a business model and franchising as a contract.
2
Case 161/84 of 28 January 1986, Pronuptia de Paris GmbH (Frankfurt am Main) and Pronuptia de Paris
Irmgard Schillgalis (Hamburg), European Court reports 1986, p. 00353.
PE 578.978 17
under which the franchisee simply sells certain products in a shop bearing the franchisor’s
business name or symbol. EU law is mostly concerned with distribution franchising,
although, in its decision of 20 August 1988 in the ServiceMaster case, 3 the Commission
took a position that, despite the existence of specific matters, service franchises show
strong similarities to distribution franchises and can therefore be treated in basically the
same way as distribution franchises (already exempted by the Commission).
The Guidelines issued by the European Commission, 4 which accompany the present block
exemption Regulation (Commission Regulation 330/2010 of 20 April 2010 on the
application of Article 101(3) of the Treaty on functioning of the European Union to
categories of vertical agreements and concerned practices 5), give a description rather a
definition of the franchising contract. They state, in paragraph 189, that franchising
agreements contain primarily licences of intellectual property rights relating in particular
to trade marks or signs and know-how for the use and distribution of goods or services. In
addition, the franchisor usually provides the franchisee with commercial or technical
assistance for the duration of the agreement. The licence and the assistance are integral
components of the franchised business method. The franchisor is, in general, paid a
franchise fee by the franchisee for the use of a particular business method. Franchising
may enable the franchisor to establish, with limited investment, a uniform network for the
distribution of its products. In addition to the provision of the business method, franchise
agreements usually contain a combination of various vertical restraints concerning the
products being distributed, in particular selective distribution and/or non-compete, and/or
exclusive distribution or weaker forms thereof.
One definition of franchising (albeit not an official one) can also be found in the European
Code of Ethics for Franchising, created by the European Franchising Federation. In its
Article 1 it defines franchising as a system of marketing goods and/or services and/or
technology, based upon a close and ongoing collaboration between legally and financially
separate and independent undertakings – the franchisor and its individual franchisees –
whereby the franchisor grants its individual franchisee the right, and imposes the
obligation, to conduct the business in accordance with the franchisor's concept. The right
entitles and compels the individual franchisee, in exchange for a direct or indirect financial
consideration, to use the franchisor's trade name, and/or trade mark and /or service mark,
know-how, business and technical methods, procedural system, and other industrial and
/or intellectual property rights, supported by the continuing provision of commercial and
technical assistance, within the framework and for the term of a written franchise
agreement concluded between parties for this purpose.
2.2. Distinctive features of the franchising contract

Franchising is, by its nature, a contract concluded by two professional parties. It is
characterised by a particularly complicated structure of (inter)dependence relations
existing between the parties that exceeds the typical structure of a B2B contract.
Unlike other contracts between professionals, it contains provisions that are counter to the
normal behaviour of traders on the market. On the one hand, the franchisor discloses its
trade secrets (the formula that made it successful) to the other party, whereas businesses
are not normally willing to share such know-how with their potential competitors. On the
other hand, the franchisee gives up part (sometimes a major part) of its entrepreneurial
independence. This was recognised by the Court of Justice, which stated in the Pronupia
case that two conditions must be met for the franchising system to work. First, the
3
OJ EEC L 332/38 of 3 December 1988.
4
Commission notice - Guidelines on Vertical Restraints, Official Journal C 130, 19.05.2010.
5
OJ L 102, 23.4.2010.
18 PE 578.978
Franchising
franchisor must be able to communicate its know-how to the franchisees and provide them
with necessary assistance in order to enable them to apply its method, without running
the risk that the know-how and assistance will benefit competitors, even indirectly. Second,
the franchisor must be able to take the measures necessary to maintain the identity and
reputation of the network bearing its business name or symbol. This means that the parties
to a franchising contract are mutually vulnerable towards each other: the franchisor faces
the danger of losing the secrecy of its formula for success, whereas the franchisee loses
its independence when it comes to making business decisions.
In addition, the franchisor is usually in a structurally stronger position as compared with
the franchisee. This, however, is typical for other B2B contracts where only one of the
parties is normally in possession of capital, experience and a network. This aspect of the
franchising contract, however, remains outside the scope of interest of EU law at present.
Moreover, EU law aims at deriving marked-oriented benefits from the imbalanced structure
of the franchising relation, as it strengthens the position of the franchisor over the
franchisee, in order to accelerate market penetration of the franchising networks.
The problem of the structural imbalance is tackled at a national level, although not in all
legal systems under scrutiny (see chapters V and VI in this regards). Some systems have
decided to introduce specific laws that would take the interests of the franchisees into
account (mostly focusing on the pre-contractual disclosure duties). Almost all the
researched legal systems allow for unfairness control when it comes to the franchising
contract. However, the limits of this control are “remote controlled” by the EU competition
rules, which favour the franchisors.
2.3. Advantages of franchising

Franchising as a business model offers specific advantages, not only to the parties that
decide to either open or join a franchising network, but it also increases market standards
to the benefit of consumers.
The advantages of franchising were very accurately described by Philip Mark Abell in “The
regulation of Franchising in the European Union.” 6 He stresses that franchising stimulates
economic activity by improving the distribution of goods and/or the provision of services,
as it gives franchisors the possibility of establishing a uniform network with limited
investments. This may assist the entry of new competitors in the markets, particularly in
the case of SMEs. Further, it allows independent traders (franchisees) to set up outlets
more rapidly and with a higher chance of success than if they were to set up without the
franchisor’s experience and assistance. Franchisors, therefore, have a better opportunity
to compete with larger distribution undertakings.
Abel also refers to the argumentation used by the Court of Justice in the Pronupia case,
stressing that franchising generally allows consumers and other end users a fair share of
the resulting benefits as they combine the advantage of a uniform network with the
existence of traders personally interested in the efficient operation of their business. The
homogeneity of the network and the constant co-operation between the franchisor and the
franchisees ensures the constant quality of the products and services. One favourable
effect of franchising on inter-brand competition and the fact that consumers are free to
deal with any franchisee in the network guarantees that a reasonable part of the resulting
6
Abell, The Regulation of Franchising in the European Union, PhD defended at the University of London, 4 July,
2011, p. 40.
PE 578.978 19
benefits will be passed on to consumers.
According to Abel, franchising can also contribute to the establishment of a unified

European Market: 7 it facilitates cross-frontier development as it is based on the leverage
that an established name or idea can give a relatively small investment to enable the
product or service involved to spread quickly, far and wide. Moreover, the combination of
a franchisor’s know-how and a franchisee’s enterprise can boost economic activity and
employment, while enlarging the range of goods and services on offer to the public.
Franchising makes products and services available to a wide public and does not stop at
national frontiers policymaking within the EU.
2.4. Franchising on the EU market

Franchising, as a business method, seems to be firmly established in the European Union.
It is therefore quite remarkable that the available economic data regarding franchising is
far from comprehensive. This view was also expressed by Abell, who conducted his
research between 2008 and 2011. 8 According to the statistics of the European Franchise
Federation, in 2009 the EU-17 Member States had more than 10,000 franchise brands
They represented 10.8% of the share of employment among small and medium sized-
enterprises (SMEs). In 2014, there were 11,512 franchising brands present in 19 member
states.
Table 1: Number of franchising systems in Europe
2009 2010 2011 2012 2013 2014

Country 2007 2008
Est.
Austria 390 411 435 420 440 445 445
Belgium 200 240 320 360 350 350
Croatia 120 145 150 168 175 180 180 180
Czech Rep 131 137 150 168 200 219 219
Denmark 180 185 188 188 188 188
Finland 220 255 265 270 270 275 277 294
France 1137 1129 1169 1477 1569 1658 1719 1796
Germany 910 950 960 980 990 990
Greece 544 560 563 450 456 456
Hungary 330 350 350 361 361 361
Italy 847 852 869 883 878 938 939 939
7
Ibidem, p. 40.
8
Ibidem, p. 41.
20 PE 578.978
Franchising
Netherlands 676 687 692 714 739 769 769
Poland 402 512 618 739 805 864 930 930
Portugal 501 521 524 570 578 578
Slovakia 80 80
Slovenia 103 106 107 103 106 108 108
Spain 850 875 919 934 947 1199
Sweden 350 400 550 640 700 700
Switzerland 275 275 275 275
Turkey 1669 1708 1860 1840 1840
UK 809 838 845 900 929 930 930
TOTAL 12251 12712 13627
Source: European Franchising Federation.
Abell presents in his thesis an estimated value of the EU franchising market (claiming that
it is not possible to state the precise data). Using three different methodologies he arrives
at a figure in the middle of the range between US$ 333.6 billion and US$ 250 billion for
the likely turnover of franchising in the EU during 2009. From this he deduces that the
turnover in the EU in 2009 can reasonably be estimated at around US$ 300 billion or 215
billion EURO. 9
2.5. Retail sector and franchising

The importance of the retail market for the single market can hardly be overestimated, as
the European Parliament stressed in the Resolution on the European Action Plan of 11
December 2013 (2013/2093 (INI) – further: the 2013 Resolution). It represents 11% of
EU GDP and delivers more than 15% of all jobs in Europe, including both skilled and
unskilled labour, contributing to the social fabric of society. The retail sector, therefore,
has the strategic importance as a driver for growth, employment, competitiveness and
innovation, as well as for the strengthening of the European single market.
The European Parliament called on the EU institutions to give the highest political
prominence to the retail sector, as a pillar of the Single Market Act and a vehicle for
restoring public confidence in the single market back in 2011 (Resolution on a more
efficient and fairer retail market of 25 May 2011 (2010/2109(INI) – further: the 2011
Resolution). The Parliament stressed that restrictive national rules, divergent
interpretations and inadequate enforcement impede the free movement of goods and
services in the EU, while requirements for extra tests and registrations, the non-recognition
of certificates and standards, territorial supply constraints and similar measures create
extra costs for consumers and retailers, in particular SMEs, thereby limiting the potential
9
Ibidem pp. 42-48.
PE 578.978 21
usefulness of the single market to European citizens and the business world. In the 2013
Resolution, the Parliament called on the Commission and Member States to give the
highest political prominence to the retail sector as a pillar of the Single Market, and to lift
regulatory, administrative and practical obstacles hampering the start-up of businesses,
development and continuity, and making it difficult for retailers to fully benefit from the
internal market.
Franchising as a business model clearly contributes to the development and strengthening
the single market. As stated by Abell, 10 according to the 2010 NatWest/BFA Franchise
Survey, franchising contributed £11.8 billion to the UK’s GDP in 2009, an increase of £400
million from 2008, and nine out of ten franchise businesses were profitable. In 2009, the
total 2009 turnover of franchising in Germany was €48 billion, according to the EFF
statistics. A report in January 2008 by Deutsche Bank stated that the sector had tripled its
nominal turnover in the ten preceding years. By comparison, Germany’s nominal GDP has
only grown by 25% over the same period. As a result, the franchising share of GDP
increased by nearly 1% to 1.6% between 1996 and 2006. Deutsche Bank also reported
that, between 1996 and 2006, the number of people working in the sector had nearly
doubled. The 2008 total turnover of franchising in France was €47.6 billion. The number
of franchise networks in France has doubled over the past ten years, with steady growth
of 8-10% over the last four years (data for 2008).
The European Parliament has also recognised the importance of franchising for the single
market and the retail sector. In the 2011 Resolution, the Parliament emphasised that
franchising is a good formula for independent retailers to survive in a highly competitive
environment, noting with concern that contracts for retailers to be part of a franchise are
becoming more and more rigorous. In the 2013 Resolution, the Parliament continued that
franchising constitutes a business model that supports new business and small‑business
ownership. However, it noted the existence of unfair contract terms in certain cases and
called for transparent and fair contracts. Moreover, the Parliament drew the attention of
the Commission and the Member States to the problems faced by franchisees who wish to
sell their business or change their business formula, while remaining active in the same
sector. The Parliament requested the Commission to examine the ban on price-fixing
mechanisms in franchise systems and the effects of long-term competition clauses,
purchase options and the prohibition of multi-franchising, and to reconsider in this respect
the current exemption from competition rules for contracting parties having a market share
of less than 30 %.
2.6. Implication of franchising regulation for the single market and for
consumers
Franchising, as a business formula that allows for the rapid acquisition of new markets with
limited investments (as compared to other methods) and an increased chance of success
constitutes an important building block of the single market. From the point of view of
consumers, franchising has great potential of offering them a fair share of the resulting
benefits, as it combines the advantage of a uniform network with the existence of traders
personally interested in the efficient operation of their business. The homogeneity of the
network, and the constant co-operation between the franchisor and the franchisees,
ensures the constant quality of the products and services. It also facilitates cross-frontier
development and can boost economic activity and employment.
The present (very limited) EU regulation that applies to franchising claims to take all the
positive aspects of franchising into consideration. However, it approaches franchising as
10
Ibidem, pp. 41-42.
22 PE 578.978
Franchising
any other form of distribution, without paying attention to the specific characteristics of
franchising. In addition, the 330/2010 Regulation gives support to the franchisor, allowing
the more efficient acquisition of new markets. At a national level, an opposite tendency
can be seen – i.e. there are either legislative interventions, or case law is being established
that aim to give some support to the franchisee. Therefore, the 330/2010 Regulation aim
to increase cross-border trade seems to be contributing to new legal barriers being
established that may actually prevent increased cross-border activities of European
companies. It is worth noting here Abell’s claims that, comparing the level of franchising
activity in the US and in Australia, franchising is underdeveloped in the EU, and that this
is in part due to the regulatory environment. 11
When it comes to the implications of the existing regulation for consumers, it seems that
the very traditional approach is present in the case of franchising: i.e. consumers are seen
as the ultimate beneficiaries of a well-functioning single market.
2.7. The impact of competition law on private law relations

The way that franchising is dealt with at an EU level, even though the regulation is limited
to competition law, has a profound impact on the functioning of franchising agreements –
both in national and EU contexts. Competition law pursues specific aims (improving market
functioning and efficiency), with the help of specific instruments (EU regulation, enforced
by cooperation from the EU and national agencies) and its success is measured in the
market’s progress. At the same time, competition law heavily impacts the content of
cooperation schemes between the parties to franchising contracts.
The equation: actions that support the development of the market on the one hand, while
strengthening the lack of balance between the parties on the other, constitutes the crux of
the problem in light of the research questions pursued in this report. The main aim of
regulating franchising through competition law tools is to allow the rapid acquisition of new
markets via establishing new franchise networks and extending the existing ones.
Therefore, competition law supports the structurally stronger party to a franchising
contract, i.e. the franchisor. The effect of such actions is that the position of the franchisor
(the stronger party) becomes even stronger towards the franchisee. This may lead to a
situation where the position of franchisees is comparable to the position of a consumer, 12
and the question may appear whether consumer protection should be provided only to
end-users, or whether it should be extended to all cases of contracts, where a structurally
weaker party is involved. However, an automatic recourse to consumer law is not the
answer, as franchising contracts are concluded by professional parties in order to pursue
business goals. The automatic application of consumer protection tools may therefore not
fit the nature of their relations.
EU law does not provide other directions than Regulation 330/2010 (accompanied by the
Guidelines issued by the Commission) to answer the question of how the relationships
between the parties of the franchising contract should look. Moreover, the content of
Regulation 330/2010 sets limits to the control of the content of such relations, exercised
at the national level by application of the unfairness standards. National courts apply
Regulation 330/2010 as a yardstick to establish what should be seen as fair behaviour of
the franchising parties (normally the franchisor). This aspect of the influence exerted by
the Regulation was not considered at the EU level when discussing the content of the
Regulation.
11
Ibidem, p. 22.
12
See for example: Atwell, The Franchisee as a Consumer: Determining the Optimal Duration of Pre –
Contractual Disclosure, Journal of Consumer Policy, December 2015, vol. 38 (4), pp 457 – 489.
PE 578.978 23
2.8. Establishing the real situation on the franchising market
2.8.1. The aim of the report and the available materials

The aim of this report, as formulated by the IMCO, was to establish the impact that
Regulation 330/2010 has on the functioning of the EU franchising market (question 1: the
effect of existing EU-legislation on the well-functioning/malfunctioning in the area of
franchise). By setting this perspective, the IMCO directed the study to a field that so far
was largely abandoned in the scientific research, i.e. to analysing the impact that EU
competition law has on the parties’ behaviour and the application of the national private
law solutions at the level of the Member States.
Unfortunately, the available scientific works in the franchise area deal only with one of the
two: they either analyse the competition law solutions (for example: D.A. Schmitz, A.V.
Hamme, “Franchising in Europe: The First Practical EEC Guidelines” 22 International
Business Law 717, 32, 1988, L. Ritter, F. Rawlinson and D. Braun, European Competition
Law: a Practitioners Guide, 2nd edition Kluwer Law International pp 263-2000 278, V.
Korah, An Introductory Guide to EEC Competition Law and Practice, Oxford: ESC publishing
(4th ed) 1990, and V. Korah, “The New Vertical Restraints Block Exemption”,
Intereconomics, Vol. 37. Number 1, 4-11, DOI: 101007/BF02927395, 2002), or try to
answer the question whether the introduction of a legislative solution is necessary at the
EU level: Principles of European Law, Commercial Agency, Franchise and Distribution by.
M. Hasselink, J.W. Rutgers, O. Bueno Diaz, M. Scotton, M. Veldman, Sellier 2006, or The
Law and Regulation of Franchising in the EU by P. M. Abell published in 2013. Moreover,
there is plenty of schematic information available on the Internet concerning requirements
set by particular legal systems for the potential franchisees. There is, however, no analysis
available as to the interaction between the national private law and EU competition law
that would focus on the EU competition law impact. This subject has also been abandoned
in the official EU legislative process.
2.8.2. The challenges of preparing the report

Considering the lack of ready available data, as well as the time and methodology related
research restraints, the greatest challenge of this research was to establish what the
situation is really on the EU franchising market. Recourse to the classical legal methodology
would not bring about any real answers, since the specific characteristics of the franchising
market did not allow the identification of the problem areas. There are several reasons for
this: the franchising market is not transparent (no access to the content of contracts),
which is related to the fear factor on the side of franchisees, the representation of parties
to a franchising contract is not balanced, there is no “typical” franchising contract, and last
but not least national markets seem to be at different stages of development.
• Lack of transparency
The franchising market lacks transparency. This is due to several reasons. First of all,
access to the real content of franchising contracts is very limited. The members of
franchisor associations, e.g. the national members of the European Franchise Federation,
are bound to observe the terms of the Code of Ethics, which gives indications when it
comes to certain aspects of franchising contracts. However, the national associations do
not represent all franchisors functioning on the market. In 2009, the European Franchising
Federation estimated that there were 9,971 franchise brands in Europe, of which the EFF
and its national associations represented less than 1,577 franchised brands. 13 As Abell
states, this is less than 16% of the franchises in the EU, 14 which means that 8,300 brands
13
www.eff-franchise.com.
14
Abell, p. 119.
24 PE 578.978
Franchising
remains outside of self-regulated structures. Information about the content of contracts

outside of the organisations is very limited.
In addition, the number of court cases, although it varies from country to country, is
generally speaking not considerable. When analysing the collected cases, one should
remember that, although they indicate certain market tendencies, they do not have to
reflect the franchising market reality, considering that the franchisees’ behaviour is
impacted by the fear factor (on that see the bullet point below). In addition, there is no
access to the outcome of confidential (by their nature) out-of-court dispute resolution
schemes.
This problem became evident when confronting the national reports with the information
collected via interviews with the representatives of professional organisations and of the
industry itself. The representatives of the franchisors unanimously claim that there are no
problems on the market other than stemming from the poor performance of the
franchisees, and that the present regulatory framework is optimal. The EFF says,
moreover, that there might be problems on food distribution markets from the specific
characteristics of this market. They see the relatively low number of court cases as proof
of a lack of problems. Franchisees, on the other hand, claim that there are numerous
problems that specifically relate to franchising relations, but that these remain largely
unreported as a result of the dependency of the franchisees on the goodwill of the
franchisors. The franchisees also emphasise that the position of franchisors is further
strengthened by the content of Regulation 330/2010, which not only puts the franchisees
at a disadvantage, but also fails to address the current market reality in terms of the
market organisation and phenomena relating to Internet use.
• The fear factor
Establishing the real situation on the market is also obscured by a fear factor: i.e. the fear
on the part of franchisee to go against the franchisor, even if the content of the contract
concluded with the franchisor or the way the contract is performed violates the interests
of the franchisee. The franchisee may not be willing to take action against the franchisor
for the fear that the franchisor will end their contractual relations. This significantly limits
the number of court cases (which could be a source of information), but also mediations
(which would not make the franchise market more transparent, but could improve the
position of franchisees).
• The lack of balance in representation
What must be stressed is the lack of balance in the representation of franchisors and the
franchisees in the public debate in the EU. The franchisor organisations focus on supporting
the franchisors’ interests, and not that of the industry. 15
The franchisors have well-established and active representation throughout Europe (which
was also noticeable during the work on this paper), whereas the franchisee organisations,
although equally active, are scarce in numbers. Moreover, the franchisor organisations,
founded by their members, are better prepared for lobbying activities than the franchisee
organisations. This makes the voice of the franchisors better heard.
The leading franchising association in EU is the European Franchise Federation (founded in
1972). Currently, the EFF represents 21 national franchise associations in Europe (Austria,
Belgium, Croatia, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary,
Italy, the Netherlands, Poland, Portugal, Serbia, Slovenia, Spain, Sweden, Switzerland,
Turkey and the United Kingdom.)
On average, the national associations have 120 franchise system members (the largest is
the British with 270 members, and the smallest is Serbian with 7). The associations offer
15
On that, see Abell, who gives illustrates this claim by giving the example of the position of German and British
organisations, pp. 116-118.
PE 578.978 25
different categories of membership: the vast majority includes as their members

franchisors (13), franchise companies (8) and master franchise companies (17). About half
of the associations name professionals (10) or supporting members (2), only four name
franchisees explicitly.
Franchisee organisations are present in several member states, i.e. in the Netherlands:
http://vakcentrum.nl, Germany http://die-franchisenehmer.de, Belgium and France.
However, even if they function well at the national level, the EU representation of
franchisees is virtually non-existent.
• Diversity of the national markets – various stages of the market
development
Competition law strives to create a well-functioning European single market, and in order
to achieve this it introduces homogenous rules in all Member States. However, the research
reveals certain differences in the way particular markets function, especially when one
compares the old and the new Member States. Franchising as a business model has been
used in the old Member States since the 1970s, whereas in the new Member States, due
to different political and economic conditions, it was introduced only in the (late) 1990s.
Moreover, the development of franchising in the new Member States is not homogenous:
in Estonia, for example, franchising is still scarcely used in practice, whereas in Poland it
has been rapidly penetrating the market since the beginning of 2000.
It follows from national reports and anecdotal evidence gathered during interviews with
representatives of various legal systems that the differences between the markets refer to
the degree of competition on the market (the number of companies operating on the
market), which has an impact on the flexibility of the market (establishing new chains) and
the possibilities to go cross-border. It also impacts the position of the franchisees, which
seem to be enjoying more flexibility in the less developed markets. Additionally, the
problems the franchisees’ experience seem to be similar in certain areas (information
before a contract is concluded), and different in others (i.e. the real possibility of a
franchisee to change the franchise chain it belongs to). To analyse these similarities and
differences, a different methodology would have to be employed that would also take into
account other aspects of the analysed legal systems (i.e. the legal culture and national
peculiarities). This area definitely requires further research.
Table 2: Franchising systems in Poland
1100
1058
978
# franchising systems in Poland 926
837
758
624
516
404
309 328
95
2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Source: Raport o franczyzie w Polsce 2015, Profit system.
26 PE 578.978
Franchising
2.8.3. Establishing the real market situation - the Dutch example 16

The developments that took place in the Netherlands can serve as an illustration of how
difficult it is to diagnose the market situation and what methodology is required. The
Netherlands is one of the very few countries where the franchisees have active organisation
(VAKcentrum – an organisation for independent shopkeepers and franchisees).
VAKcentrum repeatedly reported problems affecting its members and called for action in
the area (the information was passed, among others, to the Dutch Ministry of Economic
Affairs). At first, the Ministry looked rather sceptically at the problems signalled by
VAKcentrum, nevertheless it started to investigate the franchising market. The initial
findings related to cases of evident fraud, i.e. imposing very high prices for joining the
network, or schemes offered by franchisors with no success story. However, opening a
communication channel that assured anonymity encouraged franchisees to come forward
about the problems they face (interviews were conducted with more than 80 people), which
convinced the Minister of Economic Affairs that action is indeed required. At the end of
2014, a Writing Committee was established, composed of two representatives of
franchisors, two of franchisees and two of the Ministry, with a view to prepare a Dutch
Franchising Code. The EFF’s Code was seen as too vague and not very effective: it does
not apply until the franchisor expressly states so and the courts tend to disregard it. On
16 June 2015, a draft code was presented to the industry in the process of public
consultations coordinated by the Ministry. The publication of the Code was originally
planned on 3 September 2015, but in view of the numerous and contradicting consultation
responses, more time was allowed for further debate with the sector. During the process
the franchisors sent several emergency letters in which they opposed the newly prepared
draft. The Minister upheld the Writing Committee and mentioned the possibility of adopting
hard law solutions, should the soft law initiative fail. The Dutch Franchising Code was finally
adopted and published on 17 February 2016 as a soft law solution.
2.9. Methodology
2.9.1. Sources
At the level of EU law, the report takes into account the case decided by the Court of Justice
of the European Union, decisions of the European Commission, and all EU regulations that
apply to franchising. The aim of the analysis is to focus not on presenting the content of
particular instruments (although this is also done), but to show the development of the
approach to franchising at a European level, as well as its potential impact on the
functioning of franchising on the EU market. This is important considering that almost 30
years has passed since the Pronupia case, which laid the foundations to the approach to
franchising regulations in the EU, and the evolution of the approach that took place in this
period.
At a national level, the research was conducted using the traditional comparative law
method, i.e. via questionnaires filled in by national researchers. The questions formulated
for the researchers referred both to the application of EU competition rules on the national
level (the results are presented in part. 2. Franchising under EU law) and purely national
laws applicable to franchising (presented in part 3. Franchising under national law).
Table 3: list of national reporters
16
The information on the process that took place in the Netherlands was received from a representative of the
Ministry of Economic Affairs.
PE 578.978 27
Belgium dr. Stijn Claeys
Estonia prof. Irene Kull

France prof. Juliette Senechal
Germany Anne-Katrin Suilmann
Italy dr. Guido Comparato

Netherlands dr. Joasia Luzak
Poland dr. Aneta Wiewiórowska-Domagalska
Romania dr. Lucian Bojin
Spain dr. Odavia Bueno Diaz
The research was supplemented with meetings / conference calls with representatives of
franchising organisations and franchising industry:
• Vakcentrum
• UAPME umbrella organisation for SMEs in Europe
• Albert Heijn franchisees, the Netherlands
• Delhaize Belgium (franchisor)
• The Polish Franchising organisation
• Luc Ardies (legal expert in the franchise area)
• Representatives of practicing lawyers dealing with franchising contract
• Profit (Polish consulting company specialising in franchising sector)
• Independent Retail Europe
• The European Franchising Federation
• The Dutch Franchising Organisation (NFV)
• The French Franchising Organisation
• Representative of the Dutch Ministry of Economic Affairs
Additionally, invitations were sent to the following, but the parties did not decide to
participate in the consultations:
• The German Franchising Organisation

• Metro Germany
• Carrefour
• The Italian Franchising Organisation
• The Romanian Franchising Organisation
• The Estonian Franchising Organisation
2.9.2. The scope of the research

The work on the report proved that the initial assumptions concerning the scope of the
research necessary to complete it clearly underestimated the amount of the time and effort
needed. It became evident that franchising suffers from insufficient amount of legal and
economic analysis, which is rather surprising, considering the meaning of franchising for
the EU economy. The preparatory work conducted by the EU Commission during the
consultation process on the changing the policy towards vertical restraints did not contain
28 PE 578.978
Franchising
proper analysis of the EU franchising market (although the reform has substantially
changed the approach towards franchising). This combined with the fact that the report
raised much attention among the interested parties meant that the report required much
more expenditure in terms of time and analysis, than it was initially assumed. Also,
considering the shortage of the available sources and the generated interest, preparation
of the report was supplemented by a much greater number of interviews with the industry
representatives than it was initially assumed.
2.9.3. The value of the collected materials

The size of the report considerably exceeds the expected size for such reports. This is due
to the fact that, in the course of preparing the report, a vast collection of materials has
been gathered that did not exist before. This is also one of the values of the report: the
collected material sets out, in an organised manner, the solutions adopted at the national
level, and allows further use of the data.
2.10. Limitations of the report

The primary focus of the report is on the legal analysis, referring to competition law (EU
and national level) and private law regulation (national level). Analysing the legal
environment was the starting point for preparing the report. However, during the work it
turned out that the specific characteristics of the franchising market made it necessary to
extend the scope of the report and include also elements of public policy.
The report focuses on the legal aspects of the EU franchising market. In the context of the
field of research (the borderline between competition and private law regulation), the
report can fill in (at least partly) the research gap that existed so far. In order to decide
whether and to what extent the content of vertical restraints should be changed, market-
oriented research by economists is required. A legal report may help to establish the link
between the measures that aim to construct an EU market, and the content of the legal
relationships that bind the parties of the franchising contract, which so far were largely
neglected.
In the course of the research, around 20 interviews were conducted with 13 individuals.
The collected data goes beyond what can be called “anecdotal” and provides rather a
comprehensive overview of the market situation (though, without claiming to be complete
or statistically significant). What must be stressed, however, is that a pattern can easily
be established when it comes to the starkly contrasting views presented by the
representatives of the industry, in particular in the old Member States.
PE 578.978 29
FRANCHISING: THE PRESENT EU REGULATORY

FRAMEWORK
KEY FINDINGS
• At present franchising is regulated at the EU level by Regulation 330/2010.
• Regulation 330/2010 covers a wide variety of vertical agreements and is not
designed to deal specifically with franchising. Franchising is seen as one type of
vertical agreement, and its peculiar characteristic is addressed in a rather superficial
way in the Guidelines issued by the Commission that accompany the Regulation.
• The scope of the Regulation is limited, on the one hand by the de minimis rule and
on the other by the 30% threshold introduced by the Regulation. As regards
franchising, this means in principle application to contracts concluded by the parties
who have a market share of between 10 to 30 %. Below this limit, contracts have
no appreciable impact on market, above they are subject to individual exemptions.
• The Regulation distinguishes between the “hard-core” restriction (the Regulation
does not apply to vertical agreements that contain such restrictions) and excluded
restrictions (to which it does not apply).
3.1. Introduction
EU law has so far dealt with franchising only with regard to competition law. It began with
the judgement of the Court of Justice of the European Union of 28 January 1986, in the
case 161/84 Pronuptia de Paris GmBh and Pronupia de Paris Irmgard Schillgalis, 17 which
shaped the principles on which the approach to franchising in EU law was initially based.
In this judgement (the only one so far that has dealt with franchising), the Court recognised
franchising as a self-standing method of contracting, distinguished between various forms
of franchising (see also point 1.1 of Chapter I), and established which types of contractual
provisions, although of a restrictive character, are necessary to allow the proper
functioning of a franchising contract. The case was followed by a series of decisions by the
European Commission, building on the foundation set by the Court of Justice: Decision
87/14/EEC Yves Rocher of 17 December 1986 (further Yves Rocher), 18 Decision
87/17/EEC Pronuptia of 17 December 1986 (further Pronuptia decision), 19 Decision
87/407 Computerland of 13 July 1987 (further Computerland), 20 Decision 88/604
ServiceMaster of 20 August 1988 (further ServiceMaster) 21 and Decision 89/94/EEC
Charles Jourdan of 2 December 1988 (further Charles Jourdan). 22 The principles set out in
the decisions were captured and further developed in the block exemption regulation
regarding franchising contracts (Commission Regulation (EEC) No 4087/88 of 30 November
1988 on the application of Article 85(3) of the Treaty to categories of franchise
agreements. 23 Later franchising was included alongside various types of distribution
contracts in two subsequent block exemption regulations: Commission Regulation No
2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to
categories of vertical restraints and concerted practices 24 and the current Commission
17
European Court Reports 1986, 00353.
18
OJ EEC L 8/49 of 10 January 1987.
19
20
OJ EEC L 222/12 of 10 August 1987.
21
OJ EEC L 332/38 of 3 December 1988.
22
23
OJ EEC L 359/46 of 28 December 1988
24
OJ L 336 of 29 December 1999.
30 PE 578.978
Franchising
Regulation No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty
on the Functioning of the European Union to categories of vertical agreements and
concerted practices. 25 (the evolution of the policy is presented in the next chapter).
3.2. Article 101 TFEU

The competition policy towards vertical restraints is based on Article 101 TFEU (formerly
Article 81). It applies to vertical agreements that may affect trade between Member States
and that prevent, restrict or distort competition (“vertical restraints”). It provides a legal
framework to assess vertical restraints that takes into consideration the distinction
between anti-competitive and pro-competitive effects.
Regulation 330/2010 has universal character, i.e. it applies to all types of agreements, no
matter what is the subject matter of the agreement, with the exception of vertical
agreements the subject matter of which falls within the scope of any other block exemption
regulation, unless otherwise provided for in such a regulation (Article 2(5)).
Article 101(1) prohibits agreements that appreciably restrict or distort competition, while
Article 101(3) exempts agreements that confer sufficient benefits to outweigh the anti-
competitive effects. As the Guidelines on Vertical Restraints (2010/C 130/01) explain
(point 6), for most vertical restraints, competition concerns can only arise if there is
insufficient competition at one or more levels of trade, i.e. if there is some degree of market
power at the level of the supplier or the buyer or at both levels. Moreover, vertical
restraints are generally less harmful than horizontal restraints and may provide substantial
scope for efficiencies (the Guidelines, point 6).
3.3. The scope of application of Regulation 330/2010

For the reasons explained above, certain vertical restraints are excluded from the scope of
application of the Regulation:
• Agreements that are not capable of appreciably affecting trade between Member
States or of appreciably restricting competition by object or effect that do not fall
within the scope of Article 101(1).
• Subject to the conditions set out in the de minimis notice concerning hard-core
restrictions and cumulative effect issues, vertical agreements entered into by non-
competing undertakings whose individual market share on the relevant market does
not exceed 15% are generally considered to fall outside the scope of Article 101(1).
For agreements between competing undertakings the de minimis market share
threshold is 10% for their collective market share on each affected relevant market.
There is no presumption that vertical agreements concluded by undertakings having
more than 15% market share automatically infringe Article 101(1). Agreements
between undertakings whose market share exceeds the 15% threshold may still
not have an appreciable effect on trade between Member States or may not
constitute an appreciable restriction of competition (See judgment of the Court of
First Instance in Case T-7/93 Langnese- Iglo v Commission [1995] ECR II-1533,
paragraph 98.).
• Vertical agreements between small and medium-sized undertakings, as defined in
the Annex to Commission Recommendation of 6 May 2003 concerning the definition
of micro, small and medium-sized enterprises, 26 are rarely capable of appreciably
25
OJ L 102/1 of 23 April 2010.
26
Art. 2(1) The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises that
employ fewer than 250 people, and which have an annual turnover not exceeding EUR 50 million, and/or an
annual balance sheet total not exceeding EUR 43 million.
PE 578.978 31
affecting trade between Member States or of appreciably restricting competition

within the meaning of Article 101(1), and therefore generally fall outside the scope
of Article 101(1). In cases where such agreements nonetheless meet the conditions
for the application of Article 101(1), the Commission will normally refrain from
opening proceedings due to a lack of sufficient interest from the European Union,
unless those undertakings collectively or individually hold a dominant position in a
substantial part of the internal market.
3.3.1. Thresholds
The exemption contained in the Regulation applies only on a condition (Article 3(1)) that
the market share held by the supplier does not exceed 30% of the relevant market on
which it sells the contract goods or services and the market share held by the buyer does
not exceed 30% of the relevant market on which it purchases the contract goods or
services. The Guidelines explain that it can be presumed that, where the market share held
by each of the undertakings party to the agreement on the relevant market does not
exceed 30%, vertical agreements without certain types of severe restrictions of
competition generally lead to an improvement in production or distribution and allow
consumers a fair share of the resulting benefits. The new market thresholds for the
application of the exemption is one of the most significant novelties introduced by the
Regulation.
The Regulation gives the Commission and the competition authorities of the member states
the possibility to withdraw the benefit of exemption if an agreement, to which the
exemption applies, nevertheless has effects that are incompatible with Article 101(3) of
the Treaty.
3.4. Hard-core restrictions and excluded restrictions
3.4.1. Hard-core restrictions
The Regulation states explicitly in recital 10 that it does not exempt vertical agreements
containing restrictions that are likely to restrict competition and harm consumers, or which
are not necessary for reaching efficiency-enhancing effects. Article 4 specifies that the
exemption does not apply to vertical agreements that, directly or indirectly, in isolation or
in combination with other factors under the control of the parties, have as their object:
(a) the restriction of the buyer's ability to determine its sale price, without prejudice to the
possibility of the supplier to impose a maximum sale price or recommend a sale price,
provided that they do not amount to a fixed or minimum sale price as a result of
pressure from, or incentives offered by, any of the parties;
(b) the restriction of the territory in which, or of the customers to whom, a buyer party to
the agreement, without prejudice to a restriction on its place of establishment, may
sell the contract goods or services.
The Guidelines to the Regulation take a stricter approach to the hard-core restrictions than
the previous Guidelines, establishing (paras 47 and 223) a non-rebuttable presumption
that any vertical agreement that contains them is incompatible with Article 101 (1).
3.4.2. Excluded restrictions
As stated in Article 5, the exemption does not apply to the following obligations contained
in vertical agreements:
32 PE 578.978
Franchising
(a) any direct or indirect non-compete obligation, the duration of which is indefinite or
exceeds five years, a non-compete obligation that is tacitly renewable beyond a period
of five years is deemed to have been concluded for an indefinite duration. However,
the time limitation of five years does not apply where the contract goods or services
are sold by the buyer from premises and land owned by the supplier or leased by the
supplier from third parties not connected with the buyer, provided that the duration of
the non-compete obligation does not exceed the period of occupancy of the premises
and land by the buyer;
(b) any direct or indirect obligation causing the buyer, after the termination of the
agreement, not to manufacture, purchase, sell or resell goods or services. However,
the exemption applies such obligations if certain conditions are fulfilled:
• the obligation relates to goods or services that compete with the contract goods
or services;
• the obligation is limited to the premises and land from which the buyer has
operated during the contract period;
• the obligation is necessary to protect know-how transferred by the supplier to the
buyer;
• the duration of the obligation is limited to a period of one year after the termination
of the agreement.
Moreover, the Regulation gives the possibility of imposing a restriction, which is
unlimited in time, on the use and disclosure of know-how that has not entered the
public domain.
(c) any direct or indirect obligation causing the members of a selective distribution system
not to sell brands of particular competing suppliers.
3.5. Application of the Regulation to franchising contracts

Regulation 330/2010 specifies categories of agreements that can be regarded as normally
satisfying the conditions set out in Article 101(3), including vertical agreements for the
purchase or sale of goods or services where those agreements are concluded between non-
competing undertakings, between certain competitors or by certain associations of retailers
of goods. It also includes vertical agreements containing ancillary provisions on the
assignment or use of intellectual property rights. The term ‘vertical agreements’ includes
the corresponding concerted practices. Franchising is not specifically mentioned in the
Regulation itself, but is dealt with in the Guidelines. The Guidelines are legally binding only
on the Commission, but they have a profound impact on how national courts and
competent authorities apply Article 101. It should be stressed, that, with regards to
franchising, the Guidelines basically repeat precisely what the 2000 Guidelines established.
The Guidelines deal with franchising in Section 2.5 under Section VI “Enforcement Policy
in Individual Cases” (paragraphs (189) and (190)). Paragraph 189 establishes what the
franchise agreement is and what is its usual content, whereas paragraph 190 specifies
when a franchising agreement can be exempted.
Franchise agreements (para. 189) primarily contain licences of intellectual property rights
relating in particular to trademarks or signs and know-how for the use and distribution of
goods or services. In addition, the franchisor usually provides the franchisee, during the
life of the agreement, with commercial or technical assistance. The licence and the
assistance are integral components of the business method franchised. The franchisor is,
in general, paid a franchise fee by the franchisee for the use of the particular business
method. Franchising may enable the franchisor to establish, with limited investments, a
uniform network for the distribution of its products. In addition to the provision of the
PE 578.978 33
business method, franchise agreements usually contain a combination of various vertical

restraints concerning the products being distributed, in particular selective distribution
and/or non-compete and/or exclusive distribution or weaker forms thereof.
The Guidelines extensively deal with the application of the exemption to the licensing of
intellectual property rights in franchising agreements (paras. 24 – 46).
When it comes to vertical restraints on the purchase, sale and resale of goods and services
within a franchising arrangement, such as selective distribution, non-compete obligations
or exclusive distribution, the Block Exemption Regulation applies up to the 30% market
share threshold. The guidance provided in respect of those types of restraints applies also
to franchising, subject to the following two specific remarks:
(a) The more important the transfer of know-how, the more likely it is that the restraints
create efficiencies and/or are indispensable to protect the know-how and that the
vertical restraints meet the conditions of Article 101(3);
(b) A non-compete obligation on the goods or services purchased by the franchisee falls
outside the scope of Article 101(1) where the obligation is necessary to maintain the
common identity and reputation of the franchised network. In such cases, the duration
of the non-compete obligation is also irrelevant under Article 101(1), as long as it does
not exceed the duration of the franchise agreement itself.
The Guidelines also contain an example of franchising agreement and explain how the
Regulation applies to it. A manufacturer has developed a new format for selling sweets in
fun shops where the sweets can be coloured specially on demand from the consumer. The
manufacturer of the sweets has also developed the machines to colour the sweets. The
manufacturer also produces the colouring liquids. The quality and freshness of the liquid is
of vital importance to producing good sweets. The manufacturer made a success of its
sweets through a number of own retail outlets all operating under the same trade name
and with the uniform fun image (style of lay-out of the shops, common advertising etc.).
In order to expand sales the manufacturer started a franchising system. The franchisees
are obliged to buy the sweets, liquid and colouring machine from the manufacturer, to
have the same image and operate under the trade name, pay a franchise fee, contribute
to common advertising and ensure the confidentiality of the operating manual prepared by
the franchisor. In addition, the franchisees are only allowed to sell from the agreed
premises, to sell to end users or other franchisees and are not allowed to sell other sweets.
The franchisor is obliged not to appoint another franchisee nor operate a retail outlet itself
in a given contract territory. The franchisor is also under an obligation to update and further
develop its products, the business outlook and the operating manual, and make these
improvements available to all retail franchisees. The franchise agreements are concluded
for a duration of 10 years.
Sweet retailers buy their sweets on the national market, from either national producers
that cater for national tastes, or from wholesalers that import sweets from foreign
producers, in addition to selling products from national producers. On that market the
franchisor's products compete with other brands of sweets. The franchisor has a market
share of 30% on the market for sweets sold to retailers. Competition comes from a number
of national and international brands, sometimes produced by large diversified food
companies. There are many potential points of sale of sweets in the form of tobacconists,
general food retailers, cafeterias and specialised sweet shops. The franchisor's market
share of the market for machines for colouring food is below 10 %.
Most of the obligations contained in the franchise agreements can be deemed necessary
to protect the intellectual property rights or maintain the common identity and reputation
of the franchised network and fall outside Article 101(1). The restrictions on selling
34 PE 578.978
Franchising
(contract territory and selective distribution) provide an incentive to the franchisees to

invest in the colouring machine and the franchise concept and, if not a requirement, at
least help maintain the common identity, thereby offsetting the loss of intra-brand
competition. The non-compete clause excluding other brands of sweets from the shops for
the full duration of the agreements does allow the franchisor to keep the outlets uniform
and prevent competitors from benefiting from its trade name. It does not lead to any
serious foreclosure in view of the great number of potential outlets available to other sweet
producers. The franchise agreements of this franchisor are likely to meet the conditions for
exemption under Article 101(3) in as far as the obligations contained therein fall under
Article 101(1).
PE 578.978 35
FRANCHISING: EU REGULATORY FRAMEWORK
KEY FINDINGS
• The EU approach to the franchising contract was first established in the Pronupia
case decided by the CJEU in 1988. It recognised franchising as a distinct business
model, but stressed that it is model for deriving financial benefits from one’s
expertise without investing one’s own capital, rather than a method of distribution.
• The CJEU distinguished between the conditions necessary to make the franchising
system operational, which did not restrict competition, and conditions that are not
necessary for the franchising system to work and may restrict competition.
• This approach was continued in a series of Commission decisions in franchising
cases: Yves Rocher, the Pronupia decision, Computerland, ServiceMaster and
Charles Jourdan.
• The accumulated expertise of the Commission contributed to the enactment of
Regulation 4087/88 which applied to certain franchising contracts.
• Together with the reform of EU competition policy as regards vertical restraints,
which was initiated in 1997, EU law began to treat franchising as one type of a
selective distribution system, and the particularity of franchising was no longer
normatively recognised (Regulations 2790/1999 and 330/2010).
4.1. Introduction
4.1.1. Why presenting evolution of the EU regulatory is important?

The present regulatory framework is described in the previous chapter. However, the
information limited to the current legislation does not provide a sufficient basis for
understanding the potential problems of the EU franchising market. Regulation 330/2010
is only the end-effect of a long process, during which the approach towards franchising has
changed fundamentally. This process of evolution raises several questions:
(1) Did the EU legislature take sufficient account of the special nature of the franchising
contract when changing the approach to regulating vertical restraints?
(2) Does the new approach address the current problems of the franchising market
effectively?
(3) What are the adverse effects of the introduced system?
In order to answer these, the entire process must be taken into account, not only its most
recent developments. Presenting the evolution process also allows for a better
understanding of the concepts that lie at the core of the current competition policy towards
vertical restraints and the reasons that led to their acceptance.
4.1.2. Overview of the evolution

The initial EU approach to franchising, presented by the CJEU in the Pronupia case,
assumed that franchising is a method for deriving financial benefit from one’s expertise
without investing one’s own capital, rather than a method of distribution. The Court
emphasised that franchising (more specifically, distribution franchising) provides traders
who do not have the necessary experience access to methods that they could not have
learned without considerable effort, allowing them to benefit from the reputation of the
franchisor’s business name. In the Court’s eyes, as a system that allows the franchisor to
profit from his success, franchising does not in itself interfere with competition. The Court
36 PE 578.978
Franchising
distinguished between conditions necessary for making the franchising system operational:
(1) the need to protect know-how and (2) the need to uphold the network’s identity. These
conditions were not seen as restricting competition, as opposed to conditions that are not
essential for the franchising model to work which could, however, restrict competition.
Here, the Court listed provisions that share markets between the franchisor and the
franchisee, and provisions that impair the franchisee’s freedom to determine its own price.
(details: see point 1.2 below).
The five decisions issued by the Commission that followed the Pronupia case (Yves Rocher,
Pronuptia, Computerland, ServiceMaster and Charles Jourdan) the Commission simply
applied the principles established by the Court of Justice. The cases elaborate further on
when clauses are restrictive and not restrictive of competition and provide a very good
illustration of how the Commission established whether or not a given condition goes
beyond what is strictly necessary for achieving its purpose. Also, the Commission had
regard to the effectiveness of the measures and emphasised the benefits that franchising
networks offer to consumers (see point 1.3).
The Commission took the next step in developing normative tools by enacting Regulation
4087/88 that applied specifically to certain categories of franchising (for the retailing of
goods or the provision of services to end users, or a combination of these activities and
master franchising). The Regulation did not establish any specific thresholds for its
application but distinguished several types of restrictions of competition, and clearly
indicated to which restrictions the Regulation applied, to which it applied under certain
conditions, and which were not exempted (further elaboration in point 1.4).
In 1997, a discussion on reforming EC competition policy as regards vertical restraints was
began with the publication of the Green Paper on Vertical restraints. 27 The existing block
exemption regulations were regarded as too legalistic and as stifling business (the
“straightjacket effect”). They were also accused of creating a compliance burden arising
from unnecessary legal uncertainty, and preventing the companies without significant
market power from using vertical restraints to improve their competitive position in the
market. At the same time, as was stressed, the Commission could have exempted
agreements that actually distorted competition. The Communication from the Commission
on the applicability of the Community competition rules to vertical restraints, 28 which
followed the Green Paper, proposed an economics-based approach to vertical restraints
policy: one broad umbrella block-exemption regulation covering all vertical restraints for
the distribution of goods and services (preventing unjustified differentiation between forms
or sectors), which would use market-share thresholds to distinguish between agreements
that are or are not block-exempted (the safe harbour approach). Primarily based on a
block-clause approach (defining what is not block exempted instead of defining what is
exempted, to avoid the straightjacket effect), the regulation was to facilitate the
simplification of the applicable rules. The economics-based approach meant that in the
absence of market power, a presumption of legality for vertical restraints can be made
except for certain hard-core restrictions, whereas when market power exists, no general
presumption of legality should be allowed. Franchising was to be covered by new block
exemption regulation, though, as a combination of vertical restraints, it was not to be given
any preferential treatment.
This approach was implemented in two subsequent regulations: Commission Regulation
2790/1999 on the application of Article 81(3) of the Treaty to categories of vertical
restraints and concerted practices, and Commission Regulation 330/2010 on the
27
Green Paper on Vertical Restraints in EC Competition Policy, Brussels, 22.01.1997, COM(96) 721 final.
28
Communication from the Commission on the application of the Community competition rules to vertical
restraints, Brussels 30.09.1998, COM(1998) 544 final.
PE 578.978 37
application of Article 101(3) of the Treaty on the Functioning of the European Union to
categories of vertical agreements and concerted practices. Regulation 2790/1999
introduces the threshold (share of the relevant market accounted for by the supplier not
exceeding 30%), as above this level “there can be no presumption that vertical agreements
falling within the scope of Article 81(1) will usually give rise to objective advantages of
such a nature and size as to compensate for the disadvantages that they create for
competition”. The Regulation did not apply to agreements containing hard-core restrictions
(defined in Article 4), and certain specific obligations (though it continued to apply to the
remaining part of the vertical agreement if that part is severable from the non-exempted
obligations). Franchising was covered, although not mentioned specifically (with the
exception of the Guidelines).
4.2. Pronupia case
4.2.1. Introduction
In the first (and so far – the only) case that dealt with franchising, i.e. the Pronupia case,
the Bundesgerichtshof referred for a preliminary ruling on the interpretation of Article 85
of the Treaty and Commission Regulation No 67/67/EEC of 22 March 1967 on the
application of Article 85 (3) of the Treaty to certain categories of exclusive dealing
agreements in order to ascertain whether those provisions are applicable to franchise
agreements (the Court denied it).
4.2.2. Provisions necessary for the protection of the provided know-how or for the
maintenance of the network’s identity and reputation
The Court stated that, for the franchising system to work, two conditions must be met,
and that the contractual provisions essential to secure these conditions do not constitute
restrictions of competition (then Article 85(1)).
First, the franchisor must be able to communicate his know-how to the franchisees and
provide them with necessary assistance in order to enable them to apply his method,
without running the risk that the know-how and assistance will benefit competitors, even
indirectly. The provisions that the Court saw as essential to avoid that risk included:
• A clause prohibiting the franchisee, during the period of validity of the contract and
for a reasonable period after its expiry, from opening a shop of the same or a similar
nature in an area where it may compete with a member of the network;
• The franchisee’s obligation not to transfer his shop to another party without the
prior approval of the franchisor.
Second, the franchisor must be able to take measures necessary to maintain the identity
and reputation of the network bearing his business name or symbol. The provisions that
establish the means of control necessary for that purpose include:
• The franchisee’s obligation to apply the business methods developed by the
franchisor and to use the provided know-how;
• The franchisee’s obligation to sell the goods covered by the contract only in
premises laid out and decorated according to the franchisor’s instructions, which is
intended to ensure a uniform presentation in conformity with certain requirements;
• The choice of the location of the shop, and the exclusion of the possibility to transfer
the shop to another location without the franchisor’s approval;
• The prohibition on the franchisee assigning his rights and obligations under the
contract without the franchisor’s approval, which protects the latter’s right to freely
choose the franchisees, on whose business qualifications the establishment and
maintenance of the network’s reputation depend;
38 PE 578.978
Franchising
• A provision requiring the franchisee to sell only products supplied by the franchisor,
or by selected suppliers. The Court explained that, by controlling the selection of
goods offered by the franchisee, the public is able to obtain goods the same quality
from each franchisee. Further, for certain types of goods (like fashion articles) it
may be impractical to lay down objective quality specifications. In addition, the
large number of franchisees may sometimes make it too expensive to ensure that
such specifications are observed. Restrictions concerning supply may therefore be
considered necessary to protect the network’s reputation. The Court sets the limit
of such provisions: they cannot have the effect of preventing the franchisee from
obtaining those products from other franchisees;
• A provision requiring the franchisee to obtain the franchisor’s approval for all
advertising.
4.2.3. Provisions not essential for achieving the aims of franchising contract
The Court identified two types of provisions that are not necessary for the franchising
system to work and which can restrict competition between the members of the network:
(1) provisions that share markets between the franchisor and franchisees or between
franchisees, or which prevent franchisees from engaging in price competition with each
other, and (2) provisions that impair the franchisee’s freedom to determine his own prices.
4.2.4. Provisions that share markets

The provisions that share markets between the franchisor and the franchisees or between
the franchisees themselves can, in the opinion of the Court of Justice, affect trade between
Member States, even if they are entered into by undertakings established in the same
Member State, in as far as they prevent franchisees from establishing themselves in other
Member States. The Court has also drawn the attention of national courts to provisions
that prohibit the franchisee opening a second shop. It stressed that the real effect of such
clauses becomes clear if it is examined in conjunction with the franchisor’s undertaking to
ensure that the franchisee has the exclusive use of his business name or symbol in a given
territory. In order to comply with that undertaking, the franchisor must not only refrain
from establishing himself within that territory, but also require other franchisees to give
an undertaking not to open a second shop outside their own territory. A combination of
provisions of that kind results in sharing markets between the franchisor and the
franchisees, or between franchisees, and so it restricts competition within the network.
This constitutes a limitation of competition if it concerns a business name or symbol that
is already well known. It is, of course, possible that a prospective franchisee would not
take the risk of becoming part of the chain, investing his own money, paying a relatively
high entry fee and undertaking to pay a substantial annual royalty, unless he could hope,
thanks to a degree of protection against competition on the part of the franchisor and other
franchisees, that his business will be profitable (which is relevant only to an examination
of the agreement in light of the conditions set out in Article 85 (3)).
4.2.5. Provisions that impair the franchisee’s freedom to determine his own price
Provisions that impair the franchisee’s freedom to determine his own prices are, in the
opinion of the Court, restrictive of competition. The Court highlighted that the effect of
restricting competition does not take place if the franchisor simply provides franchisees
with price guidelines, so as long as there is no concerned practice between the franchisor
and franchisees, or between the franchisees themselves, for the actual application of such
prices. The control of the concerned practice is in the hands of the national courts.
PE 578.978 39
4.3. Commission’s decisions

In the five decisions issued by the EU Commission following the Pronupia case (Yves
Rocher, Pronuptia decision, Computerland, ServiceMaster and Charles Jourdan) the
Commission simply applied the principles established by the Court of Justice. The
Commission distinguished between:
• Provisions that do not constitute restrictions of competition (within the meaning of
Article 85 (1));
• Provisions restrictive of competition, but which can be granted individual exemptions
under 85 (3); and
• Provisions not relevant from the competition point of view (in one case).
4.3.1. Contractual obligations not restrictive of competition

The Commission has strictly followed the division introduced by the Court of Justice and
recognised clauses essential to prevent the know-how supplied and assistance provided by
the franchisor from benefiting competitors, and clauses that provide for the control
essential for preserving the common identity and reputation of the network. The list of
clauses that the Commission qualified as not restrictive of competition was similar in all
cases.
4.3.2. Clauses essential to prevent the know-how supplied and the assistance
provided by the franchisor from benefitting competitors
The provisions essential to prevent the competitors from benefitting from the know-how
presented by the franchisor included, for example, the franchisee’s obligation to preserve,
before and after the termination of the agreement, the secrecy of all information and know-
how, and to impose a similar obligation on his employees, the prohibition on the franchisee
to sell the franchised business or to assign its management to another person and the
franchisee’s obligation to use the know-how and licensed intellectual property rights solely
for the purposes of exploitation of the franchise. The Commission paid particular attention
to the anti-competitive clauses prohibiting the franchisee from conducting a business
during a certain period after terminating the franchising contract. The Commission
investigated, in light of the exclusivity of the territory allotted to the franchisee, whether
or not the clauses go beyond what is strictly necessary to achieve their purpose, i.e. to
protect the transfer of know-how and (in principle) the interests of the franchisor.
Four out of five franchising agreements contained a non-competition clause lasting one
year. In the Yves Rocher and Pronupia decisions, the clauses were very similar. They
prohibited the franchisee from conducting business in its former exclusive territory (Yves
Rocher), and engaging in any similar business in the same area or in any other area where
he would be in competition with another outlet (Pronuptia decision). In both cases, the
Commission decided that the clause protects the franchisor’s know-how and argued that it
gives the franchisor a reasonable period to establish a new place of business, which he was
not able to do during the term of the contact due to the exclusivity clause. In the Yves
Rocher decision, the Commission argued that the clause does not go beyond what is strictly
necessary to achieve its purpose, since a former franchisee can compete with Yves Rocher
as soon as the contract expires, by setting up business outside his former exclusive
territory, possibly in the territory of other franchisees. In the Pronupia decision, the
Commission added that other ways of preventing the risk of know–how benefitting the
competitors might not be as effective. The non-competition clause was further limited in
the Pronupia decision. The franchisee could carry on the business in the allotted territory
after the agreement has ended if he:
• has exercised the franchise for more than 10 years,
40 PE 578.978
Franchising
• has discharged his contractual obligations, and

• does not put the know-how and experience he has accumulated at the service of a
competing network.
Under the ServiceMaster agreement, the franchisee, for a period of one year, could not be
engaged in a competing business within the territory where he provided services prior to
the termination of the agreement, and could not solicit customers who were his customers
during the period of two years prior to the termination of the agreement. In the
Commission’s view, such clauses were acceptable as regards duration and geographical
extent. Moreover, the clause was necessary to prevent the ex-franchisee using the know-
how and the clientele he has acquired for his own benefit or for the benefit of
ServiceMaster's competitors, and necessary to allow ServiceMaster a limited time period
to establish a new outlet in the ex-franchisee's territory.
Initially, under the Computerland franchising agreement, the non-competition obligation
continued for three years after terminating the agreement at a given distance from the ex-
franchisee's former outlet, for two years at a given distance from any Computerland store,
and for one year at any location. The Commission found it unreasonably broad as regards
both duration and geographical extent. Following discussions with the Commission, it was
limited to one year after terminating the agreement within a radius of 10 kilometres from
the ex-franchisee's former place of business. This was, according to the Commission, a
reasonable compromise between the franchisor's concern to protect the confidentiality of
his business formula and to open a new outlet in the ex-franchisee's former exclusive
territory on the one hand, and the ex-franchisee's legitimate interest in continuing to
operate in the same field on the other. The Commission argued that, in view of the fact
that, during the term of the agreement, a franchisee is not bound to over-the-counter
sales, and is furthermore free to sell anywhere, then he can develop goodwill and clientele
far beyond his own protected area; during the one year in which the post-term non-
competition obligation is in force, he can thus continue to reap the benefits of the efforts
he has made as a franchisee, only being prevented from competing during that period in
the vicinity of his former outlet.
It is worth noting that, under the Charles Jourdan franchising agreement, the franchisee
was not bound by any non-competition clause after ending the agreement. It was explained
that such a non-competition clause would not be justified: first, as the know-how provided
included a large element of general commercial techniques, and second, as this type of
franchise was primarily granted to retailers who are already experienced in selling shoes.
4.3.3. Clauses that aim at securing the common identity and the reputation of the
network
The list of clauses that provide for the control essential to preserve the common identity
and reputation of the network trading under the franchisor’s name included the obligation
of the franchisee to:
• Conduct the franchised business in the manner prescribed by the franchisor, and to use
the know-how and expertise it makes available;
• Conduct the franchised business from the premises approved by the franchisor and
fitted and decorated according to its instructions;
• Obtain the franchisor's approval for his local advertising;
• Order the goods connected with the essential object of the franchise business
exclusively from the franchisor, or suppliers nominated by the franchisor. It was
emphasised that the franchisee may purchase such goods from any other franchisee in
the network, and that the franchisor may vet, ex-post, the quality of products not
connected with the essential object of the franchise business, which the franchisee may
PE 578.978 41
purchase from the supplier of his choice, and to forbid the franchisee to market them
from the outlet if they are damaging to the brand image;
• To communicate to the franchisor any improvements the franchisee makes in the
operation of the business;
• To assign their contract without the written agreement of the franchisor;
• To devote the necessary time and attention to the franchisor’s business and to use his
best endeavours to promote and increase the turnover of the business;
• To submit to inspections of his premises by the franchisor and to present financial
statements.
4.3.4. Contractual obligations restrictive of competition

Following the principles established by the Court of Justice, the Commission adopted a
position that provisions that may lead in particular to market sharing between the
franchisor and the franchisees, or between the latter, or that interfere with the franchisees'
individual pricing policies, may be considered restrictions of competition.
4.3.5. Market sharing

The Commission stressed that the restrictions of competition entailed with the exclusivity
clauses are indispensable to ensure the existence of the network. The potential franchisees
would not be willing to make the investments necessary to open up a new outlet if they
were not assured that no other franchisees outlets will be established in their near vicinity
(certain of receiving a certain degree of protection against competition from other outlets).
Therefore, the Commission perceived this restriction as the necessary cornerstone of the
franchise system. At the same time, the provisions that lead to market sharing within the
network and the obligation to sell to end-users were seen as liable to affect intracommunity
trade, because franchisees were not free to expand their operations to other Member
States, either at a retail or wholesale level.
The Commission classified as market sharing a combination of clauses that granted the
franchisee the exclusivity to operate under the franchisor's trade marks in a given area
and the obligation on the franchisee to conduct his business activity exclusively from the
premises approved for that purpose. In the Yves Rocher case, the Commission argued that
a combination of such clauses prevents franchisees from setting up business in another
Member State, and may thus affect trade between Member States to an appreciable extent.
In the Computerland case, the Commission emphasised that the prohibition on opening
further outlets interferes with the franchisee's commercial independence, especially
considering the fact that Computerland outlets are generally not one-man operations, but
medium-sized enterprises employing on average ten to twenty people and sometimes even
substantially more. For such businesses, for whom expansion may be a logical and
desirable development, the limitation to one outlet unless otherwise authorised is clearly
restrictive. In this case, franchisees were allowed to open 'satellite shops' also outside their
protected areas, though subject to prior approval and payment of a fee similar to the usual
entrance fee, and not in another franchisee's protected area.
Under the specific circumstances of this case, the franchisee's obligation to sell only to
end-users or to other Computerland franchisees, unless otherwise authorised, was likewise
deemed to be a restriction of competition. The Commission argued that in certain franchise
systems, for example where franchisees sell products bearing the franchisor's name and/or
trademark, the prohibition on resale by franchisees to resellers who do not belong to that
franchise network is based on the legitimate concern that the name, trademark or business
format could be damaged if the contract products were sold by resellers who do not have
access to the franchisor's know-how and are not bound by the obligations aimed at
preserving the reputation and unity of the network and its identifying marks. In this
42 PE 578.978
Franchising
particular case, however, the Computerland name and trademark cover the business
format as such, but not the microcomputer products being sold, which bear the name and
trademark of each individual manufacturer. The prohibition on Computerland franchisees
selling products to otherwise qualified resellers is thus restrictive, both as regards the
franchisees themselves, who, while being independent businesses, are thereby limited in
their freedom in deciding whom to sell to, and as regards third party resellers, who are
thereby deprived of a possible source of supply. This restriction is mitigated by a
characteristic peculiar to sales in the microcomputer field, namely the fact that retailers
can be part of a franchise network such as Computerland, and at the same time be
appointed as an authorised dealer in a selective distribution system established by a
manufacturer to ensure that his products are handled only by qualified resellers. A
Computerland franchisee who thus operates simultaneously in two or more different
networks must be in a position to meet the obligations and exercise the rights that flow
from each one. In this context, the Commission has sought to ensure that a Computerland
franchisee who is at the same time authorised by one or more manufacturers can function
both within the Computerland network and within the selective distribution network(s) to
which he belongs.
In ServiceMaster, the Commission noted that the territorial protection of the franchisee is
limited by two elements: the franchisee holds a non-exclusive right only within his
territory with regard to ServiceMaster itself, and each franchisee is entitled to provide
services to non-solicited customers outside his territory. The trade between Member
States is affected by the prohibition imposed upon franchisees against setting up outlets
in other Member States and against actively seeking customers in territories of franchisees
of other Member States. These prohibitions lead to market-sharing between the
franchisees of the various Member States.
4.3.6. Pricing policy

The first franchise contracts concluded by Yves Rocher did not satisfy the requirements of
Article 85 (3) because it contained resale-price-maintenance clauses and a prohibition on
cross supplies between Yves Rocher franchisees. These obligations were deleted at the
Commission's request. At the Commission’s request, also Pronuptia amended the
standard form agreement to put into writing rights that the franchisee allegedly had in
practice already, namely the rights to (among other things) set their own retail prices, the
prices circulated by the franchisor being only suggestions, and the franchisee merely being
recommended not to exceed the maximum prices quoted by the franchisor in advertising
and promotions. Pronuptia abolished the clause that required the franchisee not to harm
the brand image of the franchisor by his pricing level. Since the Commission had no
evidence of any concerted practice between the franchisor and franchisees or between
franchisees inter se to maintain prices, it concluded that in these circumstances the mere
suggestion of prices for the guidance of franchisees cannot be regarded as restrictive of
competition (as acknowledged by the Court of Justice).
4.3.7. Provisions not relevant to competition

In the Computerland case, the Commission pointed out provisions not relevant to
competition and therefore by their nature excluded from the scope of Article 85(1). The
Commission listed, among other things, the franchisee’s obligation to pay an entrance fee
and subsequent monthly royalty payments, the franchisee’s advertising contributions, the
franchisee's obligation to form a corporation, and the franchisee's obligation to post a sign
on the premises indicating that he is the independent owner thereof.
PE 578.978 43
4.3.8. Conditions for individual exemption

The Commission repeated similar arguments to justify the individual exemption under
Article 85 (3) in all cases:
• Franchise contracts contribute to improving the distribution of goods, as they help the
producer to penetrate new markets by enabling him to expand his network without
having to undertake any investment in fitting-out new shops. This is particularly
important for relatively small companies, which would not be able to achieve it, at least
not so quickly;
• The investment involved in setting up the new outlets is undertaken by the prospective
franchisees, in return for which they receive the benefit not only of the franchisor's
established name and reputation, but also of its expertise, commercial know-how and
marketing, enables a larger volume of business at lower cost and with less risk.
• The development of a chain of identical retail outlets strengthens competition towards
large retail organisations with a branch network;
• The policy of selection and training, directed mainly at prospective franchisees with no
experience, increases inter-brand competition and accordingly improves the structure
of distribution;
• The close integration of independent traders within the network leads to a
rationalisation of distribution through the standardisation of trading methods covering
every aspect of retailing;
• The direct nature (no wholesalers) of the relationship between franchisor and
franchisees facilitates consumer feedback and the adjustment of supply to a constantly
changing demand, the fickleness of which is a feature of the market concerned;
• The grant to franchisees of an exclusive territory, combined with the prohibition on
setting up outside this territory, enables them to pursue a more intensive policy of
selling products by concentrating on their allotted territory, helped in this by the fact
that the retailing formula is based on a single brand. Territorial exclusivity also
simplifies planning and ensures the continuity of supplies;
• The franchisee, thanks to his enjoyment of territorial exclusivity and his closeness to
the marketplace, can make confident forecasts of his future sales, which help the
franchisor to plan his production better and to guarantee regular supplies of the
products.
4.3.9. Consumer benefits

When establishing that consumers (by which the Commission understood also professional
end-users, as in the Computerland case) have a fair share of the benefits resulting from
the improvements in the distribution, the Commission took into account the following
advantages offered by franchising systems:
• Consumers have access to a wide range of goods and services, in a larger number of
sales outlets and countries.
• It creates a coherent distribution network offering uniform product quality and a
comprehensive range of the articles and accessories available in the trade.
• Because franchisees run their own business and are therefore motivated by the desire
for maximum efficiency, they make dynamic and hard-working retailers, which is to the
consumer's advantage. The franchisee has a personal and direct interest in the success
of his business, since he alone bears the financial risks.
• The homogeneity of the network, the standardisation of trading methods and the direct
link between franchisor and franchisee ensure that the consumer benefits in full from
the know-how passed on by the franchisor, ensuring the quality and freshness of the
products, which are liable to deteriorate rapidly with time.
44 PE 578.978
Franchising
• The freedom of consumers to obtain services elsewhere in the network forces

franchisees to pass on to consumers a reasonable part of the benefits of this intra-band
competition. Because of strong inter-brand competition, the franchisees can be
expected to offer better services and prices.
In the Computerland case, the Commission additionally pointed out that the stores provide
a single location at which customers can compare the prices and characteristics of a wide
range of different brands of up-to-date microcomputer products and benefit from the
advice of specially trained personnel especially as regards the possibility of using different
brands of products together, and the training facilities offered. Moreover, customers are
ensured of further advice, maintenance and repair services and if necessary further training
possibilities.
4.4. Commission Regulation 4087/88 on the application of Article 85(3) of the

Treaty to categories of franchise agreements
4.4.1. Introduction
The next step in developing a regulatory framework for franchising was Commission
Regulation No 4087/88 of 30 November 1988 on the application of Article 85(3) of the
Treaty to categories of franchise agreements, in force between 1 February 1989 and 31
May 2000, was designed to deal specifically with franchising. In its preamble the
Commission explained that, on the basis of its experience, it is possible to define categories
of franchise agreements that fall under Article 85 (1), but can normally be regarded as
satisfying the conditions set out in Article 85 (3) (recital 4). Hence, the franchise
agreements regulated in 4087/88 Regulation normally improve the distribution of goods
and the provision of services. The Commission’s argumentation was clearly based on
previously decided cases. And so, franchising (recital 7):
• Gives franchisors the possibility of establishing a uniform network, with limited
investments;
• Promotes the entry of new competitors on the market, particularly in the case of SMEs,
and gives the SMEs the possibility of competing more efficiently with large distribution
undertakings;
• Increases inter-brand competition;
• Allows independent traders to set up outlets more rapidly and with a higher chance of
success than if they had to do so without the franchisor's experience and assistance;
• Combines the advantage of a uniform network with the existence of traders personally
interested in the efficient operation of their business;
• The homogeneity of the network and the constant cooperation between the franchisor
and the franchisees ensures a constant quality of the products and services;
• Allows consumers and other end users a fair share of the resulting benefit. The
favourable effect of franchising on inter-brand competition, and the fact that consumers
are free to deal with any franchisee in the network, guarantees that a reasonable part
of the resulting benefits will be passed on to the consumers.
4.4.2. Scope of application

4087/88 Regulation applied only to certain franchise agreements, i.e. agreements between
the franchisor and the franchisee, for the retailing of goods or the provision of services to
end users, or a combination of these activities, such as the processing or adaptation of
goods to fit specific needs of their customers. It also covered agreements, where the
relationship between franchisor and franchisees was made through a third undertaking,
the master franchisee (recital 5), but wholesale franchise agreements (because of the lack
PE 578.978 45
of experience of the Commission in that field) and industrial franchise agreements (because
of their different characteristics) were excluded. The "franchise" was defined as a package
of industrial or intellectual property rights relating to trademarks, trade names, shop signs,
utility models, designs, copyrights, know-how or patents, to be exploited for the resale of
goods or the provision of services to end users. 4087/88 Regulation identified (Art. 1(3)
(b)) three features to distinguish a franchising network:
• The use of a common name or shop sign and a uniform presentation of contract
premises;
• The communication by the franchiser to the franchisee of know-how; and
• The continuing provision by the franchiser to the franchisee of commercial or technical
assistance.
4.4.3. Market thresholds

4087/88 Regulation did not establish any thresholds for its application. The Regulation
followed a clause-based approach where the focus was on the freedom of action of dealers
and on intra-brand competition between dealers belonging to the same distribution system.
Apart from the withdrawal system and the possible application of Article 86, the
exemptions were granted for all companies irrespective of market power.
4.4.4. Restrictions of competition - general
The Regulation distinguished several types of restrictions of competition, and clearly

indicated to which restrictions the Regulation applied (, to which it applied under certain
conditions, and which were not exempted.
4.4.5. Restrictions to which the exemption applied (Article 2)
The exemption applied to the following restrictions of competition:

(a) an obligation on the franchisor, in a defined area of the common market, the contract
territory, not to:
- grant the right to exploit all or part of the franchise to third parties,
- itself exploit the franchise, or itself market goods or services that are the subject-
matter of the franchise under a similar formula.
- itself supply the franchisor's goods to third parties;
(b) an obligation on the master franchisee not to conclude franchise agreements with third
parties outside its contract territory;
(c) an obligation on the franchisee to exploit the franchise only from the contract premises;
(d) an obligation on the franchisee to refrain, outside the contract territory, from seeking
customers for the goods or the services which are the subject-matter of the franchise;
(e) an obligation on the franchisee not to manufacture, sell or use in the course of the
provision of services or goods competing with the franchisor's goods that are the
subject-matter of the franchise; where the subject-matter of the franchise is the sale
or use in the course of the provision of services of certain types of goods and spare
parts or accessories therefor, then the obligation may not be imposed in respect of
these spare parts or accessories.
4.4.6. Restrictions to which the exemption applied, notwithstanding the presence of

certain obligations (Article 3)
In principle, the Regulation followed the principle established by the Court of Justice in
46 PE 578.978
Franchising
declaring that clauses essential to either preserving the common identity and reputation
of the network or preventing the know-how made available and the assistance given by
the franchiser from benefiting competitors fall outside of Article 85(1) (recital 11). In so
far as they are necessary to achieve these aims, the following restrictions were exempted
by the Regulation:
(a) to sell, or use in the course of the provision of services, exclusively goods matching
minimum objective quality specifications laid down by the franchisor;
(b) to sell, or use in the course of the provision of services, goods that are manufactured
only by the franchisor or by designated third parties, where it is impracticable, owing
to the nature of the goods that are the subject-matter of the franchise, to apply
objective quality specifications;
(c) not to engage, directly or indirectly, in any similar business in a territory where it would
compete with a member of the franchised network, including the franchisor; the
franchisee may also be held to this obligation after the termination of the agreement,
for a reasonable period that may not exceed one year, in the territory where it has
exploited the franchise;
(d) not to acquire financial interests in the capital of a competing undertaking that would
give the franchisee the power to influence the economic conduct of such undertaking;
(e) to sell the goods that are the subject-matter of the franchise only to end users, to other
franchisees and to resellers within other channels of distribution supplied by the
manufacturer of these goods or with its consent;
Moreover, the exemption applied notwithstanding the presence of certain obligations on
the franchisee. If, because of particular circumstances, these obligations fell within the
scope of Article 85(1), they were exempted even if they were not accompanied by any of
the obligations exempted by Article 1 of the Regulation (Article 3(3)). The list of such
obligations formulated in Article 3(2) included the obligations:
(a) not to disclose to third parties the know-how provided by the franchisor; the franchisee
may be held to this obligation after the termination of the agreement;
(b) to communicate to the franchisor any experience gained in exploiting the franchise,
and to grant it, and other franchisees, a non-exclusive licence for the know-how
resulting from that experience;
(c) to inform the franchisor of any infringements of licensed industrial or intellectual
property rights, to take legal action against infringers or to assist the franchisor in any
legal actions against infringers:
(d) not to use know-how licensed by the franchisor for purposes other than the exploitation
of the franchise; the franchisee may be held to this obligation after the termination of
the agreement;
(e) to attend or have its staff attend training courses arranged by the franchisor;
(f) to apply the commercial methods devised by the franchisor, including any subsequent
modification thereof, and to use the licensed industrial or intellectual property rights;
(g) to comply with the franchisor's standards for the equipment and presentation of the
contract premises and/or means of transport;
(h) to allow the franchisor to carry out checks of the contract premises and/or means of
transport, including the goods sold and the services provided, and the inventory and
accounts of the franchisee;
PE 578.978 47
(i) not to change the location of the contract premises without the franchisor's consent;
(j) not to assign the rights and obligations under the franchise agreement without the
franchisor's consent.
4.4.7. Restrictions to which the exemption applied on certain conditions (Article 4)
The exemption applied on the conditions that:

(a) the franchisees are free to obtain the goods that are the subject-matter of the franchise
from other franchisees; where such goods are also distributed through another
network of authorised distributors, the franchisee must be free to obtain goods from
the latter;
(b) where the franchisor obliges the franchisee to honour guarantees for the franchisor's
goods, that obligation will apply in respect of such goods supplied by any member of
the franchised network, or other distributors that give a similar guarantee, in the
common market;
(c) the franchisee is obliged to indicate its status as an independent undertaking; this
indication must, however, not interfere with the common identity of the franchised
network, resulting in particular from the common name or shop sign and uniform
appearance of the contract premises and/or means of transport.
4.4.8. Restrictions to which the exemption did not apply (Article 5)
The exemption did not apply if:

(a) undertakings producing goods or providing services that are identical or are considered
by users as equivalent in view of their characteristics, price and intended use, enter
into franchise agreements in respect of such goods or services;
(b) the franchisee is prevented from obtaining supplies of goods of a quality equivalent to
those offered by the franchisor (with some exceptions formulated by the Regulation);
(c) the franchisee is obliged to sell, or use in the process of providing services, goods
manufactured by the franchisor or third parties designated by the franchisor, and the
franchisor refuses, for reasons other than protecting the franchisor's industrial or
intellectual property rights, or maintaining the common identity and reputation of the
franchised network, to designate third parties proposed by the franchisee as
authorised manufacturers (subject to Article 2);
(d) the franchisee is prevented from continuing to use the licensed know-how after the
termination of the agreement where the know-how has become generally known or
easily accessible, other than by breach of an obligation by the franchisee;
(e) the franchisee is restricted by the franchisor, directly or indirectly, in determining the
sale prices for the goods or services that are the subject-matter of the franchise,
without prejudice to the possibility for the franchisor of recommending sale prices;
(f) the franchisor prohibits the franchisee from challenging the validity of the industrial or
intellectual property rights forming part of the franchise, without prejudice to the
possibility of the franchisor of terminating the agreement in such a case;
(g) franchisees are obliged not to supply, within the common market, the goods or services
that are the subject-matter of the franchise to end users because of their place of
residence.
48 PE 578.978
Franchising
4.5. Shift in the approach
4.5.1. Introduction
The Green Paper on Vertical restraints, 29 published by the Commission in 1997, opened
the discussion on the reform of the EC competition policy with regards to the vertical
restraints. It emphasised that, although efficient distribution with appropriate pre- and
after-sales support is part of the competitive process that brings benefits to consumers,
arrangements between producers and distributors can also be used to continue the
partitioning of the market and exclude new entrants that would intensify competition and
lead to downward pressure on prices. Agreements between producers and distributors
(vertical restraints) can therefore be used pro-competitively to promote market integration
and efficient distribution, or anti-competitively to block integration and competition. The
Communication from the Commission on the applicability of the Community competition
rules to vertical restraints 30 proposed therefore an economics-based approach to the
vertical restraints policy. This approach was implemented in two subsequent regulations:
Commission Regulation No 2790/1999 on the application of Article 81(3) of the Treaty to
categories of vertical restraints and concerted practices, in force between 1 June 2000 and
31 May 2010, and Commission Regulation No 330/2010 on the application of Article 101(3)
of the Treaty on the Functioning of the European Union to categories of vertical agreements
and concerted practices that entered into force on 1 June 2010 and will remain in force
until 31 May 2022) (discussed in the previous chapter).
4.5.2. The Green Paper on Vertical Restraints in EC Competition Policy – the main
assumptions
The Commission stressed in the Green Paper that, despite the fact that the EU competition
policy has been successful, after over 30 years of its application a review is needed,
because:
(a) The Block-Exemption Regulations (BEs) in force so far comprised rather strict form-
based requirements, and as a result were considered too legalistic and working as a
straitjacket. The Commission emphasised that such an approach is inappropriate in
light of the continuing market changes when it comes to the methods of distribution.
The vertical agreements that fell within the scope of application of the BEs suffered
from a compliance burden arising from unnecessary legal uncertainty. Companies
without significant market power suffered unnecessary regulation and could have
been prevented from using vertical restraints to improve their competitive
position in the market. The system exempted from Article 85(1), without distinction,
companies with 1% and 100% market share, even for non-compete obligations and
certain combinations of vertical restraints such as exclusive and selective distribution.
It led to the result that small operators (the vast majority of companies) suffered
unnecessarily strict regulations, while companies with significant market power were
able to protect themselves simply by drafting contract clauses to fit within the existing
block-exemption regulation.
(b) Therefore, for agreements that fell within the scope of application of BEs there was a
real risk of the Commission exempting agreements that distorted competition. The BEs
were form-based rather than effect-based, and did not contain any limit on market
share, so companies with significant market power could benefit from them. The
sanction of withdrawal was not seen as a real deterrent because it worked only with
effect for the future. There was no pressure on companies to change their agreements
29
Green Paper on Vertical Restraints in EC Competition Policy, Brussels, 22.01.1997, COM(96) 721 final.
30
PE 578.978 49
or conduct because they could effectively enjoy provisional validity for their contracts.
The preventive effect of the prohibition system of Article 85(1) was lost. Irreparable
damage to competition could be caused without any remedy for the past (e.g. market
foreclosure through exclusive dealings). At the same time, smaller operators were
prevented from using vertical restraints in an innovative way to improve their
competitive position on the market, which hindered the development of new
dynamic forms of distribution. 31
(c) The BEs only covered vertical agreements concerning the resale of final goods and not
intermediate goods or services, so a significant part of all vertical agreements was not
covered by the BEs, even when the parties involved had no market power. This means
that an unnecessarily large number of vertical restraints could have been scrutinised,
resulting in legal uncertainty and unnecessary enforcement costs.
4.5.3. The Green Paper on Vertical Restraints in EC Competition Policy – options for
developing the EU strategy
The Green Paper put forward four options for developing the EU strategy with regards to
vertical restraints:
Table 4: Options for developing the EU strategy

Maintaining the current system
Wider block exemptions This option consisted of maintaining the

current approach but making it more
flexible, covering more situations and less
regulatory. It raised the question whether
it is appropriate to adopt a block exemption
regulation for selective distribution, or an
independent arbitration procedure for
disputes concerning admission to such
distribution systems.
More focused block exemptions A third option was to limit the exemption
given by current block exemptions to
companies with market shares below a
certain threshold (proposed 40%).
Reduced scope of Article 85(1) This option proposed the introduction of a

rebuttable presumption of compatibility
with Article 85(1) (the “negative clearance
presumption") for parties with a market
share less than 20%. The negative
clearance presumption could be
implemented by a notice, and
subsequently in light of the experience
acquired, within the framework of a
negative clearance regulation. The
presumption of negative clearance could be
rebutted on the basis of a market analysis
taking account of factors such as market
structure (e.g. oligopoly), barriers to entry,
31
Communication, p. 21.
50 PE 578.978
Franchising
the degree of integration of the single

market or the cumulative impact of parallel
networks. Above the 20% threshold, two
variants were put forward: (I): the wider
block exemptions described in Option II;
and (II): to follow option III with wider
block exemptions of up to 40% market
share but an inapplicable or limited scope
of block exemptions above this limit.
4.5.4. Communication from the Commission on the applicability of the Community

competition rules to vertical restraints: the foundations of the new policy
The Communication from the Commission on the applicability of the Community
competition rules to vertical restraints, 32 which followed the Green Paper, proposed an
economics-based approach to the vertical restraints policy. As explained by Karel van Miert
(European Competition Commissioner 1993-1999) upon the adoption of the
Communication, the aim of the new policy was to shift toward a more economic approach
while increasing the overall level of legal security for companies, by providing them with a
“safe haven” within which it is no longer necessary for them to assess the validity of their
agreement under competition rules. This was to restore freedom to contract for the vast
majority of companies, while improving the protection of competition to the benefit of
consumers. 33 The objectives of the competition policy reform declared by the
Communication 34 were the protection of competition (the primary objective of Community
competition policy, enhancing consumer welfare and creating an efficient allocation of
resources) and market integration (in light of enlargement, a second important objective
when assessing competition issues). Moreover, the new policy sought to provide a
reasonable level of legal certainty for business, resulting in acceptable enforcement costs
for industry and the competition authorities and increasing decentralisation.
4.5.5. Safe harbour
The proposed safe harbour consisted of one broad umbrella block-exemption regulation
covering all vertical restraints for the distribution of goods and services (preventing
unjustified differentiation between forms or sectors). The regulation was to use market-
share thresholds to distinguish between agreements that are or are not block-exempted.
Primarily based on a block-clause approach, i.e. defining what is not block exempted
instead of defining what is exempted (to avoid the straitjacket effect), the proposed
regulation was to facilitate the simplification of the applicable rules. The policy was to
ensure that the vast majority of vertical agreements, where no significant net negative
effect can be expected, no longer require individual scrutiny. 35
The vertical restraints falling outside the safe harbour were not to be presumed as illegal
but in need of individual examination (the burden of proof that the agreement in question
infringes Article 85(1) and an examination of whether or not the agreement fulfils the
conditions of Article 85(3) was to lie on the Commission).
32
33
Press release IP/98/853, European Commission 1-2, as quoted by Terhorst, Reformation of the EC Policy on
Vertical Restranits, 21 Northwestern Journal of International Law and Business, Vol. 21, No 343 (2000-2001),
p. 346.
34
Communication p. 6.
35
PE 578.978 51
4.5.6. General rules for the evaluation of vertical restraints
The Communication evaluated the vertical restraints. 36 According to the Commission: (1)
vertical restraints that reduce inter-brand competition are generally more harmful than
vertical restraints that only reduce intra-brand competition; (2) exclusive agreements are
generally worse for competition than non-exclusive agreements; and (3) the possible
negative effects of vertical restraints are reinforced when not just one supplier practices a
certain vertical restraint with its buyers, but when also other suppliers and their buyers
organise their trade in a similar way (cumulative effects).
4.5.7. Economic approach and market-share thresholds
The Communication proposed an economic-based approach according to which: (1) in the

absence of market power, a presumption of legality for vertical restraints can be made
except for certain hard-core restrictions; and (2) when market power exists, no general
presumption of legality can be made. This led to a conclusion that, from an economic
perspective, it is justified to use market-share thresholds to limit the application of a block-
exemption regulation. 37
The Commission made two policy assumptions for the market analysis. First, in the
majority of cases a market share of 20% is normally insufficient to bring about net negative
effects on competition that would result from vertical restraints practised by a single firm.
Secondly, for certain vertical restraints, in light of significant efficiencies, a block-
exemption of up to 40% market share, which is the level at which a risk of dominance
starts, can be envisaged. Above that level there is a risk that the last condition of Article
85(3) will no longer be fulfilled. Accordingly, the use of market-share thresholds in a block-
exemption regulation does not establish an infringement, but serves to exclude certain
categories of vertical restraints from the application of Article 85(1) by applying Article
85(3). The Commission intended to maintain the withdrawal mechanism for the (rare)
cases where a serious competition problem may arise below these levels of market
shares. 38 The Commission considered one and two market-share thresholds (clarity and
simplicity constituted the advantages of a single-threshold system, whereas a dual-
threshold system allowed an economically-justified gradation in the treatment of vertical
restraints reflecting differences in their likely anti-competitive effects). It was assumed
that the threshold system would eliminate the vast majority of notifications probably 80 to
90% of all cases, and it should allow the Commission and the national competition
authorities to concentrate on the important cases.
4.5.8. New policy towards franchising
Franchising was to be covered by new block exemption regulation, though it was not to be
given any preferential treatment, “as it is a combination of vertical restraints.” 39 The
Commission argued that franchising is usually a combination of selective distribution and
non-compete obligations in relation to goods that are the subject matter of the franchise.
Sometimes other elements, like a location clause or territorial exclusivity, are added.
Therefore, these combinations should be treated according to the general criteria set out
in the regulation. The Commission further pointed out that certain distribution forms – in
particular franchising – involve the licensing of Intellectual Property Rights (IPR). Referring
to the Pronupia judgement, the Commission stressed that, in franchising, the transfer of
IPR is an essential element of this distribution format and is used to assimilate the
36
Communication p. 19.
37
38
39
Communication pp. 31 – 32.
52 PE 578.978
Franchising
commercial practices of the franchisee as closely as possible to those of the franchisor.

This licensing may include restrictions that are necessary or complementary to the vertical
restraints placed on the sale of the goods or services. While vertical restraints on goods or
services are important from a competition perspective and may result in a franchise
agreement falling within the scope of Article 85(1), these necessary or complementary
restraints must be examined in light of the need to protect the know-how provided or the
maintenance of the network' s identity and reputation. 40
4.6. Regulation 2790/1999
4.6.1. Scope of application
Regulation 2790/1999 implemented the new ideas elaborated by the Commission in the
Communication. The Regulation (umbrella type) covered virtually all sectors except for
motor vehicles and certain categories of technology transfers, 41 and did not mention
franchising expressly. Article 2(1) declared that Article 81(1) does not apply to agreements
or concerted practices entered into between two or more undertakings each operating, for
the purposes of the agreement, at a different level of the production or distribution chain,
and relating to the conditions on which the parties may purchase, sell or resell certain
goods or services (‘vertical agreements’). The exemption applied to the extent that such
agreements contain restrictions of competition falling within the scope of Article 81(1)
(‘vertical restraints’).
4.6.2. Threshold
The Regulation introduced, in its Article 3, a 30% market share threshold providing a “safe
haven” for small and medium-sized companies that “will enjoy more freedom and legal
security in the drafting process of vertical agreements.” 42 As the Regulation explained in
motive 8 of the preamble, it can be presumed that, where the share of the relevant market
accounted for by the supplier does not exceed 30%, vertical agreements, if they do not
contain certain types of severely anti-competitive restraints, generally lead to an
improvement in production or distribution and allow consumers a fair share of the resulting
benefits. In the case of vertical agreements containing exclusive supply obligations, it is
the market share of the buyer that is relevant in determining the overall effects of such
vertical agreements on the market. Above the market share threshold of 30%, as explained
in motive 9, there can be no presumption that vertical agreements falling within the scope
of Article 81(1) will usually give rise to objective advantages of such a nature and size as
to compensate for the disadvantages that they create for competition.
Moreover, the Regulation applied only to agreements falling within the scope of application
of Article 81(1), and all agreements not capable of appreciably affecting trade between
Member States or capable of appreciably restricting competition by object or effect were
not caught by Article 81(1) (de minimis notice).
4.6.3. Vertical restrictions in Regulation 2790/1999
The Regulation declared that a block exemption should be granted only to vertical
agreements for which it can be assumed with sufficient certainty that they satisfy the
conditions of Article 81(3). Such vertical agreements can improve economic efficiency,
40
Communication p. 32.
41
Terhorst, Reformation of the EC Policy on Vertical Restranits, 21 Northwestern Journal of International Law
and Business, Vol. 21, nr 343 (2000-2001), p. 346.
42
Ibidem.
PE 578.978 53
within a chain of production or distribution, by facilitating better coordination between the

participating undertakings, and can in particular lead to a reduction in the transaction and
distribution costs of the parties and to an optimisation of their sales and investment levels
(recital 6).
The Regulation did exempt vertical agreements containing restrictions that are not
indispensable to achieve the positive effects mentioned above. Article 4, which dealt with
hard-core restrictions stated that the exemption does not apply to vertical agreements
that, directly or indirectly, in isolation or in combination with other factors under the control
of the parties, have as their object:
(a) the restriction of the buyer's ability to determine its sale price, without prejudice to the
possibility of the supplier imposing a maximum sale price or recommending a sale
price, provided that they do not amount to a fixed or minimum sale price as a result
of pressure from, or incentives offered by, any of the parties;
(b) the restriction of the territory into which, or of the customers to whom, the buyer may
sell the contract goods or services, except:
— the restriction of active sales into the exclusive territory or to an exclusive customer
group reserved to the supplier or allocated by the supplier to another buyer, where
such a restriction does not limit sales by the customers of the buyer,
— the restriction of sales to end users by a buyer operating at the wholesale level of
trade,
— the restriction of sales to unauthorised distributors by the members of a selective
distribution system, and
— the restriction of the buyer's ability to sell components supplied for the purposes of
incorporation to customers who would use them to manufacture the same type of
goods as those produced by the supplier;
(c) the restriction of active or passive sales to end users by members of a selective
distribution system operating at the retail level of trade, without prejudice to the
possibility of prohibiting a member of the system from operating out of an
unauthorised place of establishment;
(d) the restriction on cross-supplies between distributors within a selective distribution

system, including between distributors operating at a different level of trade;
(e) the restriction agreed between a supplier of components and a buyer who incorporates
those components, limiting the supplier to selling the components as spare parts to
end-users or to repairers or other service providers not entrusted by the buyer with
the repair or servicing of its goods.
Article 5 of the Regulation excluded certain obligations from its coverage even when the
market share threshold was not exceeded. The Regulation continued to apply to the
remaining part of the vertical agreement if that part is severable from the non-exempted
obligations. 43 These restraints included:
(a) any direct or indirect non-compete obligation for an indefinite period or exceeding five
years. A non-compete obligation that is tacitly renewable beyond a period of five years
is to be deemed to have been concluded for an indefinite duration. However, the time
limitation of five years does not apply where the contract goods or services are sold
by the buyer from premises and land owned by the supplier or leased by the supplier
43
Guidelines, p. 57.
54 PE 578.978
Franchising
from third parties not connected with the buyer, provided that the duration of the non-
compete obligation does not exceed the period of occupancy of the premises and land
by the buyer;
(b) any direct or indirect obligation causing the buyer, after the termination of the
agreement, not to manufacture, purchase, sell or resell goods or services, unless the
obligation:
— relates to goods or services that compete with the contract goods or services, and
— is limited to the premises and land from which the buyer has operated during the
contract period, and
— is necessary to protect know-how transferred by the supplier to the buyer,

provided that the duration of such a non-compete obligation is limited to a period
of one year after the termination of the agreement; this obligation is without
prejudice to the possibility of imposing a restriction that is unlimited in time on the
use and disclosure of know-how that has not entered the public domain;
(c) any direct or indirect obligation causing the members of a selective distribution system
not to sell the brands of particular competing suppliers.
4.6.4. Regulation 2790/1999 and franchising
As already stated, franchising was not expressly tackled by the Regulation. The Guidelines
on Vertical Restraints that the Commission issued (further the “2000 Guidelines”) 44 dealt
expressly with franchising in points 199-201. The 2000 Guidelines emphasised that
franchising may enable the franchisor to establish, with limited investments, a uniform
network for the distribution of its products. Franchise agreements contain not only the
provision of the business method, but also usually a combination of different vertical
restraints concerning the distributed products, in particular selective distribution and/or
non-compete and/or exclusive distribution or weaker forms thereof.
The 2000 Guidelines stressed that franchising agreements contain licences of intellectual
property rights relating in particular to trademarks or signs and know-how for the use and
distribution of goods or services. In addition to the licence of IPRs, the franchisor usually
provides the franchisee, during the life of the agreement, with commercial or technical
assistance. The licence and the assistance are integral components of the franchised
business method. The franchisor is, in general, paid a franchise fee by the franchisee for
the use of the particular business method.
The Guidelines dealt separately with the licensing of IPRs contained in franchise
agreements (paragraphs 23 to 45). As for the vertical restraints on the purchase, sale and
resale of goods and services within a franchising arrangement such as selective
distribution, non-compete or exclusive distribution, the Guidelines explained that the
Regulation applies up to the 30% market share threshold for the franchisor or the supplier
designated by the franchisor. The guidance provided by the Guidelines in respect of these
types of restraints applied also to franchising, subject to some specific remarks:
1) The more important the transfer of know-how, the more easily the vertical restraints
meet the conditions for exemption.
2) A non-compete obligation on the goods or services purchased by the franchisee falls
outside Article 81(1) when the obligation is necessary to maintain the common identity
and reputation of the franchised network. In such cases, the duration of the non-compete
44
Commission Notice, Guidelines on Vertical Restraints, 2000/C 291/01), OJ C 291/1 of 13.10.2000.
PE 578.978 55
obligation is also irrelevant under Article 81(1), as long as it does not exceed the duration
of the franchise agreement itself.
Moreover, the Guidelines provided an example of franchising (point 201).
A manufacturer has developed a new format for selling sweets in fun shops, where the
sweets can be coloured specially on demand from the consumer. The manufacturer of the
sweets has developed machines to colour the sweets and produces the colouring liquids.
The quality and freshness of the liquid is of vital importance to producing good sweets. The
manufacturer made a success of its sweets through a number of own retail outlets all
operating under the same trade name and with the uniform fun image (style of lay-out of
the shops, common advertising etc.). In order to expand sales, the manufacturer started
a franchising system. The franchisees are obliged to buy the sweets, liquid and colouring
machine from the manufacturer, to have the same image and operate under the trade
name, pay a franchise fee, contribute to common advertising and ensure the confidentiality
of the operating manual prepared by the franchisor. In addition, the franchisees are only
allowed to sell from the agreed premises, to end users or other franchisees, and are not
allowed to sell other sweets. The franchisor is obliged not to appoint another franchisee
nor operate a retail outlet itself in a given contract territory. The franchisor is under the
obligation to update and further develop its products, the business outlook and the
operating manual and make these improvements available to all retail franchisees. The
franchise agreements are concluded for a duration of 10 years.
Sweet retailers buy their sweets on a national market from either national producers that
cater for national tastes or from wholesalers that import sweets from foreign producers in
addition to selling products from national producers. On this market, the franchisor’s
products compete with other brands of sweets. The franchisor has a market share of 30%
on the market for sweets sold to retailers. Competition comes from a number of national
and international brands, sometimes produced by large diversified food companies. There
are many potential points of sale of sweets in the form of tobacconists, general food
retailers, cafeterias and specialised sweet shops. On the market for machines for colouring
food, the franchisor’s market share is below 10%.
The Guidelines explained that most of the obligations contained in the franchise
agreements can be assessed as being necessary to protect the intellectual property rights
or maintain the common identity and reputation of the franchised network and fall outside
Article 81(1). The restrictions on selling (contract territory and selective distribution)
provide an incentive to the franchisees to invest in the colouring machine and the franchise
concept and, if not a requirement, at least help maintain the common identity, thereby
offsetting the loss of intra-brand competition. The non-compete clause excluding other
brands of sweets from shops for the full duration of the agreements allows the franchisor
to keep the outlets uniform and prevents competitors from benefiting from its trade name.
It does not lead to any serious foreclosure in view of the great number of potential outlets
available to other sweet producers. The franchise agreements of this franchisor are likely
to meet the conditions for exemption under Article 81(3), in as far as the obligations
contained therein fall under Article 81(1).
56 PE 578.978
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REGULATION 330/2010 AT A NATIONAL LEVEL
KEY FINDINGS
• In general, there is little information available on the functioning of Regulation
330/2010 in the context of franchising at a national level, as the Regulation is self-
assessed by the parties.
• Representatives of franchisees and franchisors present opposing opinions when as
regards the evaluation of the Regulation.
• The lack of data on how the Regulation functions in practice cannot be seen as
confirmation that the Regulation functions properly. It might be assumed that the
side-effects of the Regulation remain undetected.
• There is a marked tendency in Belgium and in the Netherlands for franchisees to
invoke the Regulation as a “weapon of last resort” to free themselves from
franchising contracts.
5.1. Introduction
5.1.1. Application based on self-assessment and conflicting opinions of the industry
Generally speaking, in the legal systems under scrutiny there is no in-depth information
about the use of 330/2010 Regulation in practice. Only in some countries does the
Regulation give a foundation to decisions of the competent authorities or court cases. This
is easily explainable by the fact that the Regulation is applied in a self-assessment process
that does not involve public authorities and requires that the parties assess themselves
whether they enjoy the benefits of being exempted under the Regulation, or whether an
individual exemption is required.
5.1.2. Conflicting opinions of the representatives of franchisees and franchisors
There is no unanimity among the market players when it comes to evaluating the content
of 330/2010 Regulation and the problems that it causes in practice. Franchisees and
franchisors express clearly opposing views in this regards.
The franchisors organisation strongly stress that the current legislative environment is very
well suited to the needs of the franchising market, and in particular it considers the
interests of the parties engaged in the franchising contract in a very balanced and fair way.
Any changes, and in particular the changes that would shift the normative balance between
the parties more into the benefit of the franchisee would harm the franchising market and
its prospects. The franchisors do not observe problems when it comes to functioning of
franchising contracts, other than those steaming from a male performance of the
franchisees. In the opinion of EFF if there are problems on the franchising market, they
are not result of the content of the vertical restraints but the way the restraints are used
in practice, which amounts to unfair commercial practices, and has a sector specific
character. The continuity of the approach of the recent Regulations (content of 2790/1999
and 330/2010 is almost identical) is seen as a proof of the correctness of the approach
towards the vertical restraints.
The franchisees organisations, on the other hand, point out many problems encountered
PE 578.978 57
by the franchisees that remain invisible, 45 due to the fear factor that silences franchisees.
UAPME, an organisation that calls itself the voice of small and medium enterprises in
Europe, gives the following list of demands:
(a) Limiting the non-compete obligation to the contract period. According to UAPME the
protection of know-how does not justify the exclusion of a franchisee from the
market. Moreover, the franchisor gets compensated for the transfers of know-how
through the fees the franchisee pays during the contract. According to their view
not only the sector itself is more and more convinced that a balanced agreement
should not contain a post contract non- compete obligation, but also the non-
compete obligations are simply ineffective. Competition e.g. by a third party in the
neighbourhood of the same selling point can never be avoided. As a result, only the
franchisee is punished by such a clause while it has nearly no positive effect at all
on the protection of the competitiveness of the supplier.
(b) The Regulation should contain a provision stating that the block exemption will not
apply to vertical agreements containing a clause, in which the valuation of the
business is fixed at the moment of the signature of the agreement. Such clauses
restrict the free market and deprive the buyer of the possibility to sell his/her
business at the end of the agreement at a competitive price. UEAPME believes that
pre-emptive rights are only acceptable if the free competitive market can continue
to play. If a buyer wants to sell his/her business, in which he or she has invested
him/herself and for which he/she has taken risks, then he/she should be allowed to
do so. Predetermined prices, as they are mostly lower then the real value, should
be considered as “unwritten”.
(c) The Regulation should not apply also to agreements that contain performance
obligations which oblige the buyer to generate a certain turnover in a fixed period
or to purchase an X number of goods. Moreover, any sales obligation should never
be linked with a dissolution clause: clauses that contain the possibility to dissolve
unilaterally and immediately the contract without taking into account external
factors should be declared null and void. After all, good commercial co-operation
agreements depend on the efforts of every party. Unilateral imposed performance
obligations harm commercial co-operation.
(d) UEAPME stresses additionally that retailers and franchisees can suffer from
competition from their providers and franchisers as for example through direct
internet selling by these providers and franchisers. While the retailer and franchisee
have to cooperate in the services of the franchiser, the franchiser is operating in
the “exclusive” market of the franchisee. UEAPME regrets that the Regulation does
not take that into account.
5.2. National level - general overview
Since 330/2010 Regulation is self-assessed and self-applied, the vast majority of

information on its practical application is hidden on the market. Only the cases that made
it to the courts or competent competition authorities can be reported.
In Belgium, although the Regulation is used frequently for the interpretation and
assessment of franchising agreements, there is little case law publicised regarding
franchise agreements. The application of the Regulation is, however, a well-established
principle. In Estonia, the requirements set out by the Regulation are normally taken into
account before a franchise contract is concluded, as the violation of the prohibition on
45
See also „Level playing field franchisors and SME franchisees”, available at
https://www.vakcentrum.nl/paginas/openbaar/onderwerpen/ondernemerschap/franchising.
58 PE 578.978
Franchising
restrictive agreements is a criminal offence under Estonian law. Therefore, competition

restrictions in vertical agreements (including franchise contracts) are usually formulated
to fall within the accepted limits of the Regulation. Franchise contracts with large
international franchisors present in Estonia have often been drafted by franchisors who
have been advised on the Regulation, and their contract drafts are in most cases in line
with the Regulation. In France, the Regulation operates relatively well and is subject to
many court rulings concerning also purely internal disputes. However, its importance is
limited when it comes to the formulation of contract clauses in practice, as the imperative
provisions of the Code de commerce relating to distribution clauses provide for much more
detailed rules in some areas. Furthermore, the practical significance of the Regulation may
soon decrease further due to the entry into force of the much more detailed provisions of
law No 2015-990 of 6 August 2015 on the growth, activity and equality of economic
opportunities (the “Macron” law), which aims at promoting competition and protecting the
vulnerable party, i.e. the franchisee. In Germany, according to information provided by
the Bundeskartellamt (Federal Competition Office), there are no reported problems when
it comes to the application of the Regulation. It is worth noting, however, that the
provisions of the Regulation were used as a benchmark to decide whether a franchise
agreement is immoral. In Italy, because of the control powers of the Authority for Market
and Competition, which initiates investigations whenever there is the possibility that a
business is pursuing its activity in violation of competition law, contracts are often drafted
or amended in compliance with the requirements of national and EU legislation, which
reduces litigation. That being said, also in Italy there is no reported case law on the
application of the Regulation to franchising contracts. In the Netherlands, the Regulation
has so far been used only sparingly in combination with issues arising from franchising
contracts. Mostly it is invoked in the assessment that Dutch courts make of non-
competition clauses and their validity (pursuant to Article 5 of the Regulation). Additionally,
when the franchisees attempt to release themselves from the obligations under the
franchise contract by claiming its invalidity due to the infringement of the prohibition on
restrictive agreements and unfair competition, the courts seem willing to consider whether
these contracts fall under the exemptions set in the Regulation. Given that, in the examined
cases, the franchisees did not manage to prove the existence of unfair restrictions of
competition in their respective markets as a result of the franchise contract, the Regulation,
setting exemptions from being perceived as such, does not have a significant role to play
in defending the franchisors’ practice. In Romania, the Romanian Competition Authority
(Consiliul Concurenței) has applied the Regulation in a number of cases, but very few of
them related to franchising contracts and operations. In Poland, according to the
information provided by UOKiK (the Office of Competition and Consumer Protection), the
Office normally applies the Polish version of the Regulation: Regulation of the Council of
Ministers of 30 March 2011 on excluding certain types of vertical agreements from the
prohibition on agreements that restrict competition (PL: Rozporządzenie w sprawie
wyłączenia niektórych rodzajów porozumień wertykalnych spod zakazu porozumień
ograniczających konkurencję). Only rarely are the proceedings conducted on the basis of
the EU law. The Office claims that they have virtually no cases involving the evaluation of
whether an agreement between businesses meets the conditions of the block exemption.
In Spain there are only a few references to the Regulation in a resolution regarding
franchising adopted by the National Commission for the Market and Competition (CNMC). 46
46
The CNMC, and in particular its competition department, is an institution created in 2013 to replace the
Tribunal for the Defence of Competition in the supervision of competition issues.
PE 578.978 59
5.3. Typical problems with application
Belgium and Estonia notified difficulties with defining the relevant product and
geographical markets and with calculating market shares. It is particularly perilous in
Estonia, because an erroneous assessment could result in a criminal offence, as if the
market shares are underestimated, then the block exemption does not apply and the
conditions of individual exemption may not be satisfied, and in this case the contract may
be in the ambit of Article 101(1) and its Estonian equivalent.
Additionally, in Belgium, franchise agreements are often combined with exclusive
distribution, which would allow the franchisor the possibility to limit active sales of the
franchisee into the territory of other franchisees. Franchise agreements can also be
regarded as selective distribution systems, which would make it impossible to limit active
sales, according to the Regulation. This has been rather controversial. The Guidelines to
the Regulation stipulate that a combination of exclusive distribution and selective
distribution is only exempted by the Regulation if active selling in other territories is not
restricted. In practice, however, franchisors often want to grant exclusive territories to
their franchisees and want to protect each franchisee from active competition in that
territory from other franchisees. In particular, in industry sectors where sales are not
limited to sales within a point of sales, but where franchisees visit their clients outside a
brick and mortar point of sales, this gives rise to difficulties (e.g. the real estate sector,
the insurance sector and the travel agency sector).
5.4. Case law
When it comes to case law on the application of the Regulation, as franchises make up only
a marginal fraction of enterprises in Estonia, there is no case law to be found. In Italy,
even national antitrust law 287/1990 has rarely been applied to franchising contracts, since
clauses that were claimed to be anticompetitive had little significance because of the low
market share of the enterprises involved. In Belgium, cases relate to the calculation of
market shares and the practical implications of non-compete clauses. There is some case
law regarding resale price maintenance, especially in supermarket industries, where
franchisees are often linked to the franchisor’s centralised till system, to facilitate stock
management. Through such a system, the franchisor de facto lists the product at the
‘recommended resale price’. Up until now, case law has ruled that if the system allows the
franchisee to easily adapt the prices for the products, then this is not a violation of the
hard-core restriction of Article 4 of the Regulation. Established case law can be found in
France, Germany, the Netherlands, Romania and Spain; in Poland just one case has
been decided so far.
In France, the most notable case is the ruling of the Cour de Cassation of 9 June 2009,
No 08-14301 concerning the validity of an anti-competition clause in an internal dispute
(no intra-community character). A franchise agreement concluded for seven years
contained anti-competition clause, which lasted for one year after the termination of the
agreement and covered an area of 30 kilometres from the supermarket. The clause
prohibited the franchisee: (1) from operating or participating in any other manner, directly
or through an intermediary in the operation, management, administration of an enterprise
or a company having the same or a similar field of activity as the franchised unit, and (2)
joining, associating or participating in any manner whatsoever in a chain competing with
the franchisor, creating such a chain himself, or more generally from binding himself to
any group, entity or company competing with the franchisor. The court ruling awarding
compensation for the breach of this clause was overruled by the Cour de Cassation, which
applied Article 5 (b) of 2790/1999 Regulation to check the admissibility of the clause. As
the Cour de Cassation underlined, the exemption under Article 5 b) of Regulation
60 PE 578.978
Franchising
2790/1999 for post-contractual non-compete clauses is reserved only to those, for a period
of one year, that are limited to the premises and land from which the franchisee has
operated during the contract period and are necessary to protect the know-how that was
transferred to it by the other party. Therefore, the territorial scope of the anti-competition
clause was too wide.
Germany
Box 3: Invalidity of a franchise contract based on infringing antitrust law
If a franchising contract contains a clause that violates the hard-core restriction

contained in Article 4 of Regulation 330/2010, it leads to the invalidity of the entire
contract. In general, § 139 BGB allows the contract to be upheld (as if it was concluded
without the invalid clauses), but this possibility does not arise in the case of violating
Article 4 of the Regulation. Upholding such a contract would be against the intentions of
the EU legislator, as the prohibition given in Article 4 of the Regulation is considered a
serious violation of antitrust law and should lead to the invalidity of the entire contract.
The invalidity of the entire contract follows from § 139 BGB, and is based on the breach
of the hard-core restriction contained in Article 4 of the Regulation. It is considered as
a breach of a statutory prohibition, as established by § 134 BGB. In this case, the clauses
concerned absolute territorial protection, the obligation to take supplies from the
franchisor only, the prohibition on cross-supply among franchisees and price-fixing,
which all fall under Article 4 of the Regulation.
Munich Regional Court I, judgment of 13.06.2013, Az.: HK O 9678/11
Box 4: Ineffectiveness of a franchise contract due to an infringement of

antitrust law
In this judgment, the Hamburg district court decided, in line with the decision of the
Munich Regional Court referred to above, that violating the antitrust law provisions
(hard-core restrictions) leads to the ineffectiveness of the franchising contract. In this
case, the franchising contract was concluded before 31 May 2010, and so Regulation
2790/1999 was applicable. The Court expressly stated that Article 81(3) should prevail,
though the result would be the same if Regulation 330/2010 was applied, as also then
the legal consequences would be established via § 134 BGB.
LG Hamburg, judgment of 06.06.2012, Az.: 315 O 77/11
Box 5: Purchasing obligations are necessary in order to ensure the efficiency

of a franchise system, and therefore do not restrict competition
The Court followed the line established by the ECJ in the Pronupia case and the
judgement of the second instance court in Dusseldorf (judgment of 11.04.2007 - VI-U
13/06 Kart), in stating that purchasing obligations within a franchise system are
necessary for the functioning of the system, as long as they do not restrict competition
and therefore do not violate § 1, 2 para. 2 of the GWB (Gesetz gegen den unlauteren
Wettbewerb) and Article 101 TFEU in conjunction with Article 1d, 5a of Regulation
330/2010, which could result in the entire franchise agreement being declared invalid
on the basis of §§ 134 and 139 BGB. In specific situations, purchasing obligations are
necessary to ensure quality and uniform standards in franchising systems. It applies
PE 578.978 61
even when there is a range of only 102 products in the system, because variations in
quality can also appear in such a case.
LG Dusseldorf judgment of 21.11.2013, 14c O 129/12
Box 6: The Regulation sets standards to evaluate whether a contract is

immoral
In this case, the parties had mutual claims on the basis of a franchising contract. The
claimant (franchisor) asked for the payment of the purchase price for delivered goods
and the payment of a consulting fee. The defendant (franchisee) made a claim for
damages due to the fact that he was not informed about all relevant facts at the
conclusion of the contract. Further, the franchisee claimed that the contract is invalid
and the franchisor has no claims against him. The franchisee raised the following
grounds for invalidity: invalidity due to voidance (Anfechtung). § 142 BGB, moral
invalidity due to § 138 BGB or invalidity on the grounds that the contract was duly
terminated. On the question of moral standards, the Court pointed out that a transaction
is immoral on the grounds of § 138 para. 1 BGB when there is a significant lack of
balance between the rights and obligations of the parties and one of the parties will
sustain damage as a result. Moreover, an act in law is immoral when the economic
freedom of a contracting party is so limited that he loses his self-determination. In this
case, however, the Court failed to find reasons to establish that the contract is immoral.
In its reasoning, the Court recalled certain provisions of the Regulation, and concluded
that, since the franchising agreement contains clauses that are permitted by European
law, they cannot be contested on the ground of immorality.
OLG Rostock, decision of 29.06.1995, 1 U 293/94
The Netherlands
Box 7: Non-competition clause
An international company, Vedes, with its registered office in Germany, has a retail
formula for selling toys under the name of “Vedes”. A daughter company of Vedes,
Simon, with its registered office in the Netherlands, set up its own, independent retail
formula under the name of “Top1Toys”. The companies compete with one another.
Vedes hired person X, who, according to Simon, had knowledge of the organisation,
working methods and clients of Simon. Simon further claimed that person X breached
its non-competition obligation and that Vedes profited from this breach, which the Dutch
courts should evaluate as tort against Simon. Vedes argued for the non-application of
the non-competition obligation due to the franchise contract limiting fair competition on
the toy-selling market.
The court of first instance assessed that the contract between Simon and person X
obliges person X to purchase Simon’s toys only “to the extent that it is possible”, which
means that this is not a case of an exclusive purchase channel. This sort of contractual
term does not limit or hinder competition on the market, according to the court.
Simon introduced a non-competition contract term that continued to bind person X for
two years after the termination of the contract. The court stated that this is within the
five-year deadline set in Article 5 (1)(a) of the Regulation. The non-competition clause
62 PE 578.978
Franchising
was also not contrary to the purpose of Article 5 (1)(b) of the Regulation, since the
contractual term obliged the franchisee not to conclude cooperation and other purchase-
related contracts, which is not equivalent to a prohibition on purchasing, selling or
reselling toys. Most importantly, Vedes did not manage to prove that the enforcement
of the non-competition clause would hinder or limit fair competition.
Vedes appealed against this judgment. Gerechtshof Arnhem-Leeuwarden (Court of
Appeal), with its judgment of 15 October 2013 (ECLI:NL:GHARL:2013:7702), confirmed
the judgment of the court of first instance. Even though the Court of Appeal seemed to
suggest that it could consider, contrary to the court of first instance, that the non-
competition clause is drafted in a way that it contradicts Article 5 (1)(b) of the
Regulation, the court still failed to see how the clause would lead to unfair competition
on the market (the franchisee failed to prove this) and, therefore, the court of appeal
did not see any reason to invalidate this clause.
Rechtbank Almelo (court of first instance), 7 March 2012, ECLI:NL:RBALM:2012:BV8702
Box 8: Clause stetting price
City Box is a self-storage business with 24 locations across the Netherlands and three
franchise contracts, including for a storage location in Drachten. As of 2007, Drachten
Storage had a franchise contract with City Box. Drachten Storage claimed that the
franchise contract infringed the prohibition on restrictive agreements, and therefore,
should be invalidated.
The court of first instance recognised in this case that the franchise contract contained
a clause setting prices for the franchisee, aimed at preventing price-dumping practices.
City Box claimed that this clause was necessary to protect the know-how, the identity
and the reputation of its brand, and that there was no intention to restrict competition.
The court considered this clause to be a hard-core restriction as listed in Article 4 of the
Regulation. The price-setting clause could not serve to protect the reputation, know-
how, etc. of the trader, since there were other provisions in the contract to this purpose,
such as on the supervision of the franchisee’s operation and non-competition clauses.
The price setting clause, therefore, had a definite aim of limiting competition, and so
restriction should be prohibited. However, the Court did not answer whether the
Regulation applied and whether such a provision could fall under the exemption, since
the franchisee had failed to prove that the competition on his market would have been
grossly impacted by this restriction (the franchisee claimed that CityBox has circa 20%
market share, but could not specify the exact market share after this number was
questioned by CityBox).
Rechtbank Amsterdam (court of first instance), 21 August 2013,
ECLI:NL:RBAMS:2013:6591
Box 9: Annulment of the non-competition clause
Yarden Franchise concluded a franchise contract with person X on 1 October 2008 for a
period of five years. The contract was dissolved on 30 September 2013. On the basis of
the franchise contract, person X provided funeral services pursuant to the Yarden
formula. The contract had a non-competition clause prohibiting person X from being
directly or indirectly involved in a company or having financial or other professional
PE 578.978 63
interests in activities related to those performed under the franchise contract for a period
of one year after the termination of the franchise contract, within the geographical area
mentioned in the contract. Person X claimed that this clause is too broad, while Yarden
demanded the enforcement of a contractual penalty for an infringement of this non-
competition clause.
With regard to the non-competition clause, the court declared it to be fair, since it did
not seem to impede competition on the market, at least in the limited picture of the
market that the franchisee provided to the court (without making distinctions between
local and regional markets; funeral and cremation services; funeral services and
franchised funeral services etc.).
Additionally, person X tried to have the contract annulled, and in this way get out of the
non-competition clause. He claimed that the franchise contract should be invalidated
because it contained an illegal resale price maintenance. Due to the small fees that
person X received for selling insured funerals and cremations, for uninsured services
and for additional services he had to ask the maximum prices set by Yarden, which de
facto forced a resale price maintenance on him. He was also forced to purchase goods
only from Yarden or its distributors, according to person X. Yarden claimed that the
maximum prices were only recommended prices and that the franchisee was allowed to
deviate from them, which he did in practice. Person X added to this that the market
share of Yarden with respect to cremations was more than 30%, and with respect to
funerals it was above 10%. The court did not find the practices of Yarden with regard to
setting recommended maximum prices as leading to unfair competition, and therefore
found no grounds to invalidate the franchise contract (or to refer to the Regulation to
establish whether such a practice could fall under the block exemption).
Rechtbank Midden-Nederland (court of first instance), 11 June 2014,
ECLI:NL:RBMNE:2014:7395
The only once franchising case decided in Poland on the basis of 330/2010 Regulation
concerned the biggest franchising chain for casual dining (“Sphinx”) operated by Sfinks
Polska SA. The Sphinx chain comprises of 91 restaurants, 46 of which are franchise
restaurants and 45 of which belong to the franchisor. In 2013 UOKiK fined Sfinks Polska
for imposing fixed resale prices on its franchisees (decision DOK-1/2013 of 25 June, 2013).
The case was opened on the basis of signals from the market received by UOKiK. The fine
imposed on Sfinks Polska was rather low (464,000 PLN - approximately 100 000 EUR).
UOKiK established that Sfinks Polska arbitrarily imposed menu prices on its franchisees,
which, as emphasised in the decision, is one of the most serious infringements of
competition law. UOKiK also held unlawful the provisions that required the franchisees to
participate in price promotions, lasting from two weeks to several months, during which
Sfinks Polska imposed the prices of meals. In this regard UOKiK referred to the 2010
Guidelines, according to which franchisors may fix prices for the entire chain only in pro-
motional campaigns, consisting in lowering prices, lasting for up to six weeks. UOKiK did
not question the franchisor’s right to control promotional campaigns conducted by
franchisees, but limited it to technical and visual aspects of the promotion, significant for
protecting the brand and the chain’s reputation. UOKiK did not conclude that the franchisor
cannot monitor resale prices charged by its franchisees, but stressed that imposing fixed
or minimum resale prices goes beyond what is necessary for operation of the chain, is
harmful to consumers, and restricts competition among franchisees acting on local relevant
markets.
64 PE 578.978
Franchising
In Romania, the most prominent case is Decision No 65 of 31 October 2012 of the Consiliul
Cocurentei concerning the acceptance of the commitment of Fornetti Romania SRL
(Fornetti Romania). 47 The case originated from an investigation opened by the Competition
Authority concerned with the agreements and practices between Fornetti Romania
(franchiser) and its franchisees that were alleged to breach Article 101 of the TFEU though
fixing selling prices and limiting competition through non-compete clauses valid for two
years after the termination of the franchising agreements. Fornetti Romania is a multi-unit
franchiser with circa 600 franchisees around Romania; it is controlled by the Hungarian
mother-company Fornetti Holding Kft., and which is the master-franchisee of the mother-
company for the Romanian territory. The franchised activity consisted in manufacturing
and selling pastry products.
The franchiser admitted to have acted in cooperation with franchisees to fix prices, initially
through inserting mandatory selling prices clauses in the franchising contracts, and
subsequently, when such clauses were removed from the contracts, through monitoring
the operations of the franchisees. As a result, it advanced a request for the acceptance of
its commitment to remove the practices that were deemed anti-competitive by the
Authority. The commitment was accepted by the Consiliul Concurentei and substantially
contained the following obligations of the franchisor: eliminating any practice meant to fix
and control the sale prices of the products, leaving the pricing policy exclusively to the
franchisees (except for marketing promotion periods no longer than six weeks), amending
the franchising contracts correspondingly, reducing the period of the non-compete clause
from two years to one year after the termination of the franchising agreements.
In Spain, in a Resolution of 10 April 2014, the CNMC applied Regulation 330/2010 and
indicated that the obligation imposed by the franchisor in the DIA chain of supermarkets
on his franchisees to buy exclusively from the franchisor (non-competition clause) does
not infringe competition. Non-competition clauses do not generally benefit from the
exemption when they last for longer than five years (Article 5(1) of the Regulation), even
in cases where the franchisor has a market share of less than 30%, unless the franchisor
is the owner or possessor of the location used by the franchisees (Article 5(2)). As to fixing
the price, the franchisor indeed fixes a maximum price, but the practice is allowed by
Article 4(a) of the Regulation. Regarding the post-contractual non-competition clause,
Regulation 330/2010 allows these clauses if they do not last longer than a year (Article
5.3). The prohibition on active sales outside the territory where the franchisee has
exclusivity is also allowed by the Regulation (Article 4 (b) (i)).
On 1 July 2014, the CNMC initiated proceedings against the franchisor Food Service Project
(ZENA) because there were reasonable suspicions that it does not comply with competition
rules. The franchisor (1) unilaterally determined the suppliers and providers for its
franchisees, and (2) fixed resale prices. A claim regarding the unilateral determination of
suppliers by the franchisor could have succeeded on the basis of Regulation 4087/88, but
not Regulation 330/2010 because with the Regulation currently in effect, any restrictions
are relevant if the market share of the parties is more than 30% or if the restrictions are
serious, which is not the case when the franchisor unilaterally determines the suppliers of
its franchisees. The CNMC has decided, however, that both restrictions may be
sanctionable. A resolution is still to come.
Some appeal courts have referred in their decisions to the importance of respecting the
non-competition clause. They do not mention the application of Regulation 330/2010,
47
See online: http://www.consiliulconcurentei.ro/uploads/docs/items/id8105/decizia_fornetti-
publicare_site.pdf.
PE 578.978 65
however, because the issue at stake is not the duration of such a clause, which is normally
agreed for a year, but the non-compliance of the franchisee with that rule. 48
Even though there are no Supreme Court (Tribunal Supremo, TS) cases on the application
of Regulation 330/2010 as regards franchising contracts, the TS provided certain criteria
for the co-application of private and competition law regarding franchising in its decision
of 30 July 2009. 49 This decision regards the application of the “minima rule”, which applies
in Spain regarding competition issues, and which has even been consecrated in Article 3
of the Law on Defence of Competition. According to this rule, restrictions on competition
are only prohibited if the impact on the market is relevant. This is not the case when the
market share is of no significance, or if the market share is significant but the specific
restriction has no relevant impact on the market. The TS has stated in the above mentioned
decision (against the franchise network SVENSON) that the ´minima rule´ is to be applied
restrictively if the action regards the direct or indirect fixing of prices. Franchisor SVENSON
argued that the action was not relevant enough to restrict competition in the market. The
TS ruled that the probability that such conduct could lead to a direct or indirect influence
on the commercial exchange between countries, based on objective factors and not on
intentionality, and it suffices to not apply the ´minima rule´. Such a probability normally
exists when there are many franchised premises of the same network in various countries
of the EU, and an important network in Spain. Factors that are to be considered to analyse
whether the ´minima rule´ applies, are:
- the existence of a plurality of agreements between franchisor and franchisees,
- the geographical area and
- the type of clause.
Black clauses, such as clauses giving the prerogative to the franchisor to fix resale prices,
can never benefit from the ´minima rule´. These clauses are listed in Regulation 330/2010.
5.5. Specific clauses in practice
5.5.1. Long-term competition clauses
No problems relating to long-term competition clauses were reported in Estonia,

Germany, Romania, Spain or Poland.
In Belgium, the most relevant case law concerns the validity of the non-competition
clauses. According to the Regulation, a post-contractual non-compete clause must be
limited to “the premises and land from which the buyer has operated during the contract
period.” In a franchise context, for some sectors, a non-compete clause is only useful if it
applies to the entire territory that was granted to the franchisee. Some Belgian scholars
therefore argue that the scope of the post-contractual non-compete could be somewhat
broader than the former point of sales (as was the case under the former specific block
exemption for franchise agreements, Regulation 4087/88 50). This is motivated based either
on an individual exemption or on a liberal interpretation of “the premises and land…” as in
Article 5 of the Regulation.
48
See footnote 19.
49
STS 30 July 2009, Roj: STS 5933/2009 - ECLI:ES:TS:2009:5933. There are references of judicial proceedings
regarding competition but they regard distribution chains and not franchising chains. For example: STS 2 June
2015, Roj: STS 2544/2015 - ECLI:ES:TS:2015:2544 on restrictions of competition by suppliers of distribution
chains of gas stations because of the fixation of resale prices (REPSOL/CEPSA/BP).
50
Regulation No 4087/88 of the Commission of 30 November 1988 regarding the application of Article 85, 3 of
the Treaty on groups of Franchise agreements, Pb.L. 359/46 of 28 December 1988.
66 PE 578.978
Franchising
In addition, the sanction of invalidity of non-compete clauses violating Article 5 of the

Regulation gives rise to different interpretations. On 23 January 2015, the Belgian High
Court (Cour de Cassation) has ruled that a non-competition clause that is deemed too long
cannot be completely annulled by the court, but must be brought back to a duration that
is legally possible if the parties have foreseen this possibility in their contract. 51 It is not
yet clear, however, whether this case law also applies to non-compete clauses in vertical
agreements that are not compliant with Article 5 of the Regulation.
In the Netherlands, non-competition clauses are one of the most frequent problems
raised in the case law (on that see point: 5.4 above). In Italy, there is a specific regulation
in the Civil Code stating that non-competition clauses must be limited to a certain territory
and activity, and cannot exceed five years. Longer clauses are automatically reduced to
five years. The franchising legislation does not provide special regulation in this regard.
Contracts often include also a one-year post-termination non-competition clause.
5.5.2. Purchase options
In Belgium, it is not uncommon for franchise agreements to include a purchase option (or
pre-emption right) on the business of the franchisee, upon the termination of the franchise
agreement for whatever reason. Franchisors who wish to execute such a purchase option
are likely to be confronted by the franchisees challenging the validity of either the
termination or the purchase option, and the franchisor is obliged to launch summary
proceedings to be allowed to take over the business of the franchisees. Some Belgian
judges are reluctant to allow franchisors to execute such a forced execution of the purchase
option in summary proceedings. This is often detrimental to the value of the business,
since a decision on the merits can take several months to obtain. This means that the
business is operated under a different brand and/or concept for several months after a
franchise agreement ends before the franchisor is granted a forced execution of the
purchase option. De facto, the purchase option therefore loses all benefits of being able to
continue operating a point of sales (either directly or via a new franchisee) in a going
concern. In most cases, the parties are therefore forced to reach an amicable solution. In
principle, the case law recognises the validity of a purchase option, unless such a clause is
abusive.
No particular problems have been reported in Estonia, France, Germany, Italy, the
Netherlands, Romania or Poland.
5.5.3. Multi-franchising
No particular problems were reported concerning multi-franchising in Belgium, Estonia,

France, Germany, Italy, the Netherlands, Romania or Poland.
5.5.4. Block exemptions
No problems were reported in Estonia, France, Germany, Italy, the Netherlands,

Romania or Poland.
In Spain, cases brought before the CNMC by franchisees of the supermarket chain DIA
claim that the franchisor has imposed an indefinite non-competition clause that imposes
an exclusive purchase obligation on the franchisee. However, such a long-term non-
51
This approach contrasts with the approach of the Dutch High Court (Hoge Raad) - HR 18 December 2009,
08/00899, NJ 2010, 410 – that did not accept that the courts had the competence to convert invalid non-
competition clauses to valid clauses. This competence was considered to undermine the deterrent effect of
the prohibition of clauses restricting competition.
PE 578.978 67
competition clause (more than five years) is allowed by Regulation 330/2010 when the
franchisor is the owner of the business premises.
5.6. Overall assessment of the functioning of 330/2010 Regulation on a

national level
In Belgium, Regulation 330/2010 is not often used directly in case law concerning
franchising agreements. It is mostly only called upon in cases where there is already a
dispute between a franchisor and a franchisee, because the franchisee is not (or no longer)
satisfied with the commercial formula or the assistance of the franchisor, and is looking for
a way out of the franchise agreement. In such cases, the franchisee uses the Regulation
to look for flaws in the franchise agreement enabling the franchisee to get out of the
agreement, without being bound by notice periods and post-contractual obligations (such
as a non-compete clause). In the case of an annulment, franchisees can also claim the
repayment of the entrance fee, for example. The Regulation is not always easily
transposable to a franchise context. This is especially true as a franchise agreement often
combines elements of a selective and of an exclusive distribution agreement, which causes
problems. Belgian lower courts in general lack expertise regarding competition law and
could therefore use clearer guidelines on how to apply the Regulation to franchise
agreements. The protection of intellectual property rights in franchise agreements and the
extent to which the protection of trademarks or of know-how can justify exceptions from
the rules set by the Regulation could be better explained in the Guidelines. The individual
exemption (Article 101 (3) TFEU) requires a difficult self-assessment and assistance from
the Guidelines, which is very general. Most franchisors are not willing to take this risk and
the only safe option, therefore, remains within the (strict) conditions of the Regulation. In
Estonia, as there is no relevant case law or practice of the Estonian Competition Authority
with respect to franchise contracts, it is hard to make an overall assessment on the
functioning of the Regulation. No analysis exists in Germany as to whether and how
Regulation 330/2010 functions in practice. The body responsible for the application of the
Regulation, the Bundeskartellamt, applies the Regulation directly, according to the
guidance of the ECJ, to ensure that there are no divergences in this regard. Since it is the
CJEU that has the final world when it comes to the interpretation of the Regulation, it would
ultimately lead only to unnecessary problems if the German authorities would go against
the interpretation of the Court. In Italy, while case-law does not offer indications, part of
scholarship has criticised the stance of the Regulation and the Guidelines as being too
distrustful and limitative of resale price maintenance, which, although being opposed in EU
competition policy, is perceived by the franchising business community as necessary to
maintain price uniformity in the entire network. 52 The same scholarship is also cautiously
critical towards the vague regulation of online sales of the franchisee. 53 In the
Netherlands, the case law suggests that the application of the Regulation to franchise
contracts fails due to the lack of information/ documentation presented by the franchisee
on the market share, and the influence of the franchise practice on the competition in the
given area. The Regulation is invoked in proceedings as a potential argument to defend
against unfair competition claims, but the franchisees never get to use it due to the lack
of convincing arguments on the franchisee’s side that there is a restrictive agreement to
begin with. Unfortunately, among other things, the franchisee has to prove, for example,
that the non-competition clause in the franchise contract hinders competition on the Dutch
market, the courts may not automatically assume this or search for evidence thereof on
their own initiative, see, for example, Hoge Raad (Supreme Court), 16 January 2009, NJ
2009, 54 (Whizz Croissanterie). In Poland, there is no relevant practice and almost no
decisions. The companies make the self-assessment without referring to the Competition
and Consumer Protection Office, and there are no available sources to verify the practice.
In Romania, no criticism was voiced by the competent authorities concerning the
52
Frignani, Franchising under Regulation 330/2010 on vertical restraints, International Journal of Franchising
Law 2011; Frignani and Pardolesi (ed), La concorrenza, Turin, 2006, p. 131.
53
Ibidem.
68 PE 578.978
Franchising
functioning of the Regulation with respect to franchising contracts. In Spain, there is only
a little information about the application of Regulation 330/2010 in a franchising context.
The CNMC has indeed taken Regulation 330/2010 into consideration because it was applied
in the decision in the proceedings against the supermarket franchise chain DIA in order to
conclude that the claims of franchisees were not grounded because the clauses imposed
by the franchisor were not against the competition.
PE 578.978 69
NATIONAL PRIVATE LAW APPLICABLE TO

FRANCHISING – GENERAL OVERVIEW
KEY FINDINGS
• Specific regulation of franchising contracts exists in several of the legal systems
studied.
• The most comprehensive rules are present in Romania, where the legislation follows
the Code of Ethics of the EFF, and in Italy with rules inspired by European
legislation. Specific franchising regulation is also present in Estonia, Spain and
Belgium. In France, Germany and the Netherlands one might find rather well
established case law, and only in Poland is there neither specific legislation, nor
extensive case law.
• The problems in the franchising area typically appear with regard to pre-contractual
informational duties, non – compliance of the franchisee with the post-contractual
non-compete clauses and terminating the contract. Also, know–how and assistance
that the franchisor is supposed to provide the franchisee with are frequently subject
to disputes.
• All the researched legal systems have certain measures for unfairness control in
franchising contracts. Italy, Estonia, France, Germany, the Netherlands, Spain and
Romania simply allow judicial control of unfairness, sometimes subject to specific
restrictions, emanating from the professional character of the franchising
relationship. In Belgium and in Poland there is no unfairness control as such, though
in Belgium all agreements must be executed “in good faith”, and in Poland the
potential control of franchising contract is given through the application of general
unfairness clauses.
6.1. General overview
6.1.1. Introduction
From among the researched legal systems, most have elaborated certain measures
designed for dealing with franchising. The most comprehensive rules exist in Romania,
where the law follows the Code of Ethics of European Franchising Federation and in Italy,
where the Regulation is (at least) partially inspired by European legislation. Also Estonia
provides rather comprehensive set of rules, whereas Spain and Belgium focus on pre-
contractual information duties. In Belgium there are additional rules applicable on
termination. In France and Germany, although there are no specific franchising rules,
there is well established line of case law that deals with franchising, and in the
Netherlands, additionally a newly enacted national Franchising Code in form of self-
regulation. Only in Poland there is neither legislation nor hardly any case law exists.
If a legal system contains rules on franchising, the rules normally contain pre-contractual
obligations aimed at protecting the franchisee. This is the case in Romania, Italy, Spain,
Belgium and Estonia. Franchising is normally qualified as an innominative contract, even
in legal systems where there are franchising rules.
70 PE 578.978
Franchising
6.1.2. National regulatory solutions in nutshell
Rules on Pre- Regulation

Specific contractual of the
Unfairness Rules on
Country franchising informational content of
control terminat
legislation duties the contract
ion
 
Legislation Control subject
Belgium applicable ALSO to general rules
to franchising only
Estonia    
France Case law 
Germany Case law 
Italy     
Case law + soft

The Netherlands 
law
Control subject
Poland to general rules
only
Romania     
Spain   
6.2. Systems with comprehensive regulation: Romania and Italy
6.2.1. Romania
In Romania, franchising contracts are regulated by Government Ordinance No 52 of 1997

on the legal discipline of franchising contracts (hereinafter referred to as the “Franchising
Law”). The Franchising Law is largely based on the Code of Ethics of the French Franchising
Federation and the Code of Ethics of European Franchising Federation. 54 It defines the
most important terms and concepts of franchising contracts, and sets out rules that govern
the relationships between the parties to a franchising contract: the minimum content of
the contract, the obligations of the parties, the regulation of intellectual property rights,
clauses regarding the termination of the contract, non-compete and confidentiality clauses,
advertising and selection. Its provisions establish the general conduct to be followed by
the parties in drafting and executing the franchise contract, but they fail to determine the
applicable legal sanctions for non-compliance. The Franchising Law is divided into three
parts according to the life-circle of the contract:
54
Mocanu, Contractul de franciză, Bucharest 2008, p. 5.
PE 578.978 71
(1) Pre contractual relations between the parties

At the pre-contractual stage, the franchisor must provide the potential franchisee with
various information about the franchising using a pre-contractual information document to
allow the franchisee to take an informed decision regarding the opportunity to cooperate
with the franchisor. No form requirements are formulated, but the document should
contain, among other things, a description of the franchisor's experience in the proposed
business as well as information on financial aspects such as: the entrance fee, the scope
of the exclusivity clause, information regarding the duration of the contract, renewal
conditions and termination clauses.
In negotiating the contract and during the pre-contractual stage in general, the position of
the parties seems to be asymmetrical, to the disadvantage of the franchisee. The contract
is proposed by the franchisor, which has much more experience and knowledge than the
other party. Although the franchisor’s obligation to inform the franchisee is provided by
law, sometimes the franchisor might be reluctant to reveal certain aspects of his activity. 55
Unfortunately, the Franchising Law does not introduce sanctions for the non-compliance of
the obligation to inform the franchisee. In this case, and in the absence of any specific
contractual provisions, the franchisee can initiate legal action against the franchisor for
damages, based on tort liability. The existence and the amount of damages, as well as the
causal link between the breach of obligation and the damage must be proven by the
franchisee. Given the difficulty of proving all the conditions of a tort suit, it was advised
that the parties conclude a negotiation agreement. 56
(2) Contractual and post-contractual relations between the parties
The franchising contract should clearly define the duties and obligations of the franchisor
and franchisee, as well as the cooperation between the parties. Whatever the nature of
franchising is, the franchisor must provide the franchisee with a number of services such
as: management consultancy, commercial and technical assistance, staff training, granting
the right to use certain know-how or trademarks, or any other rights related to the
intellectual property.
Franchising agreements must reflect the interests of the members of the franchising
network, which means the need to protect the intellectual and industrial property rights of
the franchisor by maintaining the common identity and reputation of the franchising
network.
In order to conclude a franchising contract in Romania, the franchisor must have
maintained and managed a business for a reasonable period of time before creating the
franchise network. However, the law does not set the length of this period. The franchisor
must own the intellectual and/or industrial property rights, and provide the franchisee with
initial training and technical and/or commercial assistance during the entire duration of the
franchising contract. The franchisee must pay the entrance fee to the franchisor, either at
the moment of concluding the franchising contract, or periodically, as set out in the
contract, in exchange for the transfer of the know-how and initial training provided by the
franchisor. The franchisee must also pay a royalty during the entire performance of the
franchising contract in exchange for the support and continuous training provided by the
franchisor. 57 The royalty usually amounts to a certain percentage of the annual turnover.
Other costs to be paid by the franchisee can be provided in the contract.
55
Mocanu, Franciza, francizarea. Ghid Practic, Bucharest 2013, p. 93.
56
Ibidem, p. 94.
57
Ibidem, p. 156.
72 PE 578.978
Franchising
When it comes to the competition law impact, it should be noted that the Franchising Law
allows the franchisor to impose on the franchisee non-competition and confidentiality
obligations, in order to prevent the unauthorised transfer of the know-how. With regards
to the non-competition clause, the European legislation is, to a certain extent, accepted as
an exception to the provisions regarding anti-competition practices. The law establishes
limits concerning non-competition clauses, both in contractual and post-contractual
phase. 58
6.2.2. Italy
In Italy, franchising is regulated in a specific statute – Law No 129 of 6 May 2004. The
statute is at least partially of European inspiration, as it strongly relies upon Article 3 of EC
Regulation 4087/1988. It is a compromise between opposed views: detailed regulations
and a libertarian approach. In its final draft, the statute has become quite liberal and short.
Accordingly, certain franchising business associations (Assofranchising, Confimprese and
Federfranchising, which gather approximately 70% of the franchising market) that were in
favour of the liberal approach are satisfied with the statute in its present form. Italian
legislation mostly focuses on the negotiation and conclusion of the contract, imposing both
formal requirements (mostly the written form ad substantiam) and disclosure obligations.
The aspects relating to the performance of the contract are much less regulated. In
addition, the statute does not explicitly foresee sanctions for infringements of the rules it
imposes, which are therefore mostly drawn from general contract law. Because of this
minimalistic approach, uncertainties occasionally arise regarding the consequences to be
drawn by courts and scholars from general contract law; for example, it is unclear whether
the invalidity of the contract or remedies against the non-performance of an obligation are
applicable in certain cases, or the exact legal consequences of a violation of the cooling-
off period.
The statute introduces a broad definition of franchising. It requires the contract to be
concluded in writing, and that a copy of the contract be given to the other party. The act
foresees a minimum duration of the contract in order to allow the parties to recover their
investments in the case of fixed-term contracts, in any case not less than three years. It
sets out disclosure obligations, a violation of which might lead to the annulment of the
contract and damages. Parties are obliged to cooperate in light of the principles of loyalty,
correctness and good faith. The same rules apply in the case of master franchising.
There is important case law applying the statute or general contract law to franchising
contracts. Though it is impossible to estimate precisely how many cases are dealt with in
confidential ADR schemes, or cases that are not published, the impression based on the
available material, and in comparison with other countries, is that litigation is not
particularly frequent, considering the high number of franchising contracts. 59
Description of the Statute
Article 1 contains definitions. Among them, franchising is defined as an agreement,
irrespective of its name, between two legally and economically independent parties,
whereby one party grants the other, against consideration, a set of industrial or intellectual
property rights, related to trademarks, trade names, shop signs, utility models, industrial
designs, copyright, know-how, patents, technical and commercial consulting and
assistance, under which the franchisee joins a network constituted by a number of
58
Mocanu, Contractul de franciză, Bucharest 2008, p. 129.
59
Frignani, Il contratto di franchising. Orientamenti giurisprudenziali prima e dopo la legge 129 del 2004, Milano,
2012, 5
PE 578.978 73
franchisees operating in the territory for the purpose of distributing specific goods and
services.
Article 1.2 provides that franchising can be adopted in any sector of economic activity.
Scholarship, however, tends to exclude production and industrial franchising from the
scope of franchising.
Article 1.3 defines the “know-how” as a body of non-patented practical information,
resulting from the franchisor’s experience and testing, which is secret, substantial and
identified. “Secret” means that the know-how, as a body of information or in the specific
configuration and assembly of its components, is not generally known or easily accessible;
“substantial” means that the know-how includes information that is indispensable to the
franchisee for the purpose of the use, sale or resale (distribution), management or
organisation of goods and services identified under the agreement; “identified” means that
the know-how must be described in a sufficiently comprehensive manner to check that it
fulfils the criteria of secrecy and substantiality.
Article 2 defines the scope of application of the law, extending it to master franchising and
concessions (defined in the Italian commercial practice as “corner franchising”).
Article 3 sets out the content and the form of the contract, prescribing that is must be in
writing in order to be valid. The franchisor must have tested its commercial formula on the
market (references to a minimum period of time contained in previous legislative proposals
have been abandoned in the final version). If the contract is for a limited term, the duration
should be enough for the franchisee to recover its investment, and in any case not less
than three years except in the event of earlier termination of the contract due to one of
the parties not fulfilling its contractual obligations. Scholarship considers that this latter
provision is applicable also in case of non-fixed term contracts. Additionally, the article lists
a series of clauses that the contract must expressly mention: the amount of investments
and other possible entry fees that the franchisee must bear before commencing activity;
the manner of calculating and paying the royalties, as well as a possible indication of the
minimum turnover to be achieved by the franchisee; the scope of the possible exclusive
territorial rights granted either towards other franchisees of the network, or towards sales
channels and outlets run directly by the franchisor; the details of the know-how; the
possible means of acknowledging the contribution to the know-how by the franchisee; the
details of the services offered by the franchisor in terms of technical and commercial
assistance, setting-up and furnishing of the outlet and training; as well as the conditions
for the contract renewal, termination or possible transfer.
Article 4 sets out the obligations of the franchisor, which include the obligation to provide,
at least 30 days before the contract is signed, a complete copy of the contract to be signed,
together with further information listed in the article, except that “for which objective and
specific confidentiality requirements exist, which will be mentioned in the contract.” The
article then lists the disclosure requirements: information concerning the franchisor
including corporate name and assets and, if the prospective franchisee asks for it, a copy
of the franchisor’s balance sheets for the last three years, or from the beginning of its
activity if it has been in operation for less than three years; an indication of the trademark;
a synthetic description of the elements characterising the activity of the franchise; a list of
the other franchisees operating in the network and a list of the outlets directly run by the
franchisor; an indication of the variation in number of the franchisees and their location; a
short description of any judicial or arbitral proceeding raised in relation to the franchise
system against the franchisor and concluded during the last three years.
Article 5 sets out the obligations of the franchisee, i.e. a ban on transferring its registered
office, as mentioned in the contract, without the prior consent of the franchisor except in
74 PE 578.978
Franchising
the case of force majeure, and the obligation to respect and to ensure its collaborators and
personnel respect, even after termination of the contract, the highest degree of
confidentiality on the content of the franchise.
Article 6 sets out the pre-contractual obligations, in particular the obligation for the parties
to behave with loyalty, correctness and good faith. The franchisor must further provide the
affiliate with any data and information the latter deems necessary or useful for the
purposes of signing the contract, except in the case of objectively confidential information,
or if such disclosure would violate the rights of a third party. In this case the franchisor
must justify the failure to disclose.
Article 7 allows for conciliation clauses, and Article 8 sets out that, in the event of false
information, one party may ask for the annulment of the contract and claim damages.
6.3. Systems with less comprehensive regulation: Spain, Estonia, Belgium
6.3.1. Spain
There is no Spanish statutory private law regarding franchising contracts, which is

qualified as an atypical contract. However, provisions relating to franchising were
introduced in Article 62 of Law No 7/1996 on Retail Sales (hereinafter: LOCM). 60 Article 62
of the LOCM provides a definition of franchising and imposes two pre-contractual
obligations on the franchisor, namely registration in a public register of franchisors, and to
provide pre-contractual information to the franchisee. The Spanish Franchise Federation
has adopted the European Code of Ethics for Franchising. It is, however, no more than a
deontological code for franchisors, with non-binding effect. Article 62 LOCM has been
implemented by subsequent Decrees (Reales Decretos, RD) in 1998, 2006 and finally in
2010, when the two pre-contractual obligations contained in Article 62 were further
developed. The RD currently in force, i.e. RD 201/2010 of 26 February 2010 contains 12
articles. 61 Article 2 provides a definition on franchising and differentiates franchising from
other similar types of contracts. Article 3 regulates the obligation of the franchisor to
provide pre-contractual information. Article 4 regards the obligation of confidentiality,
which can be imposed by the franchisor on the franchisee regarding pre-contractual
information. Articles 5 to 12 regulate the functioning of the public register of franchisors.
As literally stated in Article 62 of the LOCM, the objective of the disclosure rule is to
guarantee that the franchisee can decide freely and in full awareness of the facts whether
to enter the franchise network. Although the obligation of pre-contractual disclosure was
already deemed to exist before the enactment of the LOCM, the codification of this
obligation is regarded by legal scholars as a concrete measure taken by the legislator to
mitigate the information asymmetry between the parties, namely the asymmetry caused
by the costs and difficulties involved for the franchisee in obtaining information concerning
the business of the franchisor. 62 According to Spanish authors, the codification of the
60
Ley 7/1996 de 15 de enero, de Ordenación del Comercio Minorista, BOE n.15 of 17 January 1996 (RCL
1996/148 and 554). For an English translation, see CCH, Business Franchise Guide, at p. 7255.
61
Real Decreto 201/2010 de 26 de febrero por el que se regula la actividad comercial en régimen de franquicia
y la comunicación de datos al registro de franquiciadores (BOE núm. 63, of 13 March 2010, pp. 25037-25046).
62
Echebarría, El contrato de franquicia, Definición y conflictos en las relaciones internas, McGraw-Hill, Madrid,
1995, p. 256: “ ... resulta apreciable la consideración del franquiciado como contratante débil; no tanto en le
hecho de que sus intereses se vean funcionalmente disminuidos en la negociación sino en la inferioridad
cultural del mismo por el menor acceso a la información.” Ortuño Baeza, Contratos ligados a la propiedad
industrial. Licencia de marca. Franquicia, in A. L. Calvo Caravaca & L. Fernández de la Gándara, Contratos
Internacionales, Madrid, 1997, p. 1533: “ … una de las causas más importantes del posible fracaso de los
sistemas de franquicia, es el carácter incompleto o engañoso de la publicidad de reclutamiento.”
PE 578.978 75
obligation is meant to introduce certainty as to the information to be disclosed, and to add

strict requirements of form in order to provide a protective regime for the franchisee. 63
The rules cause problems in practice. Firstly, there is some uncertainty about the applicable
sanctions. Although the LOCM is of an administrative character, its final provision indicates
that Article 62 has a private law character. 64 However, neither the LOCM nor the RD
201/2010 indicate the private-law remedies that apply if the franchisor fails to comply with
his obligation to disclose and/or with his obligation to register. The options are: absolute
invalidity caused by the non-compliance with a mandatory law (Article 6 Civil Code), or
avoidance for mistake (Article 1265 and 1266 Civil Code). Regarding the non-compliance
with the rules on disclosure, courts have so far seemed to prefer the application of private
law rules on a mistake.
Regarding the non-compliance with the registration obligation, some courts have indicated
that the non-compliance with the obligation to register, as set out in Article 62 LOCM, does
not lead to the invalidity of the contract. According to the Madrid Audiencia Provincial, in a
sentence of 30 December 2009, Article 62.3 does not state as a remedy the invalidity of
the franchising contract if the franchisor does not comply with the registration obligation.
According to this court, this is an administrative requirement, which must be distinguished
from the private relationship between franchising parties.
Secondly, the meaningless impact of the rule as a means to protect franchisees is a
problem. The approach of Spanish courts in favour of the application of the disclosure rule
in accordance with general rules on defective consent, which is shared by some authors,
implies that the lack of compliance with the information obligation is only relevant when it
leads to a mistake. In most cases, a mistake is considered to be inexcusable because the
franchisor is a professional who should have been aware of the situation. According to this
approach, there is no presumption of a mistake where the franchisor does not comply with
his obligation to disclose, 65 even though this presumption has been defended by Spanish
courts and doctrine in the case of other types of contracts where a specific obligation to
provide pre-contractual information is imposed on one of the parties (e.g. a medical
contract). 66 An approach that is grounded in the fact that proving that information has not
been provided (diabolic proof) is much more difficult than proving that it has been
provided. The impact in practice of the specific rule on disclosure is therefore significantly
tempered, and the protection that was supposed to be granted has not been achieved.
When it comes to invoking the rules, in several decisions where the franchisee referred to
the application of the rules on disclosure, the courts (Audiencias Provinciales) did not base
their conclusions on the specific disclosure obligations contained in the legislation. The
courts did not even mention the relevant disclosure rules, but their reasoning was along
the lines of the general contract law rules on disclosure (the courts verified whether the
franchisee entered the contract under a mistake). The decisions in question are: Valencia
63
Ortuño Baeza, 1997, p. 1535: “las normas contenidas en los párrafos segundo y tercero del artículo 62 de la
Ley de Ordenación del Comercio Minorista han venido a paliar la situación creada por la ausencia de una
normativa específica al efecto imponiendo una serie de cautelas en favor del franquiciado ”; Similarly
Echebarría, 1995, p. 119 and Alonso Espinosa et al., (coord.), Régimen Jurídico General del Comercio
Minorista. Comentarios a la Ley 7/1996, de 15 de Enero, de Ordenación del Comercio Minorista, y a la Ley
Orgánica 2/1996, de 15 de enero, complementaria de la de Ordenación del Comercio Minorista, Madrid, 1999,
pp. 717-719.
64
Article 62 is therefore private law legislation that is of general application on Spanish territory on the basis of
the exclusive competence of the Spanish State to regulate the contents of contracts on the basis of Article
149.1 of the Spanish Constitution.
65
Rojo Auria, El dolo en los contratos, Madrid, 1994, p. 284; Alonso Espinosa et al., 1999, p. 728.
66
There is a presumption of a mistake in favour of the patient in contracts for medical treatment. If the medical
service provider cannot prove that he has provided the necessary information to the patient, the patient is
presumed to have given mistaken consent. See also STS 28 February 1990, Ar. 726, concerning the obligation
of pre-contractual information imposed by the Land Act (Ley del Suelo).
76 PE 578.978
Franchising
Audiencia Provincial of 17 January 2001, Teruel Audiencia Provincial of 24 October 2001,

and Burgos Audiencia Provincial of 11 February 2002. In some decisions, neither the
franchisee nor the court invokes the application of the specific rule in a claim for a mistake:
Albacete Audiencia Provincial of 18 October 2013. 67
Explicit reference to the disclosure rule can be found in more recent decisions. The line of
thinking of courts, however, continues to be along the general rules on defective consent,
which means that a mistake has to be proven by the franchisee. The avoidance of the
contract has not been granted on this ground, because courts have generally decided that
a mistake in these cases is not excusable, since the franchisee is a professional who can
evaluate the type of relationship he is entering into. This is the case in the decisions of the
TS of 30 June 2009 and 27 February 2012. 68
The decision of 30 June 2009 regards a claim for annulment based on the lack of
information and on the absence of any object. Concerning non-compliance with the
information obligation, the TS does not attach any consequences to that, because the
franchisee had three premises in the same network and he was a professional who should
have been aware of the situation. The court added that the franchisee did not claim until
he noticed that he did not have the expected benefits. The Sentence of the TS of 27
February 2012 deals with the claim of a franchisee regarding misleading information on
earning claims provided by the franchisor. The TS states that the RD 2010 on disclosure
does not require information of this kind. Moreover, the franchisee did not prove that the
earning claims were unrealistic or had been made without rigor and prudency.
There are also recent examples of Appeal Courts: in proceedings before the Madrid
Audiencia Provincial, which ended with a decision of 30 December 2009, the franchisee
claimed the avoidance of the contract because he was not provided with the necessary
information, including documents regarding the trademark. The Madrid AP answered that
there is no excusable mistake, because the franchisee was a professional. 69
6.3.2. Estonia
The Estonian Law of Obligations Act of 1 July 2002 (LOA) 70 sets out basic rules on
franchising contracts in Chapter 19 of the LOA. The rules in the LOA were drafted on the
bases of the UNIDROIT Model Franchise Discloser Law, the European Code of Ethics for
Franchising and the Russian Civil Code (Art. 1027 ff). Article 375 of the LOA provides the
definition of a franchise contract, which is, in principle, seen as a mixed contract: “By a
franchise contract, one person (the franchisor) undertakes to grant another person (the
franchisee) a set of rights and information belonging to the franchisor for use in the
economic or professional activities of the franchisee, including the right to the trade mark,
commercial identifications and know-how of the franchisor.”
Article 376 LOA imposes on the franchisor an obligation to provide the franchisee with
instructions for the exercise of the rights associated with the franchise, and to provide the
franchisee with permanent assistance. Article 377 LOA contains a list of obligations on the
part of the franchisee, who should use the commercial identifications of the franchisor (i.e.
trade name, etc.), to ensure that the quality of the goods and services it provides is the
same as that of the goods or services provided by the franchisor, to follow the instructions
67
SAP Valencia 17 January 2001, AC 2001\1269; SAP Teruel 24 October 2001, AC 2001\1931; SAP Burgos 11
February 2002, AC 2002\892.
68
STS 30 June 2009, Roj: STS 4437/2009 - ECLI:ES:TS:2009:4437; also 27 February 2012, Roj: STS
1327/2012 - ECLI:ES:TS:2012:1327.
69
SAP Madrid 30 December 2009, Roj: SAP M 17675/2009 - ECLI:ES:APM:2009:17675.
70
Law of Obligations Act (in Estonian: võlaõigusseadus), passed 26.09.2001, entry into force 01.07.2002. RT
(State Gazette) I 2001, 81, 487. Available in English:
https://www.riigiteataja.ee/en/eli/ee/516062015006/consolide/current#para1. (11.08.2015)
PE 578.978 77
of the franchisor and to provide clients with all additional services they would expect from
the franchisor upon acquiring goods or contracting for services from the franchisor. Lastly,
Article 378 LOA gives the franchisor the right to check the quality of the goods
manufactured or the services provided by the franchisee.
The rules are very general and mainly used in specifying the main elements and content
of the franchising contract. There is no information about the real use of these rules, as
there is no court practice concerning franchising, although the interviewees claimed that
in practice these rules cause no problems.
6.3.3. Belgium
In Belgium, there is no specific legislation regarding franchise agreements only, but there
are two specific statutes that also apply to franchise agreements: the Statute of 19
December 2005 on Pre-contractual information for commercial cooperation agreements
(now Chapter 2 of Book X of the Belgian Code of Economic Law), the Statute regarding the
termination of exclusive distribution agreements of indefinite duration, the Statute of 27
July 1961 (now incorporated as Chapter 3 of Book X of the Code of Economic Law), can
apply to some franchise agreements.
• Pre-contractual disclosure
The Statute on pre-contractual information was adopted for franchising agreements. In
some sectors, franchise agreements were used to avoid the application of labour law, as
franchisees were de facto treated as employees. In other sectors, franchisors sold
commercial formulas that were void of any competitive advantage, and assistance from
franchisors was practically non-existent (particularly in the dating agencies sector). These
business models were based on selling the formula as many times as possible, rather than
on the success of the formula.
As a compromise between those in favour of imposing a comprehensive franchise
agreement (in particular its termination) and those in favour of a liberal approach
(application of general contract law), only the pre-contractual information requirements
were regulated. The aim was to ensure that a franchisee, as an independent tradesman,
was duly informed on the merits of the franchise network and formula, as well as on the
contractual obligations under the franchise agreement before signing it.
To make sure that the parties could not easily avoid the application of the pre-contractual
disclosure obligations, the application of the Statue includes all ‘commercial cooperation
agreements’. This vague concept, however, continues to give rise to interpretation and
qualification issues. It applies in principle to all agreements where one party grants the
other the right to use a commercial formula when distributing products or services. The
commercial formula consists of the use of a commercial name/trade name, the transfer of
know-how and commercial or technical assistance.
The Statute applies to all distribution and commercial agent agreements, though its scope
is generally considered too broad. The Statute imposes an obligation to disclose, one month
before the conclusion of the agreement, a document, containing the following pre-
contractual information:
• The draft agreement;
• A summary of the most important obligations of the franchisee, including information
on all direct or indirect remuneration of the franchisor;
• Information concerning the franchisor and its network (financial data, market, market
share, market previsions, etc.).
78 PE 578.978
Franchising
• A similar document, limited to the elements that have changed, must be communicated
in the event of the renewal or modification of the franchise agreement.
A franchisee that did not receive such a document at least one month before signing the
agreement, can seek the annulment of the agreement within two years of its conclusion.
If specific information regarding the material contractual obligation was not given, the
nullity can be partial and limited to the clause containing such contractual obligation.
• Termination
The Statute only applies to ‘exclusive’ distribution agreements with an indefinite duration.
However, Article X.38 of the Code of Economic law stipulates that an ‘exclusive’ distribution
agreement with a definite duration is considered an agreement of indefinite duration upon
its third renewal/extension. The Statute applies only to the distribution of products (not
services) within Belgium. The Statute is thus auto-limitative.
The case law is still indecisive on whether this Statute and the right to the goodwill
indemnity apply to franchise agreements. The Belgian High Court has, with its decision of
30 April 2010, 71 ruled in favour of a broad application of the Statute of 27 July 1961 to all
agreements whereby a distributor distributes products and takes specific risks related to
this distribution (such as exclusivities or specific investments in the brand) if the other
conditions of the Statute are met. Franchise agreements of an indefinite duration regarding
the distribution of products could therefore fall within the scope of the Statute.
Concerning the termination of exclusive distribution agreements of indefinite duration, the
Statute sets out that a distribution agreement can only be terminated unilaterally by giving
a “reasonable notice period” (Art. X. 36 of the Code of Economic Law) or by “paying a
compensatory indemnity”. The lawmaker took the position that a distributor who helps a
producer to place its products on the market should, in some cases, be protected against
the negative impact of the termination of the distribution agreement by the producer. The
Belgian courts take the view that a notice period is reasonable only when the terminated
party has enough time to find a new contract offering similar advantages to that of the
terminated distributorship. The courts will take a number of parameters into account,
including:
• the duration of the distribution agreement,

• the extensiveness of the territory,
• the importance of the distributorship in the global business,
• the reputation of the brand,
• the profits generated by the distributorship.
If the supplier terminates the agreement, the distributor will also be entitled to an
additional compensation pursuant to Article X. 37 of the Code of Economic Law. This
additional indemnity consists of three elements: goodwill, expenses and severance pay to
workers. The goodwill compensation is due if the distributor proves that:
• there was a notable increase in the number of customers and/or turnover during the
agreement,
• the increase was obtained through its marketing efforts, and
• the customers will continue to buy the supplier's products after termination.
71
Cass. 30 April 2010, J.L.M.B. 2010, 1362; T.B.H. 2010, 686, noot O. VANDENBERGHE.
PE 578.978 79
After the termination, the distributor is entitled to obtain compensation for the expenses
incurred through the exploitation of the distributorship that could benefit the supplier after
the termination of the agreement.
The severance pay that the distributor is required to pay to employees/workers who are
dismissed as a result of the termination of the distribution agreement may be recovered
from the supplier. The Statute of 1961 is applicable to some but not to all types of
distribution agreements, and the distributor must be attributed “special rights”. The act
applies to three main categories:
• Exclusive distribution agreements, i.e. agreements whereby the distributor is the only
seller of the supplier’s products (not services) in a defined territory.
• Quasi-exclusive distribution agreements, i.e. agreements where, as the case law
establishes, the distributor sells 80% or more of the supplier’s products in the territory.
• Distribution agreements where important obligations are imposed on the distributor,
such as investments in stores, hiring qualified personnel, following marketing
instructions, reaching certain quotas, after sales services, etc.
6.4. No specific rules: France, Germany, the Netherland and Poland

In the remaining systems: France, Germany, the Netherlands and Poland there are
no specific rules applicable to franchising contracts. In these legal systems franchising is
classified as an innominative contract. This means that these systems do not contain rules
specifically devoted to franchising 72 and that general contract rules apply. Normally
contracts have the “innominative” status when they are not deemed common enough in
the commercial practice to require specific regulation, or when the practice is not
sufficiently homogenous.
In France, a definition of the franchising contract has been formulated through case law:
“a franchise contract is a mutual “synallagmatic” contract involving a sequential
performance, through which an enterprise, called the franchisor, transfers to one or more
other enterprises, called franchisees, the right to the continuous operation, under the name
of the franchisor and using his customer branding and ongoing assistance, of a
management system that has been previously worked out by the franchisor to, thanks to
the competitive advantage it provides, allow a reasonably diligent franchisee to make a
profitable business.“ 73 The transfer of know-how is the distinctive criterion of franchising.
In Germany, certain regulation pertaining to specific contracts may apply (per analogy),
because franchising contracts typically contain various elements of nominative contracts
(mixed contract). The application depends on how the franchising contract is classified.
The classification, in turn, depends on the configuration of the respective franchise
agreement in each individual case. All this constitutes a sufficient framework to deal with
franchise agreements in the German legal system.
In Poland, despite the fact that it is commonly recognised that franchising contracts
contain certain characteristics of various contracts like sale, distribution, licencing, agency,
commission, rent or lease, the doctrine speaks against the mixed character of the
franchising contract 74
72
It must be noted, however, that the fact that a legal system contains rules on a given contract does not
automatically give it the status of a nominative contract.
73
Cour de Appel Toulouse, ch. 2, sect. 2, 25 May 2004, Juris-Data No 2004-247226.
74
Promińska, in System Prawa Prywatnego, Prawo Zobowiązań – umowy nienazwane, (ed). W. J. Katner,
Warszawa 201, p. 769.
80 PE 578.978
Franchising
6.5. Application of general contract rules to franchising contracts

Depending on whether there are franchising specific rules in a given legal system, rules
that apply to franchising constitute either a combination of the specific franchising
regulation and general contract rules, or simply apply general contract rules.
6.5.1. Only (general) contract law
Only general contract law rules apply in France, Germany, the Netherlands and
Poland. The situation is relatively simple in France, the Netherlands and Poland. In
France, franchise contracts are regulated particularly by: the part of the Code Civil relating
to the obligations in general as an innominative contract in the sense of Article 1107 of the
Code, Civil and the provisions of the Code de Commerce relating to distribution contracts
in general or some specific distribution contracts depending on their characteristics, such
as the potential purchase exclusivity clause imposed on the distributor (Article L. 330-3 of
the Code de Commerce). In the Netherlands, parties to a franchise contract are free to
form it at their discretion (freedom of contract and party autonomy). However, general
contract law rules apply, including provisions to act pursuant to good faith and rules on
unfairness control, to the extent that these apply to B2B transactions. The situation is
similar in Poland, where the parties may, under Article 3531 of the Civil Code, arrange
their legal relationship as they deep proper, on the condition that the content or the
purpose of the contract between them are not contrary to the nature of the relationship
with statutory law and with the principles of community life.
In Germany, the doctrine and case law has developed concerning the notion of franchising
and applicable rules. As a starting point, franchising contracts fall in the scope of the
general contract law rules contained in the Civil Code, as well as certain specific regulations
on specific contracts by analogy. In order for the analogy to apply, the franchising contract
needs to contain sufficient elements of the respective nominative contract that the
application of the specific rules appears reasonable. Franchising is regarded as a mixed
contract that may contain elements of various types of contracts. The classification of the
franchise agreement is therefore multiform, and depends on the content of the contract.
Franchising contracts may contain elements of contracts concerning lease, rent, purchase,
agency, or licence agreements concerning a company. Optionally, there are also views that
a franchising contract can amount to a corporate contract of a company, if a common
purpose exists. In any case, franchise agreements constitute long-term obligations.
The “Subordinationsfranchising“, where the franchisee is bound by the instructions of the
franchisor, is seen as a service contract containing elements of an agency contract.
Because the specific position of the franchisee, similar to that of a commercial agent, §§
84 ff HGB applies accordingly in this case. Normally, the franchisee is seen as an
independent trader, and not a representative of the franchisor or its employee. The parties
to a franchise contract are therefore, in principle, always two independent enterprises. In
the event of an unclearly worded franchise agreement, it may happen that the franchisee
will appear as an employee of the franchisor. In such a situation, certain labour regulations
may be applicable (which is problematic). To answer the question whether the franchisee
meets the criteria of independence, § 84 para. 1 HGB is applied, regardless of whether or
there is a Subordinationsfranchising. § 84 para. 1 HGB contains a general indication of
what it means to be an enterprise, and aims to ensure that, in particular, the
entrepreneurial risk lies with the franchisee, who independently decides about the structure
of the organisation, the prices and personnel.
There are several methods to assess the applicability of specific rules to a franchising
contract. First, individual clauses in the franchising contract are evaluated as to whether
they resemble clauses of nominative contracts. If rules on different nominative contracts
PE 578.978 81
can apply to one franchising contract, the contract is divided (known as

Trennungsmethode). It is also conceivable to determine the centre of gravity of the
contract, and then to treat all the clauses of the contract according to the rules intended
to be part of the contract that represents the centre of gravity (known as
Absorptionstheorie). It cannot be generally stated which procedure is preferable, as it is
decided on an individual basis. Since only after such procedure can it be established which
provisions apply to a given franchising contract, it cannot be stated generally which
provisions apply to franchise contracts. However, certain rules always apply, i.e. the
general rules of BGB (§§ 1-240 BGB) for example, and the rules on legal capacity, validity
of contract or avoidance.
Moreover, the German courts apply Regulation 330/2010 when it comes substantive
requirements for assuring that franchising agreements can function effectively. Although
the Regulation, in principle, introduces the vertical restraints exemptions on the basis of
Article 101, it has an impact on the “civilian” part of the franchising contract. The case law
decided on the basis of the previous Regulation constitutes a benchmark for evaluating the
moral standards of a franchise contract pursuant to § 138 BGB. 75 Thus, Regulation
330/2010 sets out significant substantive requirements for franchise agreements under
German law. Exempting a franchise agreement is only allowed under Regulation 330/2010
when the requirements of the Regulation are met. The general opinion, therefore, is that
franchise contracts should be drafted in a way that does not violate the requirements of
the Regulation.
6.5.2. General contract law next to specific regulation
In the countries where there are specific franchising rules, general contract law applies
only in the absence of such rules. In Belgium, the franchisor’s rights can be tempered if
a court considers it an abuse of right. The pre-contractual disclosure obligations have
considerably helped franchisees to seek the annulment of franchise contracts when they
were misled by franchisors regarding the essential elements of the franchise contract (e.g.
the extent of assistance to be granted by the franchisor or the value of the commercial
formula). In Estonia, the general rules of the Law of Obligations Act applicable to
franchising contracts include general principles, such as general principle of good faith, the
non-mandatory nature of civil law, reasonableness, pre-contractual relations and specific
rules, which must be applied if there are no special regulations in the law or contract. In
Romania, these are the rules in the Civil Code concerning the general discipline of
contracts (Articles 1166-1323) and tort law (Articles 1349-1395). In Spain, franchising,
like any other atypical contract, is subject to civil and commercial general contract law
rules.
6.6. Unfairness control
6.6.1. Overview
All the researched legal systems have certain measures that allow for unfairness control
when it comes to franchising contracts. In Italy, franchising contracts are subject to
unfairness control under both the specific statute and general contract law. The unfairness
control in Estonia, France, Germany, the Netherlands and Spain employs a similar
test of unfairness, though the systems differ in details (when it comes to the scope of
application and the content). Judicial unfairness control is also possible in Romania. While
the notion of good faith is of relevance under several legal systems. It is of major
75
OLG Rostock, decision of 29.06.1995, 1 U 293/94, DB 1995, 2006.
82 PE 578.978
Franchising
importance in Belgium, where no unfairness control per se exists, apart from the
requirement that all agreements must be executed “in good faith”. The Polish legal system
also does not introduce a specific mechanism for unfairness control, and the potential of
controlling the content of a franchising contract exists only through the application of
general clauses, like Article 5 of the Civil Code, according to which one cannot exercise
one's right in a manner contradictory to its social and economic purpose or the principles
of community life (such an act or omission is not deemed an exercise of rights and is not
protected), or Article 3531 which sets limits to exercising the freedom of contracts. These
options are not, however, frequently invoked by courts.
6.6.2. Unfairness control - national solutions
In Italy, franchising contracts are subject to fairness control under both the specific statute
and general contract law. The statute requires the parties to cooperate in light of the
principles of loyalty, correctness and good faith. This provision basically replicates general
contract law, which applies anyway, and prescribes good faith in all phases of the
negotiation and performance of the contract. The fact that the legislation repeats the
general rules has been interpreted as evidence that the judge should interpret these in a
more stringent way than generally. 76 Good faith has been employed, in particular, to assess
the legitimacy of withdrawing from the franchising contract and sanctioning all contract
clauses that might allow the franchisor to push the franchisee out of the market. It is also
important to note that jurisprudence (Trib. Bari, ord. 22 October 2004) considers that the
Italian rules prohibiting the abuse of economic dependency in supply chains (l. 192/1998),
prescribing the invalidity of such abusive contracts through which this dependency
originates, are also theoretically (though in practice not always) applicable to the case of
franchising contracts.
The general rules of the Civil Code on the unfairness of contract terms that have been set
only by a contract party and which are listed in Article 1341 of the Civil Code also apply,
requiring that those clauses must be individually signed, otherwise they have no effect.
In Spain, courts classify franchising contracts as contracts of adhesion where contractual
terms are imposed by the franchisor. 77 Standard terms are regulated by the Law 7/1998
on Standard Terms, of 13 April 1998. In a judgement of the Madrid Audiencia Provincial of
16 October 2007, 78 the court indicated that a clause whereby the franchisee is obliged to
open his premises within a period of six months, whereas permission to open the
franchisee´s premises is to be given by the franchisor, is invalid. Such a clause leaves the
performance of the contract to the discretion of one of the parties, which infringes Article
1265 of the Civil Code, and is also prohibited by the Standard Terms Law. The clauses
imposed against the requirements of good faith and to the detriment of the franchisee,
resulting in an evident and unjustified lack of balance between the parties, must be
declared invalid.
Article 8.2 of the Standard Terms Law states that general clauses which are abusive are
invalid, and it refers explicitly to the clauses defined in Article 10 bis and the First Additional
Disposition of the Consumer Protection Act 26/1984 of 19 July: all clauses that are not
individually negotiated and impose, against the requirements of good faith, an important
imbalance between the contractual rights and obligations of the parties to the detriment
76
De Nova, Leo and Venezia, Il franchising, Milano 2004, 83.
77
SAP Barcelona 16 December 1996, AC 1997\1650; SAP Sevilla 28 January 2002, JUR 2002\47775; SAP Madrid
16 October 2007, Roj: SAP M 13755/2007 - ECLI:ES:APM:2007:13755. In the literature: De la Cuesta Rute
& Valpuesta Gastaminza, Contratos Mercantiles, Tomo I, Barcelona, 2001, p. 362.
78
SAP Madrid 16 October 2007.
PE 578.978 83
of the consumer. Clauses included in the First Additional Disposition of the Consumers law
are in any case abusive (…).
Regarding minimum purchase obligations, the TS, in its sentence of 2 March 2001 (RJ
2001, 2616), indicated that such clauses impose a major obligation on the franchisee, but
they are valid if they are proportionate (control unfair terms). 79
In Estonia, the regulation of standard terms in an LOA (Ch. 2, division 2, Articles 35-47)
applies to all contracts. A contract is deemed to be a standard term if drafted in advance
for use in standard contracts, or which the parties have not negotiated individually for
some other reason, and which the party supplying the term uses with regard to the other
party, who is therefore not able to influence the content of the term (LOA Article 35 para
1). Unfairness control does not apply on individually agreed terms, except for individually
agreed terms excluding a penalty for late payment in B2B agreements and legal entities in
public law (LOA Article 113 para 10). The general rule defining unfair contract term applies
to all contracts. It defines unfairness as if, “taking into account the nature, contents and
manner of entry into the contract, the interests of the parties and other material
circumstances, the term causes unfair harm to the other party, particularly if it causes a
significant imbalance in the parties' rights and obligations arising from the contract to the
detriment of the other party. Unfair harm is presumed if a standard term derogates from
a fundamental principle of law or restricts the rights and obligations arising for the other
party from the nature of the contract such that it becomes questionable as to whether the
purpose of the contract can be achieved. The invalidity of standard terms and relating
circumstances will be assessed as at the date of entering into the contract” (LOA Article 42
para 1).
Estonian law contains a list of unfair terms, which are black in B2C and grey in B2B
contracts. In applying the rules on unfairness, the person who relies on the unfairness of
standard terms specified in LOA Article 42 para 3 in a contract where the other party to
the contract is a person who entered into the contract for the purposes of economic or
professional activities, then the term is presumed to be unfair (LOA Article 47). Businesses
can prove that the term is not unfair on given circumstances. If the term is not visually
identified as a standard term, the other party has to prove that the term was not
negotiated. Taking into account the quite high protection level of the businesses against
unfair contract terms, the probability that franchising contracts will be made public, is rare.
In most cases the Estonian franchisor (businesses) did not want to open the contract terms
or complain about their content.
In France, the unfairness control is provided by the provisions of the Code de Commerce.
One of the most important provisions in this respect is Article L. 442-6 setting out, among
other things, the liability of the franchisor in the case of losses caused by subjecting or
seeking to subject the trading partner to obligations that create a significant imbalance in
the rights and obligations of the parties.
Moreover, if one of the forbidden practices mentioned in this article is applied, proceedings
can be brought before the competent civil or commercial court by any person who provides
proof of a legitimate interest, the Public Prosecutor's Office, the minister responsible for
economic affairs or the president of the Competition Authority. During these proceedings,
the minister responsible for economic affairs and the Public Prosecutor’s Office may ask
the court to which the case is referred to order that the practices mentioned in this article
be ceased. They may also, for all these practices, request a declaration of the invalidity of
the illegal clauses or contracts, and the recovery of any mistaken payments. They may
79
STS 2 March 2001, RJ 2001, 2616.
84 PE 578.978
Franchising
also request the pronouncement of a civil fine of up to 2 million euros. The fine may be
increased to three times the amount of the total sums unduly paid. Compensation may
also be sought for the loss suffered. In any event, it is up to the service provider, producer,
trader, manufacturer or the person listed on the trade register who claims to be discharged,
to provide evidence of the circumstances that resulted in the extinguishment of its
obligation. The court to which the case is referred may order that its decision, or an abstract
thereof, be posted on the court noticeboard or website in the manner it stipulates. It may
also order that the decision, or the abstract thereof, be inserted in the report on the
activities for the financial year drawn up by the company's executives, board of directors
or executive board. The costs will be borne by the sentenced person. The court to which
the case is referred may order the enforcement of its decision under the threat of a
progressive coercive fine. The judge ruling by way of summary proceedings may order the
cessation of the abusive practices or any other temporary measure, if necessary, under
the threat of a progressive coercive fine.
In Germany, the rules that govern the control have a general character (in particular the
law on General Terms and Conditions and the general clauses as included in §§ 138 and
242 BGB). Furthermore, the EU block exemption regulations are relevant for assessing the
unfairness of franchising contracts. The Supreme Court pointed out, in a decision of 2004,
that in the context of the German law on Standard Terms, the current Block Exemption
Regulation may be used when evaluating the disproportionate disadvantage suffered by
the franchisee. 80 In the Netherlands, Article 6:235 of the Civil Code determines that, if a
business has more than fifty employees or is obliged to publish its yearly financial
statements or uses the same standard terms and conditions as its counterparty, then it
may not rely on the protection against unfair contract terms as granted in Articles 6:233
and 6:234 of the Civil Code (general unfairness test and the right to be given a reasonable
opportunity to read the terms and conditions). The Dutch courts in B2B cases may apply
the black and grey list of unfair contract terms by analogy, and not directly. Franchisees,
who fall outside the scope of the above-mentioned protection against unfair contract terms,
may invoke protection against a particular contract term used in given circumstances
contrary to good faith (Article 6:248 par. 2 of the Dutch Civil Code). If successful, this
defence makes the clause inapplicable in a given situation, but does not remove it from
the contract for future cases. In Romania, unfairness judicial control is possible, as in the
case of any other contract, but no particular case law with respect to franchising
agreements is available.
6.7. Typical problems in franchising contracts – an overview

There are problems among the researched legal systems that appear to be typical for
franchising contracts. First of all, in several systems there are characteristic problems
regarding the pre-contractual information duties of the franchisor and the the non-
compliance of the franchisee with its post-contractual non-compete clause is another
common issue. The termination of the franchising contract gives regularly rise to
questions concerning its grounds and consequences. Problems shared between the legal
systems to some degree are the extent of know-how and assistance that the franchisor
has to provide, as well as the definition of franchising. Additional problems characteristic
for those systems only appear in Belgium, Germany and Spain. One legal system that
is exempt from this part of the research is the Estonian one, where it is impossible to
define typical problems appearing since there is no case law concerning franchising
contracts. A similar situation (lack of indication) is also present in Poland, though in this
80
BGH, judgement of 13 July 2004, KZR 29/01.
PE 578.978 85
legal system certain conclusions can be drawn from the publications of the franchising
organisation.
6.7.1. Pre-contractual information duties

The extent of the pre-contractual information duties of the franchisor, and the
consequences of their breach, are problems shared by the Belgian, German, Dutch and
Spanish legal systems.
One of the main problems under German law is the obligation of the franchisor to provide
sufficient information on the profits to be obtained and the economic risks to the franchisee
at the pre-contractual stage. In principle, a party to any contract has to independently
evaluate the advantages and disadvantages of the contract before the conclusion of the
contract. However, when it comes to the franchising contract, the question arises whether
it is necessary to correct the fact that a significant information gap exists between the
franchisor and the franchisee that introduces a disadvantage on the part of the future
franchisee. This in turn, raises the question whether the franchisor should be expected or
even required to inform the franchisee about the profits to be obtained or the economic
risks inherent in the franchising system it offers, or otherwise educate the franchisee, or
at least provide the necessary information and know-how, so that the franchisee can make
a sufficiently substantiated prognosis itself.
On this issue, the Court has ruled that the franchisor is obliged to submit all the appropriate
and relevant information to the franchisee at the pre-contractual stage. The information
must be true and based on facts, in order to enable the franchisee to independently
evaluate how profitable the franchising contract might be for him. However, the franchisor
is not a consultant to enterprises that should have to educate about the general risks of
self-employment (OLG Dusseldorf, judgment of 10.25.2013, Az.: I - 22 U 62/13; OLG
Hamm, judgment of 22.12. 2011 Az.: I-19 U 35/10; OLG München, decision of 20.07.2010,
Az.: 7 U 2834/10). If the franchisor fails to adequately inform the franchisee, a claim may
arise based on, in particular, contributory negligence, and the franchisor cannot defend
himself by claiming that the franchisee did not diligently evaluate the risks
In the Netherlands, providing incorrect or misleading pre-contractual information, for
example, on the expectations of the franchisee’s success rate (forecast), is considered a
breach of the franchisor’s duty of care. In its decision of 25 January 2002,
ECLI:NL:HR:2002:AD7329 (Paalman) the Hoge Raad (Supreme Court) stated that the
franchisor has no obligation to provide the franchisee with a financial forecast for the
franchise. However, if the franchisor decides to do this, then it breaches the duty of care
by providing an incorrect forecast without mentioning this incorrectness to the franchisee.
The duty of care is infringed if the franchisor knew, or should have known, about the
mistakes in the forecast; it does not matter whether the wrong data was introduced into
the forecast by the franchisor or by external advisors, the franchisor remains responsible
for its correctness towards the franchisee.
With regard to the question when the duty of care of the franchisor is infringed, the Dutch
lower courts – courts of first instance – seem to pay less attention to the fact whether the
franchisor knowingly misled the franchisee, but rather to the proper performance of the
special duty of care, i.e. whether the forecast was prepared with due diligence, for example
see Rechtbank (court of first instance) Breda, 14 April 1998,
ECLI:NL:RBBRE:1998:AI9699; Rechtbank (court of first instance) Arnhem, 18 June 1999,
ECLI:NL:RBARN:1999:AI9915; Rechtbank (court of first instance) Dordrecht, 8 August
2007, ECLI:NL:RBDOR:2007:BB2204; Rechtbank (court of first instance) Arnhem, 15 June
2011, ECLI:NL:RBARN:2011:BR0232; Rechtbank (court of first instance) Den Bosch, 29
May 2013, ECLI:NL:RBOBR:2013:CA1429. The Hoge Raad (Supreme Court), in a
86 PE 578.978
Franchising
judgement of 19 February 1993, Prg. 1996/4449 (Renault), stated that even when the
franchisee asks the franchisor to provide him with a (too) positive forecast, e.g. in order
to acquire a bank loan, the franchisor remains liable for providing an incorrect forecast and
thereby breaching the duty of care. The Rechtbank ‘s-Gravenhage (court of first instance),
in its judgement of 19 September 2012 (ECLI:NL:RBSGR:2012:BY1753), repeated that the
franchisor is not obliged to provide a financial forecast estimating the future success of the
franchise to potential franchisees, but that if such information is provided and it turns out
to be incorrect, then it could lead to the avoidance of the contract on the basis of a mistake
being contrary to good faith or even tort (if there was an intention to mislead) (point 4.3).
However, the sole fact that the franchisee does not achieve the success as forecasted does
not mean that the forecast was incorrect and misleading. Such information may not and
should not be considered as a guarantee of a specific success/result. An incorrect forecast
is one based on incorrect data and assumptions, and not based on detailed, solid research.
It could also be expected from a franchisee to thoroughly and critically evaluate the
forecast presented to him (point 4.4). The requirement to critically evaluate information
provided by the franchisor by the franchisee has been criticised by Kolenbrander, since it
leads to practical (how can a franchisee acquire information to allow him to critically assess
the franchisor’s documents?) and emotional (risk of causing a rift and coming over as a
problematic franchisee even before the conclusion of the contract) difficulties. Moreover, a
franchisee has the right to receive advice and support. However, providing additional
financial support as compared with the agreed one may go beyond the franchisor’s duty of
care (point 4.20). This is particularly the case if the requests for additional advice and
support are met with setting up new meetings and action plans.
In earlier judgments, e.g. Rechtbank (court of first instance) Arnhem, 18 February 1993,
Prg. 1996/4455, the courts accepted that the franchisee could assume the correctness of
the forecast presented to him and would not need to research whether its data was correct.
This held true even if the franchisor stated that the forecast was given without any
guarantees as to its correctness, see Rechtbank (court of first instance) Dordrecht, 8
August 2007, LJN BB2204. Moreover, the franchisor may not defend itself for providing the
franchisee with incorrect pre-contractual information by claiming that the franchisee could
have conducted better research itself (Rechtbank (court of first instance) Den Bosch 15
June 2001 (unpublished) (La Venezia)).
The newer trend, as already seen in the above-mentioned judgment of Rechtbank ‘s-
Gravenhage (court of first instance), 19 September 2012, ECLI:NL:RBSGR:2012:BY1753,
seems to be that the franchisee should be observant and critical, and should notice, for
example, that the franchisor has presented a forecast in too positive a light; if necessary,
the franchisee should even conduct some research about the facts it has (or should have)
reasons to doubt, see Rechtbank (court of first instance) Rotterdam, 16 May 2008
(unpublished). In the case of Rechtbank (court of first instance) Haarlem, 3 August 2011
(unpublished), the court went further in stating that, as a businessman, the franchisee has
a duty to investigate whether its business would have a chance of success, an opinion that
was been repeated in a judgment of Rechtbank ‘s-Gravenhage from 2012.
In Belgium, in most of the cases dealing with a lack of assistance by the franchisor, or a
lack of economic viability of the commercial formula, the franchisee is forced to call upon
a lack of pre-contractual information, or misleading pre-contractual information to try to
obtain an annulment, since in general the obligations of the franchisor in that respect are
described in a rather limited way in the franchise contract, so that it is difficult for the
PE 578.978 87
franchisee to demonstrate that the franchisor is in breach of its obligations of assistance,

or of the transfer of the know-how (commercial formula). 81
In addition, the invalidity of an agreement, caused by a violation of the pre-contractual
disclosure obligations, raises issues regarding the consequences of the invalidity sanction.
In general, case law considers that in this case the entrance fee must be repaid, but not
the recurrent franchise fees, since they are normally compensated by services and
assistance provided by the franchisor. Disputes arise regarding the repayment of
investments (e.g. in purchasing the business (fonds de commerce) and investments from
fitting out the points of sale). 82
In Spain, typical problems that are brought to courts by franchisees are those regarding
the franchisor’s non-compliance with the pre-contractual duty to inform.
6.7.2. Post-contractual non-compete clause

Problems with regard to post-contractual non-compete clauses appear in Belgium, the
Netherlands and Spain.
In Spain, certain appeal courts have confirmed the importance of respecting the non-
competition clause (though they do not mention the application of Regulation 330/2010,
because the issue at stake is not the duration of the clause, which is normally agreed for
a year, but the non-compliance of the franchisee to the rule). Examples include: SAP
Valencia 29 December 2014, SAP Castellón de la Plan, 24 April 2014, SAP Barcelona 6
February 2014 or SAP Madrid 11 April 2012: 83 “The inclusion of protecting clauses is usual
in this type of contract, which are based on mutual confidence, such as those of post
contractual non-competition; if the franchisee could continue to carry out the same activity,
in the same place, with no other duty that not using the image of the franchisor, he would
certainly keep his clientele, and in this manner he would prevent the franchisor from
contracting another franchisee in that area, and thus to continue benefitting from his
industry…”
Accordingly, a franchisee who does not respect the post-contractual non-competition
clause must compensate for the damage caused to the franchisor due to unfair competition.
See, for example, SAP Las Palmas 30 September 2011: the franchisee must pay the
amount stated by the criminal clause, because he continued to use the trademark after
the contract had come to an end. However, courts have been strict in fixing the amount of
compensation due, and have not refrained from refusing compensation when the franchisor
does not prove damage or does not prove a causal link between the unfair competition and
the damage that has to be compensated. In a decision of the Granada Audiencia Provincial
of 2 July 2007, the AP concluded that, even though the franchisee had indeed continued
the performance after the contract had terminated, it did not have to compensate because
the compensation the franchisor was asking for did not correspond to the damage suffered
81
Commercial court Brussel 15 March 1989, not published, A.R. 8733/87; Court of Appeal Antwerp 24 May
2004, not published, 1995/AR/1934. Commercial Court Brussels 11 December 1998, not published, R.G.
054/97 Court of Appeal Liège 4 June 1991, R.R.D. 1992, 241, comment C. MATRAY; Court of appeal Brussels
2 June 2003, not published, 1997/AR/2791.
82
Commercial Court Hasselt 3 December 2010, R.G.D.C., 2012, pp. 328 to 333, comment Danis, F., pp. 333 to
335 confirmed by Court of Appeal Antwerp 22 December 2011, R.W. 2012, 187. Commercial Court Antwerp
19 December 2011, R.W.2012-13, 194; Court of Appeal Antwerp 2 January 2012, not published.
2010/AR/2280; Commercial Court Luik 14 May 2009, D.A.O.R. 2009, comment S. CLAEYS “Niet naleven van
de Wet Precontractuele Informatie kan zuur opbreken, 388.
83 SAP Valencia 29 December 2014, Roj: SAP V 5978/2014 ECLI:ES:APV:2014:5978; SAP Castellón de la Plana
24 April 2014, Roj: SAP CS 920/2014 - ECLI:ES:APCS:2014:920; SAP Barcelona 6 February 2014, EDJ
2014/29476 or SAP Madrid 11 April 2012, EDJ 2012/84546.
88 PE 578.978
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because of the franchisee´s unfair competition. The same argumentation is followed in the
sentence of the Madrid Audiencia Provincial of 5 June 2006. 84
In the Netherlands, franchisees contest the validity of the non-competition agreement
after the termination of the franchise contract. The non-competition clause is regulated in
Dutch law for employment contracts in Article 7:653 of the Civil Code, though this provision
is not applicable (also by analogy) to other contracts such as a franchise contract, which
means that it is up to the courts to decide whether a given non-competition clause is valid
or could be infringing the general provisions of contract law (e.g. because it is contrary to
good faith to invoke it on the basis of Article 6:248 par. 2 of the Civil Code). The courts
are reluctant to invoke general protection through the principles of good faith unless the
circumstances of the case are dire. It is generally accepted that the franchisor may protect
its interests by setting a non-competition clause, limiting the risk that the know-how it
gives to the franchisee would be used by its competitors, and that the new franchisee
would need to compete against the old one in the same area (Gerechtshof (Court of Appeal)
Den Bosch, 21 August 2012, ECLI:NL:GHSHE:2012:BX5661).
The non-competition clause limiting franchisees’ activities after the termination of the
contract in the area of the whole Netherlands is not prohibited and not immediately
considered to be contrary to good faith – see e.g. Rechtbank (court of first instance) Breda,
18 April 2012, ECLI:NL:RBBRE:2012:BW4396; Gerechtshof (Court of Appeal) Den Bosch,
21 August 2012, ECLI:NL:GHSHE:2012:BX5661; Rechtbank (court of first instance)
Arnhem, 5 October 2009, ECLI:NL:RBARN:2009:BK1781. For example, in the last case it
was decided that such a wide geographical non-competition clause could be upheld (and
was not contrary to good faith) since the franchisee had already been active in the same
market for 10 years and had performed at least two franchise contracts.
A franchisee’s argument that the non-competition clause should not be upheld because it
limits his opportunity to earn a living during a certain period of time is not decisive,
especially if the franchisee knowingly accepted this clause in the contract, see e.g.
Rechtbank (court of first instance) Breda, 18 April 2012, ECLI:NL:RBBRE:2012:BW4396.
Recently, Rechtbank (court of first instance) den Haag (KG), 16 July 2014,
ECLI:NL:RBDHA:2014:8667 supported this line of argument, i.e. even if the franchisee
becomes insolvent as a result of enforcing the non-competition clause, it was a risk
accepted willingly when concluding the contract. In this last judgement, a confusing
condition to the enforcement of a non-competition clause was added, namely that the non-
competition clause could only be enforced if the franchisor is further exploiting the
franchise, i.e. when the new franchisee starts his activities in this region.
If the termination of the franchise contract happens prematurely due to circumstances
attributable to the franchisor, the non-competition clause may be invalidated – see e.g.
Rechtbank (court of first instance) Utrecht, 23 December 2011,
ECLI:NL:RBUTR:2011:BV3058; Rechtbank (court of first instance) Utrecht, 24 April 2013,
ECLI:NL:RBUTR:2013:BZ9503. Such an attributable situation may be providing the
franchisee with incorrect forecast about the franchise prior to the conclusion of the
contract, see Gerechtshof (Court of Appeal) Den Bosch, 26 November 1996, Prg.
1997/4675. If the franchisee terminates the contract prematurely, the non-competition
clause is likely to be held in place, see Rechtbank (court of first instance) Maastricht, 17
November 2011, ECLI:NL:RBMAA:2011:BU5153. The same applies if the circumstances
that could make the enforcement of the non-competition clause contrary to good faith are
attributable to the franchisee, e.g. if the business premises are lease for one-year longer
84
SAP Granada 2 July 2007, Roj: SAP GR 1241/2007 - ECLI:ES:APGR:2007:1241; and SAP Madrid 5 June 2006,
IdCendoj: 28079370102006100346.
PE 578.978 89
than the franchise contract, in which case the rent could not be paid if the franchisee is
prohibited from further working in the same market. The courts consider it a good business
practice for the franchisee to think about the consequences of the terminating the franchise
contract beforehand, see Rechtbank (court of first instance) Den Haag, 17 February 2011,
KG-ZA 10-1536, or if the franchisee has not accumulated sufficient funds during the period
of the franchise to wait out the non-competition clause’s timeframe, see Rechtbank (court
of first instance) Maastricht, 17 November 2011, ECLI:NL:RBMAA:2011:BU5153.
If the non-competition clause could be seen as a standard contract term, then it could also
be tested for its unfairness under Article 6:233 para 1a of the Civil Code. This, however, is
not common in practice. An ambiguous non-competition clause should be interpreted by
the courts restrictively, in general in favour of the franchisee, see e.g. Rechtbank (court of
first instance) Arnhem, 9 November 2005, ECLI:NL:RBARN:2005:AU9750.
In Belgium, post contractual non-compete clauses are one of several areas that cause
problems in practice.
6.7.3. Termination of the franchising agreement

In Belgium, Italy and Romania, difficulties arise when it comes to the grounds and
consequences of terminating franchising agreements.
In Italy, the most frequent issue dealt with in case law concerns the termination of
franchising contracts. The regulation offered by l. 129/2004 is not exhaustive on
termination, and a considerable amount of case law has emerged dealing with this issue.
Litigation in this regard might arise when the franchisee realises it is not making the profit
that was initially estimated, and therefore tries to invalidate the contract, or, on the
contrary, the franchisee wants to continue a contractual relationship that the franchisor
does not intend to renew, so the franchisee considers the reasons of the franchisor as
unfair.
In Belgium, the termination of a franchise agreement may entitle the franchisee to a
goodwill indemnity. Given the long tradition in Belgium of granting exclusive distributor
generous goodwill indemnities upon termination, and given the goodwill indemnity granted
to agents (chapter 1 Book X Code of Economic Law), many franchisees, supported by
several scholars, have sought legal grounds to claim goodwill indemnities for franchisees,
either by applying the Statute of 1961 as explained above, or by arguing an abuse of the
right to terminate by the franchisor, for which a compensation is due. The majority of the
Belgian scholars rightfully reject the use of the “action de in rem verso”. The fact that the
franchisor’s goodwill increases in value after the termination of the franchise agreement is
not without cause, since the cause lies in the franchise agreement itself.
In Romania, the termination of a contract has also been the subject of litigation, as in the
following case: The claimant, E Group SRL, submitted a request to Bucharest Tribunal to
oblige the defendant, MJU SRL, to comply with the obligations it undertook as franchisee
by signing a franchising contract and, if it refused to, to compel it to pay the amount of
112,894 lei (approx. €25,000) for each day of delay, as damages. The franchising contract
concerned a coffee shop, at which the franchisor accused the franchisee of not displaying
the brand of the franchisor and of selling products other than the ones agreed on in the
franchising contract. According to the defendant the claimant’s request had no legal
grounds; he also requested the termination of the franchising contract due to the fact that
the claimant had failed to provide the necessary information for operating the franchise,
as well as the assistance and training in conducting the franchised business. The Bucharest
Court of Appeal (Decision No 131/2010 85) ruled against the claimant. It said that the
85
http://legeaz.net/spete-drept-comercial-jurindex/obligatia-de-a-face-131-2010-4gm.
90 PE 578.978
Franchising
franchising contract has a mutually binding character, so unless different deadlines are
stated in the contract for the obligations of the two parties, they are bound to
simultaneously perform their obligations. The court noted that the franchisor did not
comply with its contractual obligations and so it is not entitled to ask for the termination
of the contract. The Court of Appeal also held that, based on the mutually binding character
of the franchise contract, the first instance was right not to order the defendant to perform
its obligations, since the claimant had not performed its own.
6.7.4. The duty to provide know-how and assistance

In Belgium, Romania and Spain, the typical problems brought up to courts by
franchisees concern the franchisor’s obligation to provide know-how and assistance.
In Spain, the case law on know-how typically concerns two types of claims: claims based
on the non-compliance of the know-how with the necessary requirements that would allow
the franchisee to successfully operate the business, 86 and claims based on non-compliance
with the franchisor’s obligation to transfer all the know-how agreed in the contract. 87 The
courts do not generally invalidate contracts based on the non-existence of know-how,
because they give more weight to the role of the franchisee as a professional who should
be aware of the business method that it is buying. Thus, the attitude and the aptitude of
the franchisee are regarded by the courts as an important factor excluding the liability of
the franchisor. This is also the case regarding the obligation to provide pre-contractual
information. Thus, the Madrid Audiencia Provincial indicated, in a sentence of 11 July 2008,
that the claim of the franchisee that the know-how had no added value should be
disregarded, because the franchisee should have analysed the characteristics of the
business method before the contract was concluded. This sentence is in line with a previous
decision of the same appeal court of 27 July 2007, concerning a claim to invalidate a
franchise contract based on the non-existence of the know-how. The court did not grant
the annulment of the contract because the know-how indeed existed. However, the court
granted the franchisee’s subsidiary claim for termination, because the franchisor did not
comply with its obligation to communicate the know-how (delivery manuals). In the SAP
Baleares of 26 June 2005, the franchisee claimed that there had been a previous non-
performance of the franchisor on the obligation to communicate the know-how as agreed.
The court responded that the franchisee had never even required compliance by the
franchisor. 88 In addition, the non-performance of the obligation to provide assistance is of
relevance. The TS´s decision of 4 March 1998 is one of the few judgments available from
the TS concerning a claim for the non-performance of the obligation to assist. The court in
this decision emphasised the importance of the obligation to assist in franchising
agreements as a means to allow the franchisee to achieve the expected good economic
results. 89 There have been considerably more cases concerning assistance heard by the
Audiencias Provinciales. Pursuant to some of these, assistance is to be considered as a
86
SAP Valencia 21 May 1993, AC 1993\1024; SAP Zaragoza 16 September 2003, AC 2003\1507 and 17
November 2003, AC 2003\2350; SAP Barcelona 24 March 2004, JUR 2004\122633.
87
SAP Valencia 28 April 2000, AC 2000\1193; SAP Zaragoza 25 July 2000, JUR 2000\273349 and SAP Sevilla
28 January 2002, JUR 2002\47775.
88
SAP Madrid 11 July 2008, Roj: SAP M 12103/2008 - ECLI:ES:APM:2008:12103; SAP Madrid 27 July 2007,
Roj: SAP M 11747/2007 – ECLI:ES:APM:2007:11747; SAP Baleares 20 June 2005, SAP IB 851/2005 -
ECLI:ES:APIB:2005:851.
89
STS 4 March 1997, RJ 1997\1642: this case concerned a franchise for the operation of a bakery. The
franchisee terminated the contract because the franchisor had not provided it with the agreed assistance. The
franchisee was able to prove that it had asked the franchisee several times to provide the assistance agreed,
but to no avail. It argued that this gave it the right to terminate and that the franchisor was not entitled to
invoke Articles 1124 and 1101 of the Civil Code because it had not performed its obligations.
PE 578.978 91
means to communicate the know-how. 90 The Spanish courts have given a restrictive
interpretation to the contents of the generic obligation to assist. In some cases, if “any”
assistance had been provided, the franchisor was considered to have performed. 91 In other
cases, the courts have held that the particular obligation that, according to the franchisee,
had not been performed was not due because it was not explicitly agreed upon in the
contract. 92 As is the case of the obligations on pre-contractual information and know-how,
the courts place the burden of proof on the franchisee. For example, in SAP Madrid of 11
July 2008, the court indicated that the franchisee had not proven that it was not assisted
(this is again a case of “diabolic proof” because the franchisee is required to prove that it
was not assisted, whereas it is more logical and realistic to ask for proof that the assistance
was provided). 93
In Romania, a lawsuit brought by the company D SRL against the Romanian Agency of
Payments and Intervention for Agriculture (“APIA”) concerned questions about what
exactly is the notion of “know-how”, and whether it includes not only the knowledge to be
transmitted to the franchisee, but also the necessary authorisations, where required by
the law for the performance of a specific activity. The claimant requested the annulment
of a document issued by APIA, through which the claimant was refused a grant it claimed
it was entitled to. APIA justified its refusal on the ground that the claimant was not in
possession of a veterinary health authorisation for raising chickens. The claimant defended
itself by saying that it was authorised to function through an authorisation given by the
competent authorities to the company B3000 S.A, because there was a franchising contract
between the two parties, in which the claimant acted as a franchisee. Alba Iulia Court of
Appel, in its decision No 103 from 30 January 2008, 94 stated that, according to Article 1
letter a of the Franchising Law, the franchising contract transmits from the franchisor to
the franchisee the right to conduct and develop its business. Therefore, the franchising
contract covers all the necessary authorisations to allow the franchisee to legally conduct
its activity from the moment of concluding the franchise contract. The decision of the court
is not immune to criticism because it did not discriminate between the content of the
properly called franchising contract and the contractual clause that transferred the title the
former had over the place where chickens were raised from the franchisor to the
franchisee. So the conclusion reached by the Court of Appeal, namely that the particular
90
SAP Valencia 21 May 1993, AC 1993\1024; SAP Valencia 28 April 2000, AC 2000\1193; SAP Zaragoza 25 July
2000, JUR 2000\273349; SAP Barcelona 31 March 2001, JUR 2001\215218; SAP Sevilla 28 January 2002,
JUR 2002\47775.
91
SAP Barcelona 10 May 2000, JUR 2000\211264: this case concerned the operation of a business that provided
a certain therapy to help people to stop smoking. The franchisee claimed that no training had been provided.
The court indicated that the contract was not clear concerning the assistance that was to be provided, but
that it was clear that the therapy consisted of the electric stimulation of the ears, face and hands. It had been
proven that the franchisor had provided certain courses, and on this basis the court held that the assistance
had been sufficient; SAP Teruel 24 October 2001, AC 2001\1931: here, the franchisee sued the franchisor for
non-performance of its obligations, including a lack of assistance. The Audiencia Provincial concluded that it
had been proven that the franchisor had provided “some” assistance and that the franchisee must be
presumed to have agreed with the assistance so provided as there was no evidence that it had asked for
training courses or information that was not provided.
92
SAP Sevilla, 28 January 2002, JUR 2002\47775: in this case, the franchisee claimed that the assistance given
was not sufficient. The Audiencia Provincial analysed the literal contents of the contract and indicated that it
did not contain an obligation to provide an exploitation account to indicate the costs and income that would
be adequate for the optimal operation of the business, but that the franchisor only undertook an obligation to
assist the franchisee in evaluating the conditions of the local market and to help process the provisional
results. The court considered that the franchisor had done enough to comply with its contractual obligation
by making available staff and help centre facilities to deal with requests from franchisees.
93
SAP Madrid 11 July 2008, Roj: SAP M 12103/2008 - ECLI:ES:APM:2008:12103.
94
http://legeaz.net/spete-contencios-jurindex/anulare-act-administrativ-fiscal-103-2008-6b4. A similar case
was adjudicated by Constanta Court of Appeal through Decision 557/2002 (online
http://portal.just.ro/118/Lists/ Jurisprudenta/DispForm.aspx?ID=50).
92 PE 578.978
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know-how on the conduct of the business includes any potential authorisations to perform
the business, seems deprived of basis in the actual text of the law.
In Belgium, in the case of a lack of assistance by the franchisor, the franchisee is often
forced to call upon a lack of pre-contractual information to try to obtain an annulment (see
above).
6.7.5. Definition and interpretation of franchising contracts

The Definition and Interpretation of franchising contracts is a common issue in France,
the Netherlands and Spain.
As under French law, franchising contract is an innominate contract, there is a risk that
the parties will choose to describe as franchise a contract that does not fulfil the definition
of real franchising agreements, as defined, for example, in the aforementioned judgement
of the Cour d’appel de Toulouse. In this case, the contract may be reclassified in the course
of the court proceedings. Accordingly, when the obligations imposed by the franchisor to
the franchisee are too heavy, there is a risk of the franchising contract being reclassified
into an employment contract. Therefore, the franchisor should avoid demanding specific
opening hours or wearing specified clothing, as well as controlling the bank accounts of the
franchisee. In the event of bankruptcy proceedings, the franchisor could even be
considered as a de facto manager of the franchise company.
Since the franchise contract is not specified in Dutch contract law, there is no definition
thereof and Dutch courts need to establish themselves whether a particular contract
between the parties in the dispute could qualify as a franchise contract. For the recognition
of the franchise contract, the court finds it necessary that the parties used a “shop
formula”, an obligation to conduct business according to a particular style, that the
franchisor gives the franchisee (financial) support and that the franchisee pays monetary
compensation to participate in the formula to the franchisor (Rechtbank Breda (court of
first instance), 21 December 2011, ECLI:NL:RBBRE:2011:BU9904).
In Spain, three landmark decisions of the TS make up the leading case law regarding
franchising contracts. In these sentences, the Spanish Supreme Court defines franchising
and determines its legal nature and characteristic elements. These are the decisions of 27
September 1996, 4 March 1997 and 30 April 1998. 95 These decisions keep recurring in
other sentences of the TS, and in many of the decisions taken by the Audiencias
Provinciales. 96
6.8. Country specific problems
6.8.1. Germany: status of the franchisee before concluding the contract, contract
revocation
• Franchisee treated as an enterprise even before the conclusion of the

contract.
According to the jurisprudence of the BGH 97 (the German Supreme Court), the franchisee
is an enterprise even before it actually concludes the contract. As a result, the AGB-law is
in principle applicable. This is certainly the case when it is a franchise contract provided by
95
STS 27 September 1996, RJ 1996\6646; 4 March 1997, RJ 1997\1642 and 30 April 1998, RJ 1998\3456.
96
See for example STS 21 October 2005, Roj: STS 6410/2005 – ECLI:ES:TS:2005:6410; and 9 March 2009,
Roj: STS 1129/2009 - ECLI:ES:TS:2009:1129; SAP Huesca 20 November 1998, AC 1998\2476; SAP
Barcelona 9 September 2002, AC 2002\1728; SAP Teruel 24 October 2001, AC 2001\1931.
97
BGH (German Supreme Court), Decision of 24.02.2005, III ZB 36/04. This decision was not made in the
context of a franchise contract, however, it contains the general principle that a business founder is to be
seen as an enterprise and not as consumer.
PE 578.978 93
the franchisor as a standard contract, which usually is the case. However, because the
franchising contract is a B2B contract, only a limited review of the individual contract terms
is possible, on the basis of § 307 para. 1 BGB, as follows from § 310 para. 1 BGB. Here, a
problem arises whether the franchisee, which is most frequently a start-up, will be
adequately protected by the less intensive control of unfairness. Considering that the
protection should be adequate, it can be argued that those who want to become self-
employed, must be, to a certain extent, capable of taking the risk, which means also to be
able to evaluate the contract and the risks that follow it. For this reason, the franchisor is
burdened with more intensive pre-contractual disclosure obligations, and there is no need
on the part of the franchisee to use the full protection of the AGB-law. [move to unfairness
control]
• Revocation of the franchise contract
The franchisee may, under certain circumstances, have the right to withdraw from the
franchising contract. In principle, a franchisee could have the right to revoke a contract
only if it was classified as a consumer, which the German Supreme Court explicitly denied
in 2005 (BGH, decision of 24.02.2005, Az. III ZB 36/04). Therefore, the franchisee has no
withdrawal right under consumer protection law. It is, however, conceivable to grant the
franchisee a right to withdraw pursuant to § 512 BGB, as this provision goes beyond the
provisions of the Consumer Rights Directive and grants anyone who falls within its scope
further reaching rights, i.e. the right to withdraw. Full harmonisation causes no problems
in this regard, as “business founders” (the persons § 512 applies to) fall outside the scope
of the directive. According to the prevailing view, § 512 BGB does not broaden the
definition of consumer, but extends the scope of the §§ 491-511 BGB. Thus, § 512 BGB
takes on great practical relevance when it comes to franchising contracts. According to the
case law, § 512 BGB can even be applied to grant the franchisee a right to revoke after
the franchising contract has been concluded and the franchisee/business founder then
concludes a contract for the delivery of goods (BGHZ 97, 351, 356 f.; BGHZ 112, 288;
BGHZ 128, 156). What must be considered, however, is that § 512 BGB only applies to
contracts with a maximum value of € 75,000; beyond this amount the right to withdraw is
excluded for the lack of worthiness of protection of the franchisee. Nonetheless, the
possibility of reducing the scope of § 512 BGB on teleological grounds is being considered,
so that it can perform its main purpose – the protection of business founders – completely.
6.8.2. Spain: lack of payment by franchisees and IPR
In Spain, one problem that appears frequently is the non-performance of the payment
obligation on the part of the franchisee (for example: STS 27 February 2012, SAP Albacete
18 October 2013, SAP Baleares 20 June 2005 and SAP Madrid 23 April 2007 and 11 July
2008. 98 Additionally, the number of cases suggests that there is a problem relating to
holding a valid title allowing the franchisor to license the intellectual property rights. In
such cases, franchisees claim the invalidity of the contract due to the non-registration of
the trademark by the franchisor. The position of the courts on the question as to whether
registration is a requirement for the validity of the contract is unclear. In some decisions
this was considered to be the case, whilst in others it was not. Whenever the registration
was considered as a validity requirement, the lack of it led to the annulment of the contract:
SAP Zaragoza 23 February 1999 and SAP Asturias 22 January 2001. 99 Other courts,
98
STS 27 February 2012, Roj: STS 1327/2012 ECLI:ES:TS:2012:1327; SAP Albacete 18 October 2013, Roj:
SAP AB 939/2013 - ECLI:ES:APAB:2013:939; SAP Baleares 20 June 2005, Roj: SAP IB 851/2005 -
ECLI:ES:APIB:2005:851; SAP Madrid 23 April 2007, Roj: SAP M 5478/2007 - ECLI:ES:APM:2007:5478; SAP
Madrid 11 July 2008, Roj: SAP M 12103/2008 - ECLI:ES:APM:2008:12103.
99
SAP Zaragoza 23 February 1999, ARP 1999\447 and SAP Asturias 22 January 2001, AC 2001\959.
94 PE 578.978
Franchising
however, investigated whether the franchisee was able to effectively use the intellectual
property rights: SAP Barcelona 10 May 2000; SAP Zaragoza 18 July 2000 and 16
September 2003; SAP Barcelona 23 January 2001 and 31 March 2001, and more recently
SAP Granada of 2 July 2007. 100 In proceedings before the Granada Audiencia Provincial, a
franchisee claimed the annulment of a contract because of “dolo causal” on the part of the
franchisor. The franchisee argued that the franchisor entered the contract by giving
defective consent, because the IPR were not owned by the franchisor. The AP indicated
that, although the trademark is not owned by the franchisor, that did not prevent the
franchisee from using it. According to the court, another result would have been reached
if the claim had been grounded on the impossibility for the franchisor to cede the IPR.
The approach of Spanish courts is surprising if we take into account the fact that the RD
201/2010 requires the franchisor to provide the franchisee with proof of legal ownership
or proof of the right to license the Intellectual Property Rights.
6.8.3. Belgium: e-commerce
In Belgium, an area that raises problems relates to e-commerce. The question arises
whether a franchisee can prohibit the use of its trademarks or other intellectual property
rights on the website of a franchisee? There is no decisive case law up until now. The Pierre
Fabre case law is followed, and would most likely also be applied to franchise agreements.
How can a franchisor set up an e-commerce platform in which franchisees participate,
without limiting the rights of the franchisees to freely set their resale prices online (national
e-commerce platforms generally want to apply a uniform pricing policy, but can, in
principle, not impose prices for participating franchisees)?
6.9. Reform plans - overview

In the majority of the researched legal systems there have been discussions on whether
franchising should be addressed in legislation. Specific reform plans exist in the
Netherlands, where the rising importance of franchising is seen as a potential argument
to introduce new legislation. In the ongoing process to strengthen self-regulation in the
franchising sector, a new Dutch Franchising Code, has been published very recently. In
France, a draft modification of the contract law provides certain provisions relevant for
the protection of franchisees. In Italy, while some franchising associations have drafted
suggestions for a possible reform, there are no fixed proposals yet. In Spain, two main
attempts to introduce franchising-specific provisions in the area of private law have been
made, though both failed. The Belgian Ministry of the Economy has asked the Franchise
Federation several questions concerning possible changes of law. In Germany, is not clear
whether considerations to achieve a higher level of protection for the franchisee will be
continued or taken up again in the current legislative period. In Poland, there were
suggestions that franchising should be dealt with as a nominative contract in the new
(planned) Civil Code, but nothing has come out of this so far. In Estonia and Romania
there are no reform plans.
6.9.1. The Netherlands

When it comes to the Netherlands, Jan-Willem Kolenbrander, a lawyer with De Clercq
Advaocten Notarissen in Leiden who specialises in franchising, published an article in 2013
in one of the main Dutch legal journals (Nederlands Juristenblad, vol. 39), in which he
100
SAP Barcelona 10 May 2000, JUR 2000\211264; SAP Zaragoza 18 July 2000, JUR 2000\272692 and 16
September 2003, AC 2003\1507; SAP Barcelona, 23 January 2001, JUR 2004\54712 and 31 March 2001, JUR
2001\215218 and more recently the SAP Granada, 2 July 2007, Roj: SAP GR 1241/2007 -
ECLI:ES:APGR:2007:1241;
PE 578.978 95
argued for the introduction of a franchising contract as one of the nominate contracts to
Dutch contract law. The popularity of franchising in the Netherlands grew from 360
franchise formulas being recognised in 1997, to 769 formulas in 2012, which could present
an argument for the introduction of a new regulation. The author calls for the introduction
of a pre-contractual information duty (just like in French and Belgian law) and a specific
duty of care for the franchisor, including with regard to the duty to (financially) support
the franchise. Additionally, he argues for the introduction of the mandatory written form
of the franchise contract to guarantee a legal certainty with regards to the parties’ rights
and obligations in this long-term contractual relationship. Moreover, the new law should
establish the court of the place of business of the franchisee as having jurisdiction over
any disputes arising from the franchise contract, which would then prevail over the choice-
of-court term in a franchise contract. To complete the protection of the franchisees in
cross-border contracts, who mostly conduct business in the Netherlands, the parliament
could declare Dutch law as applicable to them, regardless of the choice of law clause in the
franchise contract.
Very recently (on 17 February 2016) a new self regulation was adopted in the Netherland
(on this: See Chapter 2, point 2.6.3).
6.9.2. France
In France, the reform plans do not include formulating specific provisions relating to
franchising contracts. Article 8 of the Law 2015-177 of 16 February 2015 on the
modernisation and simplification of law and procedures in the areas of justice and home
affairs provided the Government with a task to modify the contract law.
The draft of the new law provides the following provisions relevant for the protection of
franchisees:
• Article 1168: Any clause that deprives an essential obligation of the debtor of its
substance is deemed unwritten.
• Article 1169: A clause that creates a significant imbalance between the rights and
obligations of parties to the contract can be eliminated by the judge at the request
of the party at the expense of which it is stipulated. The appreciation of a significant
imbalance relates neither to the definition of the object of the contract nor to the
adequacy of the price" (this rule is new).
• Article 1163: In framework contracts and contracts involving periodical
performance, it can be agreed that the price of the service will be fixed unilaterally
by one party, with the burden of proof concerning the amount in the event of a
dispute. In the event of an abuse in pricing, the judge may, upon a motion, revise
the price given particular consideration, use market prices or legitimate
expectations of the parties, award damages, and if necessary terminate the
contract.
• Article 1196: containing a rebus sic stantibus clause.
6.9.3. Italy
In Italy, certain franchising associations (AZ franchising, IREF Italia – Federazione delle
reti europee di partenariato e franchising, ANCommercialisti) consider that the current
legislation is not sufficient and have therefore drafted several suggestions for a possible
reform, which have been presented to the government. They included the promotion of
transparency and knowledge of the economic profile of franchisors through registration
requirements. Members of the Italian Parliament have taken these remarks in
consideration, saying that the current statute works well but needs to be updated. More
concrete legislative proposals are nonetheless lacking and do not appear to be a priority
96 PE 578.978
Franchising
on the political agenda. 101 The legislative intervention in the franchising area has so far
been less about the regulation of the contract, and more concerned with the business
activity. There are, occasionally, secondary interventions of the government creating
financial incentives for the constitution of new franchising activities, especially in certain
economically disadvantaged areas of Italy.
6.9.4. Spain
In Spain, two main attempts have been made to provide distribution contracts, including
franchising, with specific private law legislation. These are: the Government Draft of law
on distribution contracts of 2011 102 and the Draft of a new Commercial Code drawn up by
the Commercial Law Section of the General Codification Commission of the Ministry of
Justice (presented to the Government in May 2014), including a proposal for regulation on
distribution contracts. 103 Both attempts have failed. The Government’s proposal was
submitted for publication and discussion in Parliament in June 2011, but it was never
discussed. The draft Commercial Code was approved by the Government in May 2014, and
has started the Parliamentary process, but the part on distribution contracts eventually
disappeared from the text.
6.9.5. Belgium
In Belgium, the Ministry of the Economy has recently asked the Franchise Federation
several questions concerning the possible changes of law:
1. Whether it should be necessary to provide for a specific obligation of pre-contractual
disclosure (going beyond the obligations regarding pre-contractual information based
on general contract law)? The legislature is therefore considering abolishing the specific
Statute on pre-contractual information, although this does not seem to be very likely.
2. The fact that the scope of the Statute on pre-contractual information is much broader
than for franchise agreements has given rise to many disputes. The Ministry of the
Economy therefore inquired about limiting the scope of the Statute on Pre-contractual
information to SMEs. This would mean that a larger company (acting, for example, as
a master franchisee or serial franchisee), would not be entitled to pre-contractual
information.
3. Whether a cooling off period of one month between the delivery of the disclosure
document and the signing of the agreement is useful and whether the harsh invalidity
sanction is appropriate?
4. Is there a need for legislative intervention in other aspects of the franchise agreement
(such as termination, goodwill indemnity etc.)?
5. Should the scope of Chapter 3 of Book X of the Code of Economic Law, of the old Statute
of 27 July 1961 regarding the unilateral termination of exclusive distribution
agreements of indefinite duration (as mentioned before), be broadened to include
franchise agreements.
6.9.6. Germany
In Germany, there have been discussions as to whether the law should deal with the pre-
contractual disclosure obligations of the franchisor, in order to achieve a higher level of
101
http://www.iref-italia.it/speciale-iniziativa-legislativa-per-una-riforma-del-settore/
102
Proyecto de Ley de Contratos de Distribución, Boletín Oficial de las Cortes Generales, 29 de junio de 2011,
núm 138-1.
103
Propuesta de Código Mercantil elaborada por la Sección de Derecho Mercantil de la Comisión General de
Codificación, Ministerio de Justicia, Madrid, 2013, pp. 695-698.
PE 578.978 97
franchisee’s protection and to prevent the situation where the franchisee enters into an
agreement based on misconceptions. It is not clear whether these considerations will be
continued or taken up again in the current legislative period. The reasons why the project
was dropped are not apparent. However, the courts have already developed a nuanced
approach to prevent problems in this area. 104 Recent years have brought developments in
the case law in the direction of increasing the scope of liability of the franchisee. The
franchisee is not to be protected against every risk that may be associated with the
conclusion of a franchise contract. 105 The courts tend to stress the entrepreneurial freedom
of the franchisee. Recent trends, however, have seen the protection of the franchisee
increase again, and the higher demands concerning the disclosure obligations of the
franchisor, established by the courts, reflect this. 106
104
OLG München, judgement of 16.09.1993, NJW 1994, 667; judgement of 17.11.1996, NJW-RR 1997, 812,
judgement of 24.04.2001, NJW 2001, 1759; judgement of 01.08.2002, BB 2003,443; judgement of
27.07.2006. BB 2007,14.
105
Fort he change in the case law see for example: OLG Schleswig, NJW-RR 2009, 65; OLG Brandenburg, NJW-
RR 2006, 51; OLG Düsseldorf, judgement of 30.06.2004, U Kart. 40/02.
106
On this issue: OLG Düsseldorf, ZVertriebsR 2014, 46.
98 PE 578.978
Franchising
NATIONAL PRIVATE LAW APPLICABLE TO

FRANCHISING – SPECIFIC ISSUES
KEY FINDINGS
• Some of the specific issues raised by the IMCO do appear in practice, at a national
level. They show certain similarities, i.e. they often refer to the same area of the
franchising practice in several member states, which suggests certain patterns.
• The most striking differences among the researched legal systems stem from
whether or not there is specific franchising legislation in the area, and whether the
courts can evaluate the unfair character of contract terms in the franchising
contract.
• The cross-border dimension of franchising does not seem to be causing particular
problems at a national level.
7.1. Introduction
The IMCO has posed several very specific questions concerning contractual practice in the
franchising area. A clear answer (whether or not specific problem is present in a given legal
system) could be found only in limited number of cases (included in the tables). In the
remaining cases, legislative or jurisprudence background characteristic for the given legal
system is presented (where available). If legal system contains a rule that directly
addresses the problem at stake, it is interpreted as if the system has encountered the
problem in practice.
7.2. Pre-contractual issues
7.2.1. Overview
Limiting access to Oral Reflection time From

information information
Incorrect employee
Country divergent
forecasts
from the to
contract franchisee
Cooling off period

Belgium 
Info required in
before concluding

writing
the contract
Estonia
Cooling off period

France  before concluding
the contract
Germany 
PE 578.978 99
 Cooling off period

Info required in
Italy  before concluding
writing
the contract
The 

Netherlands
Poland
Info required in
Romania 
writing
Spain 
7.2.2. Providing misleading or incorrect information through forecasts offered by the

franchiser to interested franchisees regarding profit margins, turnover and
growth
In France, Germany, Italy, the Netherlands, Romania and Spain, the franchisor has
to provide all the appropriate and relevant information to the franchisee at the pre-
contractual stage. What this information must comprise of differs among the researched
legal systems, though there seems to be no legal obligation of the franchisor to provide
forecasts regarding profit margins, turnover and growth.
Incorrect or misleading information provided by the franchisor before the contract
conclusion leads to sanctions in all the legal systems. Spanish law offers specific solutions
to cases where the franchisor provides information on sales forecasts voluntarily, whereby
it is not automatically liable if the estimated profits are not achieved by the franchisee. In
Italy, this behaviour is sanctioned according to both general contract law and the statute,
with the annulment of the contract and the payment of damages incurred by the
franchisee. Sanctions in Belgium, Germany, the Netherlands, Poland and Romania
are based on general principles of contract law. In Estonia, misleading or incorrect
information may also lead to a claim for damages on the bases of pre-contractual liability
(Article 14 of the LOA), though there is no information about these in the franchising
context.
The provision of incomplete or misleading information is a recurrent issue in Spanish
franchising practice and its importance has not gone unnoticed by the Spanish legislator
and jurisprudence. Parties have no obligation under Spanish law to provide information on
sales forecasts. This was already the case before the enactment of the LOCM and its
implementing decrees, and has remained so after codifying the duty of pre-contractual
disclosure. The RD requires information on the situation in the market sector in which the
franchise business is operating, though this concerns objective information on the market
concerned rather than information on estimated profits. 107 Nevertheless, the Spanish
legislator introduced provisions in RD 201/2010 that deal with the situation whereby the
franchisor volunteers information on sales forecasts. Such information must be based on
the previous experience and studies sufficiently grounded in reality. 108
107
Alonso Espinosa et al., 1999, p. 719.
108
Article 3 (e) of RD 201/2010.
100 PE 578.978
Franchising
According to the very few existing cases and to the legal doctrine, the liability of the
franchisor in respect of information on estimated profits is to be determined with due
regard to specific factors. First, the obligation to provide information concerning sales
forecasts is an obligation of means: the franchisor does not guarantee that the estimated
benefits will be achieved. 109 Second, it is, in principle, up to the franchisee as a business
entity to assume the risk of making less profit than expected. 110 Third, the provision of
information that exaggerates the advantages of the network is not subject to sanctions per
se. Spanish doctrine refers to such information as a case of dolus bonus: the franchisor
emphasises the positive aspects of his network to attract new members. This practice is
considered tolerable, due to the fact that any person might expect the franchisor to
exaggerate positive information, as its aim is to increase business. The sentence of the TS
of 27 February 2012 refers to the estimation on earning claims and says that the RD on
disclosure did not require information of this kind. Moreover, the franchisee did not prove
that the earning claims were not realistic or had been made without rigor and prudency. 111
In Italy, Law 129/2004 explicitly requires the franchisor to provide certain information
that can offer the franchisee a picture of the economic viability of the franchising. This
includes the duty for the franchisor to give a numerical list of the franchisees operating in
the network, country by country, and, at the request of the franchisee, a list and the
contacts of at least 20 franchisees. There are no other specific legal requirements as to the
need to incorporate forecasts in the contract on perspective profit margins and growth.
The requirement for the contract to include a “business plan” drafted by the franchisor
came under heavy criticism and was eventually excluded from the final version of the
statute. If this information is offered by the franchisor during the negotiations, but not
included in the contract in writing, it cannot legitimise any claim by the franchisee,
according to case-law settled already prior to the 129/2004 Law. This could, nonetheless,
be evaluated as a case of the lack of good faith in the phase of negotiations or misleading
information. Misleading or incorrect information is sanctioned according to both general
contract law and the statute with the annulment of the contract and the payment of
damages incurred by the franchisee. The growth of the network in purely numerical terms
can be determined by the indication requested by 129/2004 Law on the number of
franchisees. In this context, the Authority for the Market and Competition considered as
illegal a claim by a franchisor that the network was continuously growing, when in reality
there were more franchisees leaving the network than new ones (AGCM, dec.
20951/2010).
In the Netherlands, most of the case law concerns incorrect information provided to
franchisees about the forecasts. The Dutch courts may void a contract or its particular
provisions if they find out that incorrect information was provided by the franchisor either
knowingly or through negligence prior to the conclusion of the contract or during its
performance. In such a case, the franchisor breaches his duty of care towards the
franchisee.
The new self-regulation Code includes provisions on pre-contractual information duties,
aimed at not only obliging franchisors to be more careful while they provide forecasts, but
also informing franchisees that they should critically assess these forecasts, and what the
risks are of not doing so.
109
SAP Burgos 11 February 2002, AC 2002\892. See also Echebarría, 1995, p. 726; Martínez Sanz, Contratos de
distribución commercial: concesión y franchising, Scientia Ivridica, t. XLIV, nn 256/258,1995, p. 363 and
Alonso Espinosa et al., 1999, p. 720.
110
SAP Valencia 17 January 2001, AC 2001\1269. See also Echebarría, 1995, p. 347; Martínez Sanz, 1995, p.
363; Alonso Espinosa et al., 1999, p. 723.
111
STS 27 February 2012, Roj: STS 1327/2012 - ECLI:ES:TS:2012:1327.
PE 578.978 101
The forecast information has been a problem also in Belgium, though it was at least
partially resolved by the statute of 19 December 2005 imposing pre-contractual disclosure
(Book X chapter 2 of the Code of Economic Law). The statute, however, only obliges the
franchisor to grant information, but without any quality control. Providing misleading
information is only sanctioned on the basis of the general principles of contract law. If the
misleading information concerns a material element of the contract and if the franchisee
was rightfully misled and would not have concluded the agreement (or not under the same
conditions) had it been correctly informed, it can seek the annulment of the agreement.
The statute on pre-contractual information only entitles the franchisee to information that
should allow him to make its own business plan. The franchisor is not legally obliged to
make a market study for the franchisee (it must only describe the market situation, not
assess the economic viability of the franchise project).
In Germany, there are no rules specifically tailored to franchising that would prevent the
franchisor from providing false or misleading information to the franchisee, and thus would
hinder the franchisor from presenting its franchising concept as being more interesting and
profitable than it actually is. However, the courts have reacted to this with a well-
differentiated casuistry. The case law clarified that the franchisor is obliged to submit all
appropriate and relevant information to the franchisee at the pre-contractual stage. The
information must be true, and based on facts, in order to enable the franchisee to evaluate
independently how profitable the franchising contract might be.
In Romania, the Franchising Law requires the franchisor to properly inform the franchisee
about financial aspects such as: the entrance fee; the scope of the exclusivity clause;
information regarding the duration of the contract, renewal conditions, termination clauses.
However, the Franchising Law does not establish any sanction for non-compliance with the
informational duty, which means that the general private law rules are applicable.
Therefore, the franchisee must rely on a tort claim, which entails proving the existence
and the amount of damages, as well as the causation of the damage through the breach
of the contractual duty.
In France, the pre-contractual disclosure is established by Articles L. 330-3 and R. 330-1
of the Code de Commerce, which regulate a document of pre-contractual disclosure
(“document d’information précontractuelle (DIP)). According to the se clauses, any person
who provides to another a trade name, brand or corporate name, by requiring therefrom
an exclusivity or quasi-exclusivity undertaking in order to carry out their activity, is bound,
prior to signing any contract concluded in the common interest of both parties, to provide
the other party with a document giving truthful information allowing the latter to commit
to this contract in full knowledge of the facts. This document, whose content is determined
by decree, must specify in particular the age and experience of the business, the state and
development prospects of the relevant market, the size of the network of operators, the
term and the conditions of renewal, termination and assignment of the contract and the
scope of the exclusive rights. Where the payment of a sum is required prior to signing the
contract indicated above, particularly to obtain the reservation of an area, the benefits
provided in return for this sum must be specified in writing, together with the reciprocal
obligations of the parties in the event of renunciation. The document specified in the first
paragraph and the draft contract must be notified at least twenty days before the signing
of the contract or, where applicable, before the payment of the sum indicated in the above
paragraph.
102 PE 578.978
Franchising
7.2.3. Limiting access to information and advice on complex franchising contracts

through a duty of confidentiality with severe penalty clauses
The most comprehensive rules on confidentiality clauses exist in Italy. While the rules
recognise the need for confidentiality in franchising, excessively severe penalty clauses are
reduced by the courts. In Estonia, such clauses are presumed to be unfair and invalid in
B2B contracts. Confidentiality clauses are common in Belgium, Germany and the
Netherlands, though case law on this issue is only reported in the latter system. There is
no Romanian, Spanish or Polish legislation or case law relevant for this topic.
In Italy, Article 5.2 expressly refers to the issue of confidentiality. It states that the
franchisee has to respect and have respected by its own collaborators and personnel, even
after termination of the contract, the highest degree of confidentiality regarding the
contents of the activity forming the object of the franchising contract. The law (Articles 6.1
and 6.2) also acknowledges the issue of confidentiality during negotiations, so while the
parties have to communicate to each other any useful information, the franchisor can
legitimately refuse to disclose information that is objectively confidential, or which can
harm third parties if divulged. In this case, if the franchisee has requested the information,
the franchisor has to justify the refusal to disclose the information. In the Netherlands
there is a case (Rechtbank (court of first instance) Arnhem, 14 September 2011,
ECLI:NL:RBARN:2011:BT6358), in which the franchisee claimed a breach of the duty of
care of the franchisor because it was required to sign a preliminary agreement including a
duty of confidentiality prior to being able to see the report on the franchise location. The
court saw it differently, since the franchisor had invested money in the report and it
contained sensitive information about the potential new location of a franchise shop, this
meant that agreeing to the duty of confidentiality could have been a condition on further
participating in the negotiations. In addition, a sample interview with Dutch franchisees
indicated a practice of limiting access to legal advice by imposing a very strict
confidentiality duty, which included a prohibition on seeking a legal advice.
In Germany, the imposition of contractual penalties in a franchise contract is not
uncommon. Contractual penalties are customary when ensuring the confidentiality of
franchising systems. To what extent these penalties are used to restrict access to the
mostly complex franchising contracts, and therefore uphold the significant information gap
between the franchisor and the future franchisee, or how far the contractual penalty simply
serves to ensure the proper functioning of the franchising system, depends on the
configuration of the contractual penalty in each individual case. Unfortunately, there is no
case law or any specific regulations on this issue. Therefore, it is not possible to make any
further and more detailed comments. In Belgium, most contracts contain confidentiality
clauses. The research, however, did not disclose any major issues regarding these
confidentiality obligations – the logical counterpart for the fact that the franchisee is
granted access to the knowhow of the franchisor. In addition, the research did not establish
whether a practice exists whereby franchisees are limited in seeking (legal) advice from
external counsels before signing a franchise agreement by obligations of confidentiality. In
Poland, confidentiality clauses are also seen as a typical part of franchising contracts. It
is stressed that such clauses can have an undetermined duration, subject to making certain
information public by the franchisor. No information on abusing the clauses was discovered
though.
7.2.4. Oral pre-contractual information divergent from the actual contract

In Italy and Romania, providing false oral pre-contractual information leads to the liability
of the franchisor for a violation of good faith. In Romania and Belgium, this issue is
PE 578.978 103
addressed by providing a written pre-contractual information document. This issue was not
discussed in Estonia, Germany, the Netherlands, Spain or Poland.
Italian Law 129/2004 follows an established formalist trend and requires franchising
contracts to be concluded in writing. It also prescribes a cooling off period of 30 days for
the franchisee to carefully read and renegotiate certain contract clauses. In this light, the
only legally relevant terms are those included in the contract, which prevail over the
previous divergent oral pre-contractual information. These can at most be relevant in the
perspective of pre-contractual liability for violating the good faith principle. In addition, in
Romania the franchisor is obliged to inform the franchisee about any important matters
regarding the future franchise contract, according to the Franchise Law. However, the law
does not provide how this obligation should be performed, i.e. if it should be made orally
or in writing. In order to overcome disputes of this kind, it is customary for the franchisor
to provide the franchisee with a written "pre-contractual information document". However,
if oral pre-contractual information offered diverges from the actual contract, then a tort
law claim is available to the franchisee, based on the general duty of good faith during pre-
contractual negotiations (Article 1183 of the Civil Code). In Belgium, such a situation may
theoretically happen, but it will be almost impossible to prove. In any case, this is made
difficult by the legal disclosure obligations – the pre-contractual information document
must be in writing. A franchisee that receives oral information that is different to
information in the pre-contractual information document should be alarmed. The
legislature pays particular attention to making sure that franchisees are well informed
before entering into a franchise agreement.
7.2.5. Limiting reflection time for concluding the contract in order to place pressure
on the conclusion of the contract. No cooling off time after the conclusion of
the contract.
A cooling off period before the contract conclusion is provided in Belgium, France and
Italy. While German law does not impose a cooling off period, the franchisee may have
the right to revoke the contract if it is pressured into concluding it through limited reflection
time. This issue has not been discussed in Estonia, the Netherlands, Poland, Romania
or Spain.
In Belgium, France and Italy, the law imposes a cooling off period. In France the cooling
off time is secured by Article L. 330-3 of the Code de Commerce: the document specified
in the first paragraph and the draft contract must be notified at least twenty days before
signing the contract or, where applicable, before the payment of the sum indicated in the
previous paragraph. In Italy, the period is provided for by Article 4 of law 129/2004,
according to which, at least 30 days before signing the franchising contract, the franchisor
must provide the prospective franchisee with a complete copy of the contract to be signed.
There are, therefore, no problems relating to limiting the reflection time in order to
pressure the conclusion of the contract. The doctrine presents diverging opinions as to the
remedies applicable in the case of a violation of this provision. A minority proposal has also
suggested the applicability in this situation of a right of withdrawal following the model of
EU consumer law directives. 112 In Belgium, the law requires a contract document be
presented 30 days before concluding the contract. While some claim that this has given
rise to practical issues and delays that are sometimes perceived as burdensome (for
example lease agreements or other ancillary contracts are at risk of being jeopardised by
the cooling off period, which has led some franchisors to produce ante-dated documents),
representatives of the franchisees stress the importance and beneficial effects of
112
Cian, La nuova legge sul franchising, 1171.
104 PE 578.978
Franchising
formalised informational duty. In Germany there is no case law and no legislation that
would aim at protecting the future franchisee from being overwhelmed by the franchisor
with a limited reflection time. The franchisee could have the right to withdraw from the
contract only if it is considered a consumer. However, the German Supreme Court explicitly
denied this in its decision of 24 February 2005 (Az. III ZB 36/04). It is, however,
conceivable to grant the franchisee a right to withdraw from the contract pursuant to
§ 512 BGB, as this paragraph goes beyond the provisions of the respective EU-Directive
and grants the entities that fall within its scope further reaching rights, i.e. the right to
withdraw. Full-harmonisation of the EU-Directive causes no problems in this regard as
“business founders” (the persons that § 512 applies to) fall outside the scope of this
directive. According to the prevailing view, § 512 BGB does not broaden the definition of
consumer, but extends the scope of the §§ 491 – 511 BGB.
Thus, § 512 BGB has great practical relevance when it comes to franchising contracts.
According to the case law, § 512 BGB can be applied to grant franchisees the right to
withdraw after the franchising contract has been concluded and the franchisee/business
founder concluded a contract for the delivery of goods (BGHZ 97, 351, 356 f.; BGHZ 112,
288; BGHZ 128, 156). What must be considered, however, is that § 512 BGB only applies
to contracts with a maximum value of €75,000, beyond this amount the right to withdraw
is excluded for lack of worthiness of protection of the franchisee. Nonetheless, it is being
considered to reduce the scope of § 512 BGB on teleological grounds, so that it can fulfil
its main purpose – the protection of business founders – completely.
7.2.6. Switching status from employee to franchisee without sufficient information

and reflection time
Case law regarding false independents exists in Belgium. In Germany and Italy, it is not
possible to switch from an employee to franchisee without providing appropriate
information and reflection time due to the franchisors’ disclosure obligations. This issue
has not been discussed in Estonia, France, the Netherlands, Romania, Poland and
Spain.
In Belgium, false independents (de facto treated as employees, but under a franchising
agreement) have been subject to case law. The fact that the activities of the franchisee
are contractually limited to a certain territory, that the franchisor decides upon the location
of the point of sales and similar restrictions to the activity of the franchisee are part of the
know-how and are therefore not an indication of subordination as an employee. It is the
franchisee’s free choice to submit to the commercial formula and know-how of the
franchisor. 113 The fact that the franchisor imposed binding resale prices has, in older case
law, been considered as an indication of subordination. 114 In a leading case regarding
MacDonald’s, it was argued that all franchisees were to be considered as the same
‘technical company unit’ and thus were subject to collective labour law obligations, such
as the appointment of syndical representatives etc. This view was rejected, however. The
labour court considered that there was no joint employment programme for all franchisees,
since each franchisee could independently manage their staff. 115 Given the statute on pre-
contractual information, employees will, since 2006 at least, have received all necessary
information regarding their new status as franchisees. In Italy there are no reported cases
in this area. Establishing franchising relation requires formal and disclosure requirements
imposed by legislation to be met, so switching from employee to franchisee without
sufficient information and reflection time would not be possible. It should be noticed that,
113
Brussels 8 November 1988, J.L.M.B. 1988, p. 1568.
114
Arbh. Antwerpen 16 June 1995, Soc. Kron. 1996, p. 261.
115
Labour court Brussels 10 March 2000, D.A.O.R. 2000, pp. 382-384,
PE 578.978 105
before 129/2004 law, franchisees occasionally and unsuccessfully requested courts to

declare that they were under an employment relationship instead of a franchising
relationship, as this would be more favourable for them, but their claims were rejected
since their activity was considered entrepreneurial. It is worth noting that in Germany the
extensive pre-contractual disclosure obligations of the franchisor prevent an employee
from becoming a franchisee without appropriate and relevant information or a reasonable
amount of time to consider.
7.3. Contractual issues
7.3.1. Overview
Imposing Changing Limiting Restrictions Limiting Taking

unbalanced contractual access to of acquiring access to over
Country
obligations terms attractive outlets advice know-
in contracts retroactively products how
Belgium 
Estonia
France   
Germany   
Italy 
The  
Netherlands

Poland
Romania 
Spain +
7.3.2. Imposing unbalanced obligations in contracts, such as an obligation to acquire

additional services or goods for above the market prices, often attached to
franchising contracts as side-letters or appendixes during the duration of the
contract; lack of transparency and ad-hoc unilateral contract changes
In France, such issues are explicitly regulated in the Code du Commerce. Specific case
law on tying supply agreements exists in Germany and the Netherlands. In those
countries where these issues are not explicitly regulated: Belgium, Estonia, Germany,
Italy, the Netherlands, Poland and Romania, the franchisee’s remedies in the event of
unbalanced obligations, lack of transparency and unilateral changes are mostly subject to
general contract law.
106 PE 578.978
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In France, the recently modified Article L. 442-6 of the Code du Commerce placed in the
chapter relating to anti-competition practices regulates these issues. It provides liability
for damages if one of the listed trade offences causes a loss. Among the relevant unfair
practices, the following may be listed:
1) Obtaining, or seeking to obtain, from a trading partner any advantage unrelated to
a commercial service effectively rendered, or which is clearly disproportionate to
the value of the service rendered. Such an advantage might consist, among other
things, in participation in the financing of promotional activities, an acquisition or
an investment that is not justified by a common interest and does not offer
proportionate compensation, particularly in the context of shop renovation or access
to outlets or central listing or purchasing facilities. The advantage may also consist
in the artificial consolidation of turnover figures or a demand to match the sales
terms obtained by other clients.
2) Subjecting or seeking to subject a trading partner to obligations that create a
significant imbalance in the rights and obligations of the parties.
3) Obtaining, or seeking to obtain, an advantage as a prerequisite to placing orders
without providing a written undertaking concerning the proportionate volume of
purchases and, if appropriate, a service requested by the supplier which is the
subject of a written agreement.
The presented problems appear partially under German law. There are no cases or
commentaries yet on the issue of obligations to acquire additional services or goods being
hidden in incomprehensible or non-transparent contract terms, or even appendixes. It
cannot, of course, be excluded that such situations do not happen in practice. In such
cases, the franchisee may have the right to withdraw or avoid the contract under specific
circumstances, though the prerequisites of an avoidance are probably difficult to prove, at
least when the grounds for invalidating the contract is fraudulent misrepresentation (§ 123
BGB). Tying supply agreements as such occur as a problem under German franchise law.
In a case regarding this issue, the court ruled that such agreements do not constitute
restrictions of competition, at least where they are necessary for the functionality of the
franchising system (LG Düsseldorf, judgement of 21 November 2013 – 14 c O 129/12 U).
Accordingly, a franchising contract that contains a tying supply agreement is not to be
considered as invalid or immoral/lacking good faith for imposing an unreasonable economic
burden as established by § 306 III BGB. In addition, it is permitted under competition law
and therefore has no consequences on the validity of the franchising contract, if the
franchisor does not completely pass on the price benefits, bonuses, discounts or the like
that exist towards its suppliers, to the franchisee. This also applies to cases where a tying
supply agreement between franchisor and franchisee exists (BGH, Decision of 11
November 2008, KVR 17/08 (OLG Düsseldorf)). In this context, it remains relevant that a
franchising contract can set out the obligation for the franchisee to use advertising
designed by the franchisor, or to buy the necessary advertising material. The costs arising
from this are determined, for example, by the franchisee’s net sales and amount to a
certain percentage thereof. The advertising may dictate to the franchisee a selling price
for the advertised products when it refers directly to a certain price for such products, and
thereby creates the impression for customers that they can expect exactly this price. In
such cases, the franchisee may be entitled to damages from the franchisor. (BGH,
Judgement of 20 May 2003 - KZR 27/02).
In the Netherlands, in the case Rechtbank (court of first instance) Almelo, 15 September
2006, ECLI:NL:RBALM:2006:AY8624 the court decided that if the franchise contract obliges
the franchisee to purchase more than 80% of its products from the franchisor, then this
PE 578.978 107
contract term could be invalidated as contrary to fair competition rules. This would not
automatically lead to the possibility of the franchisee terminating the contract on the basis
of the unfairness of this provision.
In Italy, these problems are mostly not explicitly taken in consideration by legislation. Law
129/2004 is primarily focused on the pre-contractual stage and generally disregards the
phase of the execution of the contract and the issues possibly arising during the contractual
relationship. It was the intention of the franchising business community to limit the legal
regulation in these areas and rely on self-regulation. The issues would therefore be
considered from the perspective either of the codes of self-regulation of the franchising
business or of Italian general contract law, which generally acknowledges freedom of
contract. There is no reflection of the problem in the case law.
Furthermore, scholarship and most recent jurisprudence apply Article 9 of the 192/98 law
on supply chains to franchising contracts. This prohibits the “abuse of economic
dependency”, describing it as a situation where “an enterprise can determine a
considerable unbalance between rights and obligations in its relation with another
enterprise.” This abuse can also consist in the refusal to buy or sell goods, arbitrarily
interrupting the commercial relationship, or imposing unreasonably hard contract terms.
The article was applied in cases dealing with the termination of the contract. Law 129/2004
contains several provisions on disclosure, so that considerable problems of lack of
transparency do not usually arise. The statute does not give the franchisor the power to
unilaterally change contract terms or other powers over the franchisee. Generally, any
contractual integration or modification has to be agreed upon and in writing.
Also in Estonia, this particular problem has not been raised. However, if a contract
prescribes an obligation to accept goods or services not ordered, in addition to goods and
services agreed upon, then the term may be proved to be unfair and void (LOA Art. 42
para 3 subparagraph 23). Similarly, in Romania there is no specific legislation or case law,
though the general private law provides some remedies in certain described situations.
Articles 1202 and 1203 of the Civil Code regulate “standard clauses” and “unusual clauses”.
“Standard clauses” are those clauses that are unilaterally established by one of the parties
and not negotiated with the other party. Some “standard clauses”, such as a limitation of
liability, the right to unilaterally terminate or suspend the contract, limitation of defences,
a limitation on the freedom to conclude contracts with other parties, etc., are considered
“unusual clauses” and are not effective unless expressly accepted by the other party, i.e.
the consent must be expressed specifically for these clauses. The ineffectiveness of such
contractual clauses could be argued if they were not expressly assumed by the franchisee
when the contract was stipulated.
In Belgium, the statute regarding pre-contractual information was altered, in May 2014,
to include the stipulation that information must be disclosed regarding the remuneration
paid to the franchisor directly, as well as regarding indirect remuneration of the franchisor
(such as the margin on sales of products and services, or fees paid by suppliers or rebates
granted regarding goods that franchisees are obliged to buy only from such authorised
suppliers). Most franchise agreements foresee the possibility for the franchisor to
unilaterally change certain elements of the franchise formula. In the event of an imbalance,
the franchisees’ only remedy will in most cases be to claim that such a unilateral change
is a breach of the franchisor’s contractual obligations or its general obligation to execute
the agreement in good faith. This would allow the franchisee to claim damages or possibly
seek a termination for a breach by the franchisor (giving rise to damages).
108 PE 578.978
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7.3.3. Changing contractual terms or the entire contract retroactively

Retroactive changes of contract are invalid under certain circumstances and may lead to
the liability of the franchisor in Belgium, Estonia, France, the Netherlands and
Romania. No references were found in Germany, Italy, Poland and Spain.
In the Netherlands, in the case Rechtbank (court of first instance) Zwolle-Lelystad, 14
April 2010, ECLI:NL:RBZLY:2010:BO1431, the court decided that the franchisor could not
change the terms of the franchise contract, i.e. remove its obligation to support the
franchisee due to financial difficulties, especially when it previously introduced, on its own
initiative, a new, experimental formula in the franchisee’s shop that required more support
to be provided, without infringing his duty of care towards the franchisee. The parties
intended to cooperate on the introduction of the new formula and the franchisor had no
right to unilaterally withdraw from this cooperation, even if the franchisor’s situation had
changed. In Romania, a franchising contract is a contract of adhesion (Article 1175 of the
Civil Code), which means that if the franchisee agrees to conclude the contract it will have
to comply with the terms and conditions imposed by the franchisor. This feature of the
franchise contract arises on the basis of Article 1, letter (c) of the Franchising Law
stipulating that the franchisee is selected by the franchisor and adheres to the principle of
homogeneity of the franchise network. Therefore, there is not much space for the
franchisee to act on its own, even if the same law provides for a certain independence of
the franchisee regarding its activity within the franchising network. However, despite the
obvious position of dependency of the franchisee, a clause reserving for the franchisor the
right to unilaterally change the contractual terms retroactively would be invalid as being
contrary to the public policy (Article 1236 of the Civil Code). Unilateral changes with a
limited scope and if well justified might be accepted. Unfortunately, there is no case law
relevant for the field. An additional instrument of protection of the franchisee is Article
1269 of the Civil Code, which provides that adhesion contracts will be interpreted against
the party that drafted the contract (the franchisor).
In France, this practice may lead to liability under Article L. 442-6 of the Code de
Commerce. The liability will be triggered by an action consisting of such things as:
“8) refusing or returning goods, or unilaterally deducting from the amount of the invoice
issued by the supplier, any penalties or discounts corresponding to the non-compliance
with a delivery date or non-compliance of the goods, when the debt is not certain, liquid
and due, without the supplier being able to check the validity of the corresponding claim;
…
12) imposing, adjusting or charging an order for products or services at a price different
from the agreed price, resulting from the application of the scale of unit prices mentioned
in the terms of sale, when they were accepted without negotiation by the buyer, or the
price agreed at the conclusion of commercial negotiations subject to the agreement
referred to in Article L. 441-7, modified if necessary by amendment or renegotiation as
provided for in Article L. 441-8.”
Furthermore, the following clauses that allow the producer, trader, manufacturer or a
person listed in the trade register to commit the following acts are invalid:
1) to benefit retroactively from discounts, rebates or commercial cooperation
agreements;
2) to benefit automatically from more advantageous terms granted to competing
undertakings by the co-contracting party;
PE 578.978 109
3) to obtain from a reseller operating a retail space of less than 300 square metres
that it supplies, but which is not linked, directly or indirectly, to it by a trademark
or know-how licence, a preferential right on the assignment or transfer of its
business or a post-contractual non-competition obligation, or to condition supplies
to this reseller upon an exclusivity or quasi-exclusivity commitment undertaking to
buy its products or services for a period of more than two years.
No cases regarding those problems were found in Belgium. In any case, the statute
regarding pre-contractual information foresees that a new pre-contractual information
document needs to be communicated in the event of changes to the original contract.
Changes without such a new pre-contractual information document could lead to the
annulment of the franchise contract. In Estonia, there is also no information about this
issue. If this is a standard term, there is a possibility of it being proven to be unfair (LOA
Article 42 para 3 subparagraph 14 provides that if a term sets out the right of the person
supplying the term to alter the terms or conditions of the contract unilaterally for a reason
or in a manner not provided by law or specified in the contract, it may be proven to be
unfair and invalid).
7.3.4. Limiting access to attractive products (the franchisor may give preference to
its own outlets when introducing new products) or using the possibility of
limiting supply as a contractual threat
In France, limiting access to attractive products is prohibited as an anti-competition
practice under the Code de Commerce. In the three other countries that submitted reports
on this issue, Belgium, Germany and Italy, the behaviour of the franchisor would be
considered a violation of good faith and may lead to damages. There is no information
about this issue from Estonia, the Netherlands, Poland, Romania and Spain.
In France, limiting access to attractive products is qualified in the same way as other
restrictions on the freedom of the franchisee as an anti-competition practice in the
understanding of Article L. 420-1 of the Code de Commerce. In particular, this article
prohibits any actions, agreements, express or tacit undertakings or coalitions, even
through the direct or indirect intermediation of a company in the group established outside
France, that have the aim or may have the effect of preventing, restricting or distorting
the free competition in a market. This legal norm also lists examples of such anti-
competition practices, among which limiting access to market may also be found (1°). The
consequence of this prohibition is the invalidity of any contractual clause establishing it as,
according to Article L. 420-3 of the Code de Commerce, any undertaking, agreement or
contractual clause referring to a practice prohibited by Articles L. 420-1, L. 420-2 and L.
420-2-1 is invalid. In addition, the legal norms of Article L. 442-6 of the Code de Commerce
may apply to unbalanced or unfair terms.
In Germany, save for error or omission, no cases regarding this problem have been
decided yet. However, this does not lead to the conclusion that such actions do not exist
in practice. This phenomenon may, in the absence of specific rules, only be dealt with by
recourse to the general principle of good faith and trust (§ 242 BGB). According to this
principle, each contracting party has to perform in a way required by loyalty and good faith
with regard to the prevailing practice. The franchisor would be acting contrary to good
faith, if it did not provide the franchisee with a sufficient amount of goods or products to
run the franchise profitably. Therefore, the franchisor may be liable for damages resulting
from such behaviour. Comparable situations with new products introduced would most
likely be treated in a similar way. A franchisor who makes new products exclusively
available in its own stores, will render the stores of the franchisee less attractive, and
thereby reduce the opportunity of its contract partner to make a profit. Such behaviour
110 PE 578.978
Franchising
would run contrary to the duty of the franchisor to constantly review and further develop
its franchising system, to make it attractive and profitable in the long term for all involved.
Admittedly, the franchisor must have the opportunity to test the profitability of new
products on a smaller scale, but this should be conducted in consultation with the
franchisee, and not used as an instrument to exert pressure. However, the associated
liability for possible damages should render such approaches rather unattractive for
franchisors. This does not seem to be a major issue in Belgium. A franchisor discriminating
between its own outlets and its franchisees could be attacked for lack of assistance. This
would be considered a breach of the general obligation to execute contracts in good faith.
This will, however, only be so in extreme cases. In principle, the franchisees cannot oblige
their franchisor to grant them the right to new products.
7.3.5. Restrictions on the franchisor acquiring additional outlets, or a prohibition on

franchisers from opening additional outlets in the same sector with other
franchisees
In most of the researched legal systems, territorial restriction clauses are quite common
and classified as necessary, since they protect the franchisee against competition from the
franchisor and other franchisees. In France, however, restrictions on the acquisition of
additional outlets may be invalid if they are qualified as anti-competition practices. Case
law on territorial restriction clauses is available in Germany and the Netherlands. In
Romania, the territorial restriction clause needs to comply with rules provided in the
franchising law, and under Italian law these clauses must be in writing. There is no other
regulation. No specific provisions (other than allowing the clause under competition law)
exist in Poland, though it is a normal and frequent practice to have territorial exclusivity
clauses included in franchising contracts. No information is available also in Estonia and
Spain.
In France, restrictions on the acquisition of additional outlets is qualified equally as other
restrictions of the freedom of franchisee as an anti-competition practice in the
understanding of Article L. 420-1 of the Code de Commerce. In particular, this may be
qualified as one of two examples of anti-competition practices expressly provided in Article
420-1 of the Code de Commerce: (1°) Limiting access to the free exercise of competition
by other undertakings; or (3°) Limiting or controlling production, opportunities,
investments or technical progress. Any contractual clause qualified as introducing an anti-
competition practice is invalid under Article L. 420-3 of the Code de Commerce.
In Germany, territorial restriction clauses are quite common in franchising contracts. The
territorial protection allows the franchisee to maintain a certain exclusivity and protects
the franchisee against the threat of competition from the franchisor. To be truly effective,
a territorial restriction clause must prohibit all internet sales of the franchisor in the
territory of the franchisee. The limits of such territorial protection may be determined by
using an area map or postcode areas that are within the contract territory. Instead of
optional territorial protection, a franchising contract may also contain a customer- or
location safeguard clause. Even if a respective protection clause is not included in the
franchising contract, under the principle of good faith (§ 242 BGB), the franchisor is still
obliged to take the commercial interests of the already existing franchisees into account
and must not endanger their commercial viability when it grants licenses to new franchise
outlets. Examples of case law:
BGH, Decision of 1 August 2013 – VII ZR 268/11: Action for disclosure on revenue
obtained by the franchisor from a prohibited competitive business activity.
The parties involved in these proceedings had a dispute over claims resulting from a
terminated franchise relationship. The claimant operated specialist optical stores
PE 578.978 111
throughout Germany (partly in their own name, partly by franchisees). The defendant was
a former franchisee of the claimant. The franchise relationship between the two was
terminated by the franchisor (claimant). This termination subsequently turned out to be
invalid. The claimant, however, opened its own store in the territory of the defendant after
the termination. The defendant kept operating its former franchise business under its own
commercial name. The defendant demanded disclosure of the revenue that the claimant
generated with its store in the territory of the former franchisee. The purpose of the request
for information was to prepare a claim for damages against the claimant. The revenue that
the franchisor achieved by violating the territorial restriction clause in the franchising
contract may serve as an indicator when assessing the amount of damages that the
franchisee incurred. The BGH allowed the defendant’s request and sentenced the claimant
to provide the requested information. A franchisor that issues an invalid termination has
to compensate for the damage that the franchisee suffers from the, at least negligent,
breach of the territorial restriction clause in the franchising contract. This also applies when
the franchisee continues to operate its business in the same territory under a different
commercial name.
LG Freiburg, Judgement of 27 February 2007, Az.: 2 O 459/06 ("Carela Service
Point"): Breach of the territorial protection clause by the franchisor
In this case, the franchisor performed cleaning and disinfection of water and piping
installations in the territory of the franchisee, although the franchise contract contained a
territorial restriction clause and these services were allotted to the franchisee. This clause,
however, expressly prohibited the franchisor only from allowing other franchisees to
operate a business in the territory, but did not bar the possibility of the franchisor operating
one itself. Moreover, the services provided by the franchisor in the territory of the
franchisee were conceived as “testing a new procedure”. According to the franchisor, the
services should constitute no breach of the territorial protection clause. However, the court
decided that this behaviour constituted a breach of the territorial protection clause and
that franchisor is no longer allowed to provide these services without sanctions.
Furthermore, the franchisor has to adequately involve the franchisee into future field trials
and tests in his territory. What is remarkable here is that the court interpreted the
territorial restriction clause very broadly, as the wording of the clause only prohibited the
settlement of new franchisees in the protected territory. By doing so, the court impliedly
affirmed the importance of territorial protection for franchisees
This issue has been the subject of one case in the Netherlands, Rechtbank (court of first
instance) Den Haag (KG), 16 July 2014, ECLI:NL:RBDHA:2014:8667. The franchisee of a
book/newspapers-formula under the same franchisor opened a second bookshop with its
permission. In this second bookshop, the franchisee also sold toys, under a separate
franchise contract. When the co-operation between the parties ended, the franchisee
stopped conducting business in the first bookshop, but continued to do so in the second
bookshop/toy store. The franchisor considered this an infringement of the non-competition
clause after the termination of the franchise contract. The clause prohibited the franchisee
from conducting business in the same region for one year, either fully or partially
competing against the franchisor’s organisation. The court considered the non-competition
clause valid, even though its enforcement would lead to the insolvency of the franchisee.
It was seen as a ‘logical’ consequence of the agreement concluded between the parties.
The court thought that the franchisee could, however, continue with the sale of the basic
assortment of the toy store, including children books and gifts. Additionally, the franchisee
could continue to sell books until the franchisor gave the franchise in the first bookstore to
someone else.
112 PE 578.978
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In Romania, most franchising contracts contain a territorial exclusivity clause in order to

protect the franchisee. The legal doctrine justifies the exclusivity on taking the financial
perspective into account. Accordingly, even the Franchising Law states that the franchisee
must be able to recover the investment it has made, and if the franchisor opens the same
activity in the area franchisee’s exclusive area, or passes this right to others, then the
chances of the first franchisee recovering the incurred expenses are seriously
compromised. 116 The Franchising Law provides several governing principles that must be
taken into consideration when writing and implementing the exclusivity clause into the
contract. According to Article 9, an exclusivity clause must comply with the following: if an
entrance fee is paid at the moment of concluding the franchising contract, the amount for
the exclusive rights contained in the contract is proportional to the entrance fee and added
to the latter; if there is no entrance fee, the arrangements for refunding the exclusivity fee
must be provided for in the event of the early termination of the contract; the exclusivity
contract must provide for a termination clause suitable to both parties.
In Italy, Article 3.4.e prescribes: “possible exclusive territorial rights granted either
towards other franchisees of the network, or towards sales channels and outlets run
directly by the franchisor” should be included in the contract. Therefore, these clauses are
not obligatory, but if they exist then they have to be done in writing. Franchising contracts
indeed generally include non-competition clauses that limit the franchisee’s possibility of
operating with other competitors in the same business sector. According to general Italian
contract law, a non-competition clause cannot exceed five years. A violation of such clauses
represents a breach of contract that allows termination. In Belgium, most franchise
agreements are limited to one point of sales, without the franchisee having the right to
open additional outlets (even if a territory was awarded exclusively to each franchisee).
No case law was found questioning the validity of contractual provisions forbidding multi-
franchising.
7.3.6. Limiting access to legal and financial (independent) advice

This issue has not been reported in any of the legal systems, though Belgium, France,
Italy and Romania provided additional comments.
According to Romanian legislation, the franchising network consists of independent
members who conduct their activity on their own, taking the decisions and assuming the
risks they consider proper for their business. Their independence is manifested within the
limits of keeping the common identity of the franchise network. The independence of the
franchisees means that a franchising network is not a group of companies under the
franchisor’s control. 117 As such, a contractual clause that would limit access to independent
legal and financial advice would certainly be deemed invalid. Also in France, a contractual
clause limiting access to legal and financial advice could be invalid as an anti-competition
practice on the basis of Articles L. 420-3 and 420-1 of the Code de Commerce. In Belgium,
franchise agreements in general do not limit the possibility of franchisees seeking
independent legal or financial advice. Some franchise agreements oblige franchisees to use
the services of a recognised accountant. This does not seem to give rise to abuses.
7.3.7. Taking over know-how and information (franchisers claim franchisee know-
how and information as their property)
In Italy, the law expressly sets requirements for the recognition of the know-how that the
franchisee provides. Under German law, case law concerns the question whether or not
116
Lupu, Contractul de franciză în Noul Cod civil, http://legalmagazin.ro/contractul-de-franciza-in-noul-cod-
civil/.
117
Mocanu, Franciza, francizarea. Ghid practic Bucharest 2013, p. 84.
PE 578.978 113
the franchisee is entitled to compensation for providing its customer base to the franchisor
after the termination of the franchising contract. Contractual clauses on taking over know-
how and information may be invalid in Estonia and France. This problem has not been
discussed in the Netherlands, Poland, Romania or Spain.
In Italy, Article 3.4. of 129/2004 law sets out that a contract must expressly mention “the
possible criteria for acknowledging the contribution of the franchisee to the know‐how of
the franchisor.” Because of this formulation, the contract must not expressly include such
criteria. Part of the scholarship 118 considers this possible clause as practically useless, as
contrary to the area of the transfer of technology, where this case might happen frequently,
in franchising practice it is normal for the franchisee to follow the franchisor’s know-how
without contributing to it. In this sense, no case law in Italy so far deals with franchisors
claiming the know-how and information of franchisee as their property.
It has not yet been clarified by the German legal system or case law how the situation
must be assessed if the franchisor claims all the information that the franchisee has
obtained through its own franchise and customer base. The question as to whether the
franchisee is entitled to compensation for its customer base after the termination of the
franchising relationship under the analogous application of § 89 b HGB is debatable and
cannot be answered in a generally valid manner. This depends on whether the clients are
regular- or one-time customers, and how the franchise system is designed. The BGH in
principle approves of an analogous application of § 89 b HGB for trademark licence
agreements. The application is not possible, if the licensor is not active in the field of the
products that the licensee distributes, and the licensee is therefore not integrated into the
sales organisation of the licensor (BGH, Decision of 29.10.2010, Az.: I ZR 3/09). The
consequence for franchising contracts is that the right to compensation pursuant to § 89 b
HGB is ruled out if the focus of the contract is to grant the franchisee a license and the
franchisee, in absence of the duty to promote sales (which is typical for franchising), is not
involved in the sales organisation of the franchisor. In such cases, the duties of the
franchisor will be primarily the transfer of know-how and the grant of a licence on the
trademark rights. This decision probably means that, in cases of service franchising or
when the sold products are not provided by the franchisor but a third party, the right to
compensation under the analogous application of § 89 b HGB is ruled out. The remaining
types of franchising contracts also require that the franchisee leaves its customer to the
franchisor after the termination of the franchising relationship. However, according to case
law, an obligation of the franchisor to compensate the franchisee cannot simply be derived
from the fact that a customer card programme is implemented, or that the factual
continuity of the customer base in an anonymous high volume business is assumed (OLG
Schleswig, Decision of 11 December 2014, 4 U 48/14, BGH, Judgement of 5 February 2015,
VII ZR 109/13).
In Estonia, the only legal measure to prevent this kind of contract term is to apply a
general rule on the unfairness of standard terms (LOA Article 42 para .1). In France too,
a contractual clause on taking over know–how and information could be deemed invalid as
an anti-competition practice on the basis of Articles L. 420-3 and 420-1 of the Code de
Commerce. No case law has been found in Belgium, though most franchise contracts
foresee that improvements to the know-how of the franchisor by the franchisees become
the property of the franchisor.
118
Frignani, Franchise disclosure legislation in Italy, 3 International Journal of Franchising Law, 2004.
114 PE 578.978
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7.4. Contractual issues with post-contractual consequences
7.4.1. Overview
Insufficient A non- Compulsory

protection competition purchase
Unfair
upon obligation options
clauses
Country termination permitted after
leading to
the expiry of a
termination
franchising
contract
Belgium 
Estonia 
France   
Germany 
Italy   
The Netherlands  
Poland  
Romania  
7.4.2. Unfair clauses leading to the termination of a franchising contract (e.g. if

turnover targets are not met due to reasons independent of franchisees)
While clauses regarding termination for not meeting turnover targets are allowed and
rather common in Italy, they remain subject to an unfairness test. Similarly, a court in
Spain held that a franchisor acted abusively when it used unreasonable commercial targets
as the ground for termination, while a Dutch court classified a clause that granted the
franchisor two per cent of the franchisee’s annual profit, even in the event of the franchisor
terminating the contract, as unfair. Respective clauses are also tested for unfairness,
especially if they are standard terms, in Estonia, France and Romania. Problems with
such clauses may also occur in Belgium and Germany. This particular problem has not
been signalled in Poland.
In Italy, the possible unfairness of clauses allowing the termination of a contract has been
tested. A court held that a clause giving both parties the right to withdraw from an
indefinite term franchising contract, although unilaterally drafted by the franchisor, cannot
be considered as unfair per se, and does not therefore fall within the scope of the general
PE 578.978 115
contract law rules of the Civil Code prescribing that abusive clauses have to be specifically
signed by the parties in order to be valid (Tribunale Bari, sez. II, 8/4/2005). Outside the
hypothesis of these rules of the Civil Code (Article 1341 CC), freely negotiated clauses in
the contract are not considered unfair. Their infringement justifies the termination of the
contract when the breach is “important” (Article 1455 CC). Since the questionnaire
explicitly refers to clauses dealing with unmet turnover targets, it can be noted that these
clauses are allowed and rather common. Article 3.4.b sets out that the possible indication
of minimum turnover to be achieved by the franchisee has to be included in writing in the
contract. There is no relevant case law on this issue. In Spain, the court indicated that the
commercial targets imposed on the franchisee were abusive when compared to the
objectives imposed on other franchisees in the same area (STS 22 October 2012 (Roj: STS
7805/2012 - ECLI:ES:TS:2012:7805)). In this case, the franchisor indicated that the
contract was not renewed because the franchisee had not reached the commercial
objectives, and that meant that the franchisor neither had to pay an indemnity for clientele
(on the basis of the law on agency), nor had to compensate for non-performance. In the
Netherlands, in the case of Rechtbank (court of first instance) Utrecht, 27 February 2008,
ECLI:NL:RBUTR:2008:BC5136, a standard contract term required a franchisee who would
prematurely terminate the contract to pay 2% of the profit from his last bookkeeping year
immediately upon termination. This clause was contested as unfair. The franchisor
attempted to claim that this was a core term and was excluded from the unfairness test,
but the court rejected this point of view. Considering that the compensation was fixed at
a specific price, and that it was to be paid regardless who terminated the contract and for
what reasons, it was possible that it could end up being a high compensation, to be paid
even if the franchisor was the party who failed to perform the franchise contract (like in
this case), regardless of the franchisor’s damages and irrespective of the moment of
termination – it was considered an unfair contract term. In Romania, there is no specific
legislation or case law on this topic. In some cases, the defences provided by general
private law could be used, such as Article 1203 of the Civil Code, according to which
standard clauses (as the ones in the franchising contract) concerning the unilateral
termination of the contract must be expressly accepted by the franchisee, otherwise they
are not applicable. Other grounds for contesting the validity of an unfair clause could come
from the general rule concerning the legality and fairness of a contractual cause (Article
1236 of the Civil Code). In Estonia, available information suggests that, in some cases,
the right to terminate is unfair. A party could try to prove that the standard term is unfair
(LOA Article 42 para. 1: A standard term is invalid if, taking into account the nature,
contents and manner of entry into the contract, the interests of the parties and other
material circumstances, the term causes unfair harm to the other party, particularly if it
causes a significant imbalance in the parties' rights and obligations arising from the
contract to the detriment of the other party. Unfair harm is presumed if a standard term
derogates from a fundamental principle of law, or restricts the rights and obligations arising
for the other party from the nature of the contract, such that it becomes questionable as
to whether the purpose of the contract can be achieved. The invalidity of standard terms
and the circumstances relating thereto must be assessed as at the date of entering into
the contract.) In France, an abrupt termination of an established commercial relationship
may lead to liability for damages under Article L. 442-6 of the Code de Commerce. This
provision expressly mentions, in section I No 5, under which circumstances such a
termination may lead to liability. The examples include abruptly breaking off an established
business relationship, even partially, without prior written notice commensurate with the
duration of the business relationship and consistent with the minimum notice period
determined by the multi-sector agreements in line with standard commercial practices.
Where the business relationship involves the supply of products bearing the distributor's
116 PE 578.978
Franchising
brand, the minimum notice period should be double what would apply if the products were
not supplied under the distributor's brand. In the absence of such agreements, ordinances
issued by the Minister for Economic Affairs may determine a minimum notice period for
each product category, taking due account of commercial practices, and may lay down
conditions for the severing of business relations, in particular based on their duration.
These provisions do not affect the right to terminate without notice in the event of a failure
by the other party to perform its obligations or in the event of force majeure. Where the
business relationship is terminated as a result of competitive bidding via distance auction,
the minimum notice period is double that of the period resulting from the application of
the provisions of this paragraph if the duration of the initial notice period is less than six
months, and at least one year in other cases. The other cases of unfair termination may
be covered by No 2 of the same section, setting out a prohibition on subjecting or seeking
to subject a trading partner to obligations that create a significant imbalance in the rights
and obligations of the parties. Furthermore, a clause providing the franchisor with the
possibility of unfair termination of the franchising contract may also be qualified as an anti-
competition practice in the sense of Article L. 420-2 of the Code de Commerce if it
constitutes an abuse of the dominant position of the franchisor on the market. Such a
clause could then be invalid on the basis of Article 420-3 of the Code de Commerce. In
Belgium, the reasons that can lead to a termination of the franchise agreement, and any
other sanctions for a breach of contractual obligation of the franchisee, must be mentioned
explicitly in the pre-contractual information document. While no information on this topic
is available in Germany, it is conceivable that, despite the protection mechanisms
available under German law (control of general terms and conditions, moral nullity
pursuant to § 138 BGB and the principle of good faith under § 242 BGB), some franchise
contracts may contain such unfair terms that would render the franchising project
financially unsustainable for the franchisee and lead to the termination of the franchising
contract. In Poland, there is no information or case law on this particular subject. The
question that seems to appear in practice concerns the consequences of automatic renewal
clauses (whether a clause that stipulates contract renewal after x years for the same
period, subject to continuing the contract performance, applies just once).
7.4.3. Insufficient protection upon the termination of a franchising contract resulting

in a substantial loss in investment
In Italy and Romania, the parties are required to include clauses concerning the
termination of the contract, and must include a minimum term that is long enough to allow
the franchisee to recover its investments. The investments of the franchisee are also
considered under Belgian law, when deciding whether or not the termination constitutes
an “abuse of right”, and in the Netherlands, where premature termination by the
franchisor may invalidate the non-competition clause. In France, the same end date needs
to be prescribed for all contracts that may potentially limit the franchisee’s freedom to
carry on with the franchise. Under Estonian law, a term allowing for termination might be
considered as unfair in certain cases. No specific references have been found in Germany
and Spain. In Poland, no specific references to franchising exist, though a case decided
by the Supreme Court touches upon the problem.
In Italy, the termination of a contract is often dealt with in case law, though law 129/2004
is generally silent on this aspect. The statute rather demands that parties expressly
regulate the termination of the contract, since Article 3.4.g. sets out that the contract must
expressly mention “the conditions for the contract's renewal, termination or the possible
transfer.” The termination of a franchising contract is subject to the party autonomy
principle and general contract law. The termination of long-term contracts, such as
franchising, has an ex nunc effect, so that the loss of investments could indeed be a
PE 578.978 117
consequence of termination. However, Article 3.3 of law 129/2004 states that in fixed-
term contracts (though scholarship extends the scope of application to all contracts) the
franchisor must guarantee the franchisee a minimum term to allow the latter to recover
its investments, in any case not less than three years, except in the event of earlier
termination of the contract for a breach. Concerning the termination of a non-fixed-term
contract, withdrawal can be exercised anytime with a reasonable notice, a more precise
determination of which can be performed by a judge in light of the principle of good faith,
and taking into consideration various aspects such as also the investments made by a
party. In Romania, the law simply requires the parties to include in the franchising
contract clauses concerning the termination of the contract (Article 5 of the Franchising
Law). According to this, the contract should be concluded for a period that is sufficient in
order to allow the franchisee to recover its investment (Article 6 para. 1). In practice, an
issue noted with a certain frequency was the problem of the stock of merchandise or of
the inventory of equipment still in the possession of the franchisee, who cannot make any
use of it after the termination. The recommended solution is inserting a clause in the
franchising contract providing for the take-over of the stocks and inventory relevant for
the franchising network by the franchisor from the franchisee. 119 In Belgium, the statute
regarding pre-contractual information obliges the franchisor to inform the franchisee of the
duration of the contract, as well as of the franchisee’s rights to a renewal/extension of the
contract. The pre-contractual information document must also make the franchisee aware
of the investments that will be required of it at the start of the cooperation and during the
entire term of the franchise agreement, as well as of the impact of the termination on such
investments. Besides the fact that the franchisee should, therefore, be fully aware of the
risks taken by signing the franchise contract and making the required investments, the
only protection in the event of an untimely termination lies in the theory of an ‘abuse of
right’. Case law has ruled that a franchisor, upon terminating the franchise agreement,
must grant a reasonable notice period taking into account the investments of the
franchisee. 120 The decision of a franchisor not to renew the contract can also be deemed
abusive if the franchisee was required to make material investments before the end of the
contract, and was led to believe that a renewal would be granted. In the Netherlands,
this issue has mostly been raised in combination with the enforcement of the non-
competition clause, where the premature termination by the franchisor of the franchise
contract could be an argument that the non-competition clause should not be enforced,
since it would be contrary to good faith to further impinge on his financial situation. For
example, in the case Rechtbank (court of first instance) Zutphen (KG), 15 July 2008,
ECLI:NL:RBZUT:2008:BD7263, since the franchisor terminated the contract prematurely
without sufficient grounds to do so, the franchisee may have the right not to comply with
the non-competition clause, if it proves that it would otherwise not be able to support itself.
See also the above-discussed cases: Rechtbank (court of first instance) Utrecht, 23
December 2011, ECLI:NL:RBUTR:2011:BV3058; Rechtbank (court of first instance)
Utrecht, 24 April 2013, ECLI:NL:RBUTR:2013:BZ9503. However, the non-competition
clause could be enforced if it was the franchisee who decided to terminate the contract
prematurely, thereby risking severe financial consequences. In France, Article L. 341-1 of
the Code de Commerce, as amended by the Macron Law, states that the same end date
must be prescribed for all contracts entered into between the distribution network head
and a given member of the distribution network, where they include clauses that may
potentially limit that member’s freedom to perform the commercial activity concerned.
Subject to further confirmation as to the interpretation of the Macron law, the same end
119
Mocanu, idem, p. 176.
120
Brussels 9 February 2007, not published, A.R. 2004/AR/1647; Court of Appeal Liège 16 January 1998, J.L.M.B.
1998, 589.
118 PE 578.978
Franchising
date could be provided either as a fixed term or as a result of the lapse of the contract. In
addition, under the new changes the termination of one contract will automatically
terminate the others. 121 In Estonia, there are certain ways to prove that the possibilities
of the franchisor are limited in cases of termination. First, by proving that the term is unfair
on the bases of the general definition of unfairness (LOA Article 42 para. 1). The term may
be proved unfair also under Article 42 para. 3 subparagraph 10 of the LOA, as a term that
deprives the other party of the opportunity to protect the party's rights in court, or that
unreasonably hinders it from being exercised. In Poland, the Civil Code (Article 3651) sets
out a rather harsh rule concerning the termination of obligations without a fixed term of
continuing performance. Such an obligation ceases to exist after notice is given by the
debtor to the creditor observing the notice period indicated in the contract, by law or
established in practice, and if there is no such notice period, then immediately after giving
the notice. The Polish Supreme Court dealt with the problem of protection of a franchisee
at the moment of terminating the franchising contract that might result in a substantial
loss of investment, but did not really refer to this in its justification (judgement of the
Supreme Court of 7 March 2007, ICSK 348/06). In this case, the Supreme Court Stated
that since the franchising contract had been concluded against payment, and the
obligations of the parties are supposed to be equivalent, the franchisee has no legal
grounds to demand, after the termination of the contract, the return of payments made
for using the firm of the franchisor. In this case, Company A built a network of fuel stations
and concluded a series of franchising contracts (including the contract with the claimant (a
married couple). The contract was prepared in German and subsequently translated into
Polish. After a year, Company A terminated the contract with notice. The parties argued
about the settlement of reciprocal payments: Company A demanded payment for the
delivered fuel, while the franchisee requested the deduction of the paid franchising
payments. One of the contract clauses provided that, after ending the contract
(irrespective of the reasons), the franchisee may demand the return of the paid fees, and
other outstanding payments in cash. Company A claimed, however, that due to a mistake
in translation, each of the parties understood the contract differently. The Supreme Court
stated that the key factor in this case was establishing the meaning of the contract clause.
Since the parties disagreed on its interpretation, an objective meaning had to be given,
which would take into consideration the specific characteristics of the given contract. Since
franchising constitutes a contract concluded against payment, one cannot assume that the
franchisor provides his know-how and experience against payment that is to be returned
upon the dissolution of the contract. This is internally contradicting and franchisees, when
engaging into cooperation with a franchisor, must assume the obligation to pay for the
know-how (the equivalent for the franchisor).
7.4.4. A non-competition obligation permitted after the expiry of a franchising

contract that substantially drives up entry barriers
The most comprehensive regulation amongst the researched legal systems exists in
France and Romania, where the law is based on the European legislation on vertical
agreements (Regulation 330/2010), and where non-competition clauses can only last up
to one year after termination of the contract. In Italy, respective clauses are also
permitted and may cover up to five years after termination. In Estonia, there is a certain
indication that unfair non-competition obligations are included in contracts. The only
remedy in this case is to prove that the term is unfair (LOA Article 42 para. 1 of the LOA).
121
http://www.eversheds.com/global/en/what/articles/index.page?ArticleID=en/Competition_EU_and_Regulat
ory/What_it_changes_in_Commercial_and_Distribution
PE 578.978 119
Post-contractual non-competition obligations create problems in Belgium and Germany

as well.
In France, new rules applying to such situations have been established by law No 2015-
990 dated 6 August 2015 on the growth, activity and equality of economic opportunities
(the Macron Law). Article L. 341-2 of the civil code provides that post-contractual non-
compete clauses that restrict the commercial freedom of the former member are
prohibited. However, post-contractual non-compete clauses may nonetheless be valid
provided they abide with a certain number of conditions. The conditions mirror those
provided by Regulation 330/2010, namely:
• the obligation relates to goods or services that compete with those of the contract;
• the obligation is limited to the premises and land from which the entity has operated
during the contractual period;
• the obligation is essential to protect know-how transferred during the contract;
• the duration of the obligation is limited to a period of one year after the termination
of the agreement.
Nevertheless, it is not clear how tacit renewal clauses will be perceived under the Macron
Law, and whether they might be considered contrary to these provisions. The new
provisions enter into force on 6 August 2016 and they are not limited to contracts in the
retail food sector. It is not clear whether they should apply to international distribution
contacts but it is to be expected that the Direction générale de la concurrence, de la
consommation et de la répression des frauds (“DGCCRF”) will take the view that the Macron
Law applies as long as the distributor operates on the French market. Any current
distribution contracts should therefore be reviewed and amended, if need be, by August
2016. 122
In Romania, the Franchising Law allows parties to include in their franchise contract a
non-competition clause in order to give the franchisor the opportunity to maintain the
identity of its franchise. Non-competition clause can operate during the contract as well as
after its termination. Such clauses are limited in three ways: regarding objects, space and
time. Concerning the contractual period, non-competition clause, as well confidentiality
clause, is implied. In opposition to this, a non-compete clause in the post-contractual stage
can be considered a limitation to the freedom of trade if it does not comply with certain
strict validity conditions. Romanian legislation 123 regulates the non-competition clauses in
a manner similar to the European legislation, as an exception to the provisions regarding
anti-competition practices. Therefore, the clause may only concern goods or services that
compete with those that were the object of the franchise contract; it is limited to the areas
in which the buyer has operated during the contract; and cannot be for longer than one
year starting from the termination of the contract. As mentioned above, one of the few
recent cases adjudicated by the Consiliul Concurenței concerning franchising contracts
dealt, among other issues, with the problem of the period of a non-compete clause that
was initially set to two years after the termination of the contract. Following an
investigation started by the Competition Authority, the franchisor undertook to reduce the
period of the non-compete clause in its franchising contracts to 1 year. 124 In Estonia, there
122
http://www.eversheds.com/global/en/what/articles/index.page?ArticleID=en/Competition_EU_and_Regulatory/
What_it_changes_in_Commercial_and_Distribution
123
Art. 6 lit. b of the Competition Council regulation regarding the applicability of Art. 5 para 2 of Competition
Law No 21/1996 concerning vertical agreements.
124
Decision No 65 of 31 October 2012 of the Consiliul Cocurentei (see fn. 1).
120 PE 578.978
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is an indication that unfair non-competition obligations are included in contracts, where

the only remedy is to prove that the term is unfair (Article 42 para. 1 of the LOA). Non-
competition clauses (not exceeding five years) are permitted in Italian law. In franchising
contractual practice, they are often employed also to cover a period of time after the
termination of the contract. In the case Soc. Tride v. Soc. Natuzzi, Ord. Trib. Bari,
22/10/2004, a franchisee whose contract was not renewed after three years, complained
that the termination was unlawful since, contrary to good faith requirements, the franchisor
created a legitimate expectation in the franchisee that the contract would be renewed, as
he previously requested the franchisee to make new investments in the renovation of the
store to meet the standards required by the franchisor. In addition, this investment could
not be recovered because of the presence of a one-year non-competition clause after the
termination of the contract. The Court, however, held that the termination of the contract
was lawful as it was neither unexpected nor arbitrary, and the possibility for the franchisee
to recover its investments is guaranteed by the minimum duration of three years of the
fixed-term contract, as required by law 129/2004. In Belgium, in specific sectors, where
points of sales have a larger area, socio-economic permits are necessary and difficult to
obtain, post-contractual non-compete clauses or non-affiliation clauses could create a
barrier to entry for new players on that market. The number of these points of sales are
limited and if a large number of sales points are linked to specific franchisors, this could
make it difficult for a competing franchise chain to enter the market if a large part of the
available points of sales are tied up to other franchisors or because of post-contractual
non-compete obligation. Up until now, however, no research exists showing that this is a
material issue for a specific industry sector. In practice, post-contractual non-compete
clauses are not always easy to enforce. In Germany, the LG Potsdam (LG Potsdam,
Judgement of 13 March 2008, Az.: 2 O 385/07) had to decide whether or not claims for
injunctive relief under competition law were available to a franchisor against its former
franchisee. The judgement dealt with the question of who has the rights to a slogan that
the franchisee had registered as a protected trademark at the German patent office. The
court decided that the registration of the slogan was unjust, and that the rights belonged
to the franchisor. However, the case boiled down to the question of whether the franchisor
qualifies as a competitor of the former franchisee, as a franchisor can only claim for
injunctive relief under the German Act against Unfair Competition (UWG) if there is a
competitive relationship between it and the former franchisee. The court affirmed this
question and considered it as sufficient that the franchisor had another franchisee that was
competing with the former franchisee in the same region. While the franchisor itself had
its place of business in a completely different location, it was therefore sufficient that it
competed with the former franchisee through one of its current franchisees. Consequently,
the court granted the franchisor injunctive relief under the UWG. In Poland, while there
is no case law in this regard, there are certain indications that the scope of post-contractual
anti-competition clauses, as allowed by Regulation 330/2010 are extended. First, the one-
year limit after the contract ends is not always respected, second, the anti-competition
clauses cover not only the franchisee but extend to immediate family members, for
example spouses. An extreme example of an anti-competition clause covered family
members up to the fourth line of kinship.
7.4.5. Unfair compulsory purchase options below market price

Generally speaking, this problem has not been noted at a national level. Compulsory
purchase options are commonly included in Belgium. General remarks on this issue have
been submitted from Estonia and Belgium. No references were found in France,
Germany, Poland and Spain.
PE 578.978 121
In Belgium, there is a practice of including a compulsory purchase option in the contract

(upon the termination of the contract). There is, however, no case law regarding purchase
options at below market price. In reality it will be difficult to evaluate the potential value
of a business beforehand in the contract. The value of the franchisee’s business is,
furthermore, at least partially linked to the brand and commercial formula of the franchisor.
Most Belgian franchise contracts link the purchase price, if the purchase option is exercised,
to turnover or to profit. In Estonia, the remedy would be to prove that the term is unfair
and void (LOA Article 42 para. 3 subparagraph 23: a term presumed to be unfair if it
prescribes the obligation of the other party to accept goods or services not ordered in
addition to the goods and services agreed upon), whereas in Romania the general
provisions of the private law concerning the fairness of the cause of the contract or reasons
of public policy might be used in order to challenge the validity of such a clause.
7.4.6. Specific issues - Spain

In Spain, two other issues were raised:
The franchisor must have its own premises and must it have been successful? A
novelty in the RD of 2006, which amended the previous RD of 1998, was its reference for
the first time to franchising as a business method that has proven to be successful. The
former definition of franchising in the 1998 RD did not mention this. Accordingly, the RD
of 2006 required franchisors to inform the register of franchisors concerning the number
of years that the franchisor has been operating its business. Furthermore, Article 12
announced the creation of a new section in the register intending to identify franchisors
that are consolidated on the market. The RD of 2010 also includes a requirement that the
franchisor must have “enough experience and success” in operating the franchise business.
However, in practice it is doubtful whether this has any significance. In fact, the Tribunal
Supremo, in a decision of 27 February 2012, states that there is no legislation that obliges
the franchisor to have its own premises, and that the franchisee was aware of the lack of
experience of the franchisor at the time of entering into the contract, so it cannot use such
an argument to avoid the contract. 125
The approach of Spanish courts regarding the requirement for the franchisor to
hold a valid title concerning the IPR:
The approach of appeal courts in Spain is not to look at whether the franchisor has a title
or right to use the IPR, but whether the franchisee can use effectively the IPR. This is
rather surprising given that the RD 201/2010 requires the franchisor to provide the
franchisee with proof of legal ownership, or proof of the right to license the Intellectual
Property Rights.
125
STS 27 February 2012, Roj: STS 1327/2012 - ECLI:ES:TS:2012:1327.
122 PE 578.978
Franchising
7.5. Franchising in a cross-border dimension
7.5.1. Available data

The available data on the percentage of domestic brands shows that in the vast majority
of countries domestic brands dominate markets.
Table: % domestic franchising brands
2009 2010 2011 2012 2013 2014
Country 2007 2008
Est.
Austria 43% 46% 51% 51%
Belgium 60% 60% 60% 60%
Croatia 20% 30% 13%
Czech Rep 49% 55% 55% 55% 60%
Denmark 82%
Finland 75% 74% 74% 74% 74% 73% 75%
France 85% 85% 85% 85% 85%
Germany 80% 80% 80%
Greece 70%
Hungary 55% 55% 60% 70% 70% 60%
Italy 90% 90% 90% 90% 85% 85%
Netherlands 85% 85%
Poland 71% 69% 72% 74% 74% 74% 75%
Portugal
Slovakia
Slovenia 47% 52% 51% 50% 48% 43%
Spain 81% 82% 81% 81% 81%
Sweden 90% 80% 80% 80%
UK 80% 80% 80% 80% 80%
Source: European Franchising Federation.
PE 578.978 123
7.5.2. Legislative solutions

The national character of franchising networks is reflected in both – the legislation and
practice of national markets. On the legislative level, the cross-border dimension of
franchising is tackled only in Italy and Spain. In Italy, law 129/2004 imposes, among
other things, a slightly more detailed information obligation on the franchisor in cross-
border situations. Cross-border franchising generally uses the master franchising model,
and Article 2 of the statute makes clear that the statute applies also to master franchising.
More directly, Article 4.2 of the statute authorises the Government to pass a decree
defining specific information duties affecting franchisors who previously operated
exclusively abroad. On that basis, the Government issued Decree 204 of 2 September
2005, which deals with foreign franchisors intending to operate in Italy. The scope of
application “is limited to cases in which, on the basis of the provisions of international
private law, the contract is governed by Italian law” (Article 1.2). According to the decree,
the franchisor has to offer (in Italian) slightly more detailed information than that generally
requested by law 129/2004 for Italian franchisors. In particular, the franchisor has to
provide a numerical list of franchisees operating in the network, a list containing the data
and the contact details of at least twenty current franchisees (or a complete list if there
are less than twenty), an indication of the change on a yearly basis and by country of the
number of franchisees, with their relevant locations in the last three years.
In Spain, the cross-border element is present where the Retail Commerce Act and its
implementing RD impose on franchisors the obligation to submit all relevant data regarding
the franchise network to the public register of franchisors. No such obligation is imposed
on foreign franchisors if they do not have a permanent establishment in Spain. However,
foreign franchisors must in any case communicate that they will start franchising their
business to the register of the autonomous community in which they will start their
franchise business in Spain. If there is no register in the autonomous community, they will
have to register in the central register. Foreign franchisors with a permanent establishment
in Spain are considered as local franchisors with regard to the contents of the register
obligation. Foreign franchisors who have concluded a master franchise contract with a
master franchisee in Spain are also required, via their master franchisees, to comply with
registration obligations.
7.5.3. Contractual practice

In Germany, franchising contracts with a cross-border element are evidently concluded
on a regular basis. It is not apparent, however, that there are any significant material
problems in this context that cannot occur in purely domestic contracts (apart from the
fact that it is necessary to clarify the applicable law and competent jurisdiction in these
cases). In one case, the court had to deal with the question of whether the arbitration
clause in a franchising contract was valid and effective (Hanseatic OLG in Bremen, Decision
of 30 October 2008 – Sch 2/08). The parties to the franchising contract were a Dutch
limited liability company with its registered office in Amsterdam, acting in Europe for an
US American parent company based in Florida, as franchisor for gastronomic
establishments and a German franchisee. The parties had a dispute over the payment of
franchising fees for three franchise operations. The main problem in this case was the
arbitration clause, which referred all disputes between the parties to arbitration in New
York. The parties agreed in the franchising contract that it is governed by the private law
of Lichtenstein. The franchisor conducted arbitration in the USA in accordance with the
arbitration clause and obtained an arbitral award that was supposed to be declared
enforceable. The franchisee defended itself against this declaration. The court concluded
that the arbitration clause was invalid, and the arbitral award was consequently not
124 PE 578.978
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enforceable, as the arbitration clause placed the German franchisee unilaterally at a

disadvantage. It would require substantial financial efforts and would be quite time
consuming for the German franchisee to assert its rights in the USA. Therefore, the court
came to the conclusion that the arbitration clause is invalid pursuant to § 879 III of the
Austrian ABGB. This norm is applicable as the contract is governed by the private law of
Lichtenstein, where the Austrian ABGB is the applicable law for such cases. The sole
objective of this arbitration clause was to further increase the imbalance in power between
the commercially less adept franchisee and the franchisor, with the help of the US American
parent company (OLG Dresden, Decision of 07.12.2007, 11 Sch 8/07). In the
Netherlands, only one franchising case contained a cross-border element (case
Rechtbank Almelo (court of first instance), 7 March 2012, ECLI:NL:RBALM:2012:BV8702)
- one party was German and one was a Dutch. In Poland, a cross border case (German
franchisor and Polish franchisee) was decided by the Supreme Court, though the problem
referred to a discrepancy in the language versions of the contract, rather than the cross-
border character of the contract as such (judgement of the Supreme Court of 7 March
2007, ICSK 348/06).
In Romania, very few of the scarce amount of cases that reach the courts involve a foreign
element, which is somehow surprising given that the largest franchisers on the Romanian
market are EU- or US-based companies. One reason could be that the foreign companies
often establish a Romanian company 126 under their control (the master-franchisee) for the
whole of Romania, who acts a franchisor with the Romanian franchisees.
In 2011, however, the Consiliul Concurentei issued a decision 127 concerning an agreement
between a Croatian producer of pharmaceutical products and a Romanian distribution
company. Their relationship was not one of franchising, but in its reasoning the Competition
Authority referred also to the situation of franchising contracts, implying that its decision
would have been the same if there had been a franchising contract between the parties.
The agreement included a prohibition on exports clause, whereby the distributor was not
allowed to sell products outside Romania, and was bound to ensure that its buyers do not
resell the products outside Romania. The Competition Authority noted that the agreement
between the parties did not concern the transmission of some intellectual property rights,
and as such it does not benefit from the exemption provided for by the EU (and Romanian)
legislation. Moreover, no individual exemption could have been granted because, according
to the Competition Authority, the restriction was not indispensable in order to improve
distribution or to transfer benefits to consumers. The Consiliul Concurentei suggested
(paras 365, 369 and 375) that, should the agreement be a franchising one, the exemption
would not apply equally, because the restriction was meant simply to “divide the market,
by isolating the Romanian market and impeding the parallel trade with Belupo products on
different markets, including those within the European Union.”
In Spain, few references can be found on proceedings concerning franchising networks
with a cross-border dimension. The judgment of the TS of 21 October 2005 concerned a
claim of a French franchisor against its Spanish franchisees because of the non-compliance
of the latter with the obligation to stop using the franchisor’s know-how. 128 However, the
TS proceeds as if the franchisor was Spanish, thereby excluding the cross-border
dimension. The cross-border element of franchising also appeared in a decision of the TS
of 30 July 2009. It was stated that the cross-border dimension of a franchise network is
an element to be considered in order to determine whether the “minima rule” that applies
126
For the case of the McDonald’s franchise, operated through McDonald’s Romania SRL, the Romanian subsidiary
of the US company, see Decision No 32 of 12 August 2015 of the Consiliul Concurentei.
127
Decision No 51 of 28 October 2011: http://www.consiliulconcurentei.ro/uploads/docs/items/id7313/
decizia_nr_51_28102011_site.pdf.
128 STS 21 October 2005, Roj: STS 6410/2005 - ECLI:ES:TS:2005:6410.
PE 578.978 125
to competition issues is to be put into effect here as well. Restrictions to competition in a

network with a presence in several EU countries can hardly benefit from an exemption. 129
129
STS of 30 July 2009, Roj: STS 5933/2009 - ECLI:ES:TS:2009:5933.
126 PE 578.978
Franchising
THE QUESTIONS OF THE EUROPEAN PARLIAMENT –

CONCLUSIONS
KEY FINDINGS
• Regulation 33/2010 focuses on the advancement of the internal market and does
not consider the effect it has on the functioning of the franchising market from the
point of view of private law relations.
• The impact of the Regulation is direct (it exempts certain potentially unfair vertical
restrains) and indirect (it provides support to the franchisor – a party that is in a
structurally stronger position).
• The outcome of the research suggests that though changes to the Regulation may
be required, any changes must be assessed both from the perspective of
competition law and private law.
• The existing European reporting and complaint systems could be used for gathering
information on the functioning of the franchising market.
• An action supporting self-organisation of franchisees is very much needed.
8.1. What is the effect of existing EU-legislation on the well-

functioning/malfunctioning in the area of franchise?
8.1.1. Introduction – the focal points
To say that Regulation 330/2010 impacts the functioning of the EU franchising market
would be stating the obvious. The questions that truly require answering are how and to
what effect does the Regulation impact the functioning of franchising contracts.
The mechanism that the Regulation promotes can be described in the following way:
although certain contractual terms (may) have a restrictive character from the point of
view of competition law, they play a very useful role as they allow for further market
development. Their potential anti-competitive effect is therefore outweighed by the
benefits they bring (to the market and to the consumers). Competition law is not
concerned, however, with the effect those terms have on the relations between the
contract parties, as this is the private law domain. The influence of the Regulation on the
content of the private law relation can be observed on two levels:
1) the impact on the parties’ behaviour (how are the contracts drafted);
2) the impact on the practice of the courts (how the courts apply the content of the
allowed vertical restraints in the context of private law relations).
8.1.2. The impact on the parties’ behaviour
The application of the Regulation is based on a self-assessment by the parties. The findings
of the research strongly suggest that the market takes a “compliance approach”. This
means that, whenever the Regulation assumes that – subject to certain conditions - a
specific clause is acceptable and should not be seen as infringing competition, it is accepted
on the market. Achieving this result was one of the aims of the reform of EU competition
PE 578.978 127
law, as clearly explained in the Communication published by the Commission. This practice,
however, extends also to franchising contracts that do not fall within the scope of
application of the Regulation (according to the de minimis rule). From this point of view,
the Regulation has achieved its target: allowing (and encouraging) the parties to rely on
vertical restraints in order to integrate and develop the market. However, it seems that
the Regulation is applied in practice in a rather automatic way, i.e., there is no mechanism
(other than the possibility to remove the benefits of the block exemption) that would force
the parties to consider whether, in a given (market/ contractual) situation, the vertical
restraint is really justified. In other words, Regulation 330/2010 sets standards for
franchising contracts. This approach is reinforced by the franchisor organisations, which
establish the fairness standards by referring to the content of the Regulation. In this way,
the vertical restraints that are merely allowed by the Regulation (in order to achieve
market-oriented aims) become the applicable market standards.
8.1.3. Approach of national courts
The process described above is further supported by national courts. When dealing with
franchising, the courts use the content of Regulation 330/2010 to test the fairness of
contractual clauses (to decide whether certain contract clauses should be allowed by
private law). This means that competition law exerts a direct impact on the standards
acceptable in the private law domain, for example in Germany where the case law decided
on the basis of the previous regulation constitutes a benchmark for evaluating the moral
standards of a franchise contract pursuant to § 138 BGB. 130 In the Netherlands, the court
declared the non-competition clause fair, since it did not seem to impede competition on
the market. 131 In Spain, a rather more nuanced approach can be found: the court 132
concluded that minimum purchase obligations indicated impose a major obligation on the
franchisee, but are nevertheless valid if they are proportionate. 133
8.2. Does EU Regulation No 330/2010 need any adjustments concerning long-

term competition clauses, purchase options, multi-franchising or block
exemptions?
8.2.1. Introduction – position of the stakeholders
This question raises much controversy among the stakeholders. Adjustments to Regulation
330/2010 are demanded by the representatives of franchisee circles, and strongly opposed
by the representatives of franchisors. The franchisees claim that the clauses containing
vertical restraints are too repressive, as their application severely restricts the
entrepreneurial spirit of the franchisees. Moreover, while the clauses that the Regulation
allows strengthen the imbalances existing between the parties to franchising contracts, the
fact that the Regulation approves of them gives them legitimisation. The franchisors,
generally speaking, are of the opinion that the present regulatory environment is
appropriate, and the problems that might be found in practice (if any), are caused not by
the content of contractual clauses that contain vertical restraints, but by the way the
vertical restraints are applied. This amounts to unfair trade practices, and takes place
mostly in the food-chain industry (as explained by the EFF), or in the general food sector
(The French Franchise Organisation).
130
OLG Rostock, decision of 29.06.1995, 1 U 293/94, DB 1995, 2006.
131
Rechtbank Midden-Nederland, 11 June 2014, ECLI:NL:RBMNE:2014:7395.
132
TS, sentence of 2 March 2001 (RJ 2001, 2016).
133
STS 2 March 2001, RJ 2001, 2616.
128 PE 578.978
Franchising
8.2.2. Various perspectives for answering the question
The question whether Regulation 330/2010 needs adjustment should be approached from
two different perspectives: competition law and private law. From a competition policy
point of view, in order to answer this question one should establish whether the market
development still needs such support as provided by the Regulation, and (if so) whether
(1) the contents of the current vertical restraints are effective, proportional, and up-to-
date considering the recent market developments; and (2) the model of the franchising
contract adopted by Regulation 330/2010 reflects the market reality (franchising as one
type of distribution contract). These are, however, questions directed at economists, as to
answer them through an economic analysis of the market is required.
Second, from the perspective of the relations between the parties of franchising contract,
answering this question relates to establishing whether the adverse effect (the impact that
the exempted vertical restraints have on the content of franchising contracts) is
proportional, when compared to the market advancement they allow. In this respect, the
materials gathered during the research suggest that the Regulation might need
adjustment, as some of the problems encountered on the franchising market have their
roots in the content of the Regulation (i.e. the problems stemming from the exempted
post-contractual clauses, or purchasing obligations). Sometimes it is difficult to distinguish
what really constitutes the problem: the content of the exempted vertical restraint or the
potentially abusive way in which the exempted clause is used in practice by the franchisor
(as signalled by the franchisors).
It must be emphasised that the problems relating to the content of four clauses expressly
referred to by the IMCO do not exhaust the list of problems observed on the franchising
market. However, the problems relating to the lack of balance between the parties to a
franchising contract (which Regulation 330/2010 strengthens, so it has an indirect effect
also in these areas), remain outside the interest of the EU at the moment. The research
revealed that national legal systems have begun to react normatively to the problems that
can be observed in the franchising area. The national legislative interventions mostly aim
at balancing the position of the franchisee against the franchisor. The legislative processes
that lead to introducing franchising laws seem to be particularly difficult. As Abell puts it:
“it took seven years and eight bills in Italy, twenty-four years and five bills in Belgium, and
nineteen years and twelve bills in Sweden to produce a franchise law.” Despite these
problems, franchising laws have been introduced in Italy, Spain, Lithuania, Estonia,
Sweden, Belgium and Romania. Additionally, in Germany and France there is a clearly
established line of case law in the area, and a new soft law was accepted in the Netherlands
very recently. This process clearly creates barriers that restrict the ability of franchisors to
freely expand from one Member State to another. 134
This means that quite a paradoxical situation exists at the moment in the franchising area:
the EU is using competition law tools in an attempt to eliminate the barriers hindering
market development, turning a blind eye on the contractual repercussions of the introduced
rules (presumably to accelerate the process). At the same time, the Member States are
reacting to the problems encountered in the contractual dimension of franchising (which
are fortified by the EU competition law instruments), and are introducing laws that are
supposed to (generally speaking) support the position of the franchisee, creating market
barriers for the franchisors. What is clearly missing at the EU level is the wider perspective
on EU competition law that would take into account not only the direct market related
effects of the introduced rules, but also the less visible indirect consequences that appear
134
Abell, p. 85.
PE 578.978 129
at national level. Here, new market barriers can appear, which are inspired (even if only
indirectly) by EU law.
These processes may tame the possibilities that meeting the potential of franchising
contracts has for contributing to the internal market by improving distribution and giving
businesses increased access to other Member State markets. 135
8.2.3. Updating the Guidelines
Another related issue that should be referred to here are the Guidelines that accompany
the Regulation. In principle, with regards to franchising, they have not been changed since
1999 (when Regulation 2790/1999 was passed).
The Guidelines should provide the parties and the national courts (which may not be
familiar with applying competition rules) with practical help in the process of a self-
assessment of the Regulation. In order to do so, they should be up-to date with the market
developments in terms of new trends regarding network organisation as well as
technological advancements. During the research, the following issues were indicated as
either requiring revision or inclusion into the Guidelines: resale price maintenance, the
protection of intellectual property rights in franchise agreements and the extent to which
the protection of trade marks or know-how can justify exceptions from the rules set by the
Regulation. It was also pointed out that the Guidelines to the Regulation stipulate that a
combination of exclusive distribution and selective distribution is only exempted by the
Regulation if active selling in other territories is not restricted. In practice, however,
franchisors often want to grant exclusive territories to their franchisees and want to protect
each franchisee from active competition in that territory from other franchisees. In
particular, in industry sectors where sales are not limited to a point of sale, but where
franchisees visit their clients outside a brick and mortar point of sale, this gives rise to
difficulties (e.g. the real estate sector, the insurance sector and the travel agency sector).
8.2.4. E-commerce
The current approach to franchising at the EU level does not take any account of the new
challenges that appear for relations between franchisors and franchisees in the context of
e-commerce. This subject also hardly ever appears at national level. However, during
sample interviews with the representatives of the industry this subject was broached by
both sides. This issue should therefore be the subject of further investigation, especially in
the context of territorial exclusivity clauses and a clear position on permitted options should
be included in the Guidelines.
8.3. Does existing EU legislation simply need better enforcement?
While effective enforcement is a key aspect of any legislation, limiting the necessary
changes on the franchising market to improving enforcement would amount to reducing
its problems. That being said, two observations can be made regarding enforcement issues.
8.3.1. What is “better enforcement”?
The first issue that requires clarification in this case is what does “better enforcement”
mean in the context of applying Regulation 330/2010 in the franchising area. Here it does
not mean that the rules should be applied more strictly, on the contrary, its application
should be proportionally adjusted, as far as the clauses are necessary to fulfil the aim for
135
Abell, p. 41.
130 PE 578.978
Franchising
which they were introduced. The research suggests that the application of the Regulation
is quite automatic: i.e. the contracts tend to include the exempted restrictions without
verifying whether or not they are necessary from the point of view of the aims for which
they were exempted. A similar tendency seems to be present in the court practice at the
national level.
8.3.2. Enforcement and fear factor
Proper enforcement (in its traditional context, i.e. the possibility of effectively enforcing
one’s rights in cases of their violation) constitutes an issue for contractual relationships
with a high level of fear factor. Franchising contracts constitute a prime example of such
relations. In order to limit situations where franchisees will refrain from enforcing their
rights, specific measures should be promoted. Here, one might refer to the institutional
support to the self-regulation of franchisees that can work as a whistle, or handle an
alternative dispute resolution system for its members, or by referring to unfair trade
practices (if the EU project in this area will come to fruition). One should remember,
however, that the fear factor constitutes an inevitable and probably natural part of business
relation, and its complete elimination is neither advisable, nor possible.
8.4. Could possible European solutions be found in self-regulatory initiatives

such as the European Franchising Code of Ethics, or an improved
reporting or complaint system (e.g. using SOLVIT, Your Europe or another
appropriate general or dedicated tool)?
The self-regulatory initiatives can undoubtedly benefit the market and its organisation.
However, for constructing a proper self-regulation model, certain requirements must be
met. One of the most important is equal and independent representation of the interested
parties. This condition is not met at present on the EU franchising market (see chapter I
point 2.6.2). In order to rectify this, an action supporting self-organisation of franchisees
is required. On the other hand, an improved reporting or complaint system (such as
SOLVIT) would definitely be beneficial, as it could allow information to be gathered about
the market situation. Despite the work done while preparing this report, much still remains
to be discovered when it comes to unveiling the franchise practice in EU. Collecting market
information via reporting systems that guarantee anonymity may be a very useful tool for
verifying the mutually exclusive positions presented by the franchisors and franchisees.
8.5. What are the current systems in place at a European level regarding
cross-border cooperation and the exchange of best practices in the field
of franchising? Would additional action, e.g. the introduction of a new EU
instrument be necessary?
The only functioning system is organised by the European Franchising Federation, around
the European Franchise Code of Ethics. This is absolutely not adequate, considering the
role that franchising already plays on the EU market and the potential it carries for market
development. What is definitely lacking is the cooperation and self-organisation of
franchisees, at both a national and EU level. Any initiative in this regards should be strongly
supported.
PE 578.978 131
RECOMMENDATIONS
KEY FINDINGS
• A better balance in representation.
• Establishing the content of franchising contracts.
• Establishing the competition law impact
• Verifying the correctness and effectiveness of competition law solutions in the
franchising area.
9.1. A better balance in representation

The research clearly showed that the franchising market suffers from a lack of balance in
the representation of the parties to franchising contracts. Hence, the only action that can
be taken immediately refers to strengthening the impact of franchisee organisations.
The franchisors have a well-organised net of organisations at national, EU and world
level. These organisations are very active and effective in representing and protecting the
interests of franchisors. This is certainly an important and positive aspect of the market
(self-)organisation. However, these actions are very often presented as industry initiatives,
whereas they seem to be driven by the franchisors.
It is easily understandable why the franchisees are underrepresented. A franchisee is
normally a small business that lacks resources (in terms of both time and money) to
become engaged in any extra activities (even self-representation). However, if the voice
of the franchisees is not heard properly and on an equal footing with the voice of the
franchisors, there can be no attempt at self-regulation. Only balanced representation of
the parties can ensure that self-regulation will consider the interest of the parties in an
unbiased way (it would be utterly naive to believe in the altruistic behaviour of strong
market players). In the situation of unbalanced representation, even the public
consultation of hard law solutions is biased (the franchisors present their view, whereas
the franchisees present no view).
It is of crucial importance that franchisees have effective and independent
representation at both national and EU level. It should therefore be considered what type
of organisational, educational and technical support could be provided to them. Here it
would be useful to consult these issues with the existing organisations at the national level,
as well as involve UAPME (“the voice of SMEs in Europe”), which has already voiced an
interest in franchising matters.
9.2. Establishing the content of franchising contracts

The main difficulty in completing this report was the inaccessibility of the franchising
contract content. Any future action undertaken without establishing first what types of
problems normally occur in practice will be based on “declaratory evidence” provided by
the interested parties.
The opinions presented by the parties to franchising contracts are (in a nutshell) the
following – the franchisors claim that the franchising market functions (almost) ideally; the
normative support given by EU competition law is perfectly suitable and does not cause
any problems in practice; and that any kind of legislative intervention would damage the
proper balance in supporting the interest of parties, achieved by EU legislation. If there
132 PE 578.978
Franchising
are any problems on the market, they are caused by the poor performance of the
franchisees, or are characteristic to specific sectors of the market (food sector). However,
even in such cases, the vertical restraints per se are fine; what is problematic is the way
they are used, which in certain situations may amount to unfair trading practices.
The franchisees report a variety of abusive practices that, in their opinion, have their
roots in the content of vertical restraints allowed by Regulation 330/2010. In the eyes of
the franchisees, the content of the Regulation not only places franchisees at a
disadvantage, but also prevents the development of the franchising market, by restricting
their entrepreneurial spirit. The franchisees therefore call for changing the content of the
Regulation (in order to eliminate the possibility of abuse on its basis), but also for
introducing a national regulation of franchising contracts, in order to better shape the
normative environment of franchising contracts.
In order to be able to verify these claims, it is necessary to gather information about real
life franchising contracts. Two options are possible here.
1) Parliament can demand the European Commission to open a contact point that
would allow anonymous information on the problems encountered by the
franchisees in their business relations. It should be widely advertised, via the
Internet and press publications addressed to the franchise sector. Collecting
information from franchisees will not provide a quantitative indication of the scale
of problems, but it will, nevertheless allow discovery of patterns in practice.
2) A collection of information on bankruptcies is also possible. Such a project
would consist of analysing the content of contracts after the bankruptcy of a
franchisee. It could reveal whether the content of the franchising contract played a
role in the failure of the franchisee business. It would require cross border
cooperation with national bodies that administer bankruptcy procedures. This could
also allow a (more) comprehensive analysis of the differences that exist among the
national markets.
9.3. Establishing the competition law impact

Gathering information on the content of franchising contracts should allow an evaluation
of how deep the competition law solutions impact private law relations in the
franchising area. Competition law pursues its specific market-oriented aims, but the impact
of competition law goes deeper than shaping the market. Cases decided (among others)
in Germany, the Netherlands and Spain prove that national courts use competition law as
a yardstick to decide what is and what is not allowed in private law relations (it follows the
line of thinking: if competition law allows it, private law must accept it).
The unintended (side-effect-like) impact of competition law (setting a normative
level playing field for the parties to a franchising contract) should be analysed and taken
into account when proposing and implementing new competition law instruments. The
competition law measures should be evaluated not only in light of the market integration
aims, but also as building blocks of private law relations.
9.4. Verifying the correctness and effectiveness of competition law solutions

in the franchising area
Two issues require verification in light of the need to prepare a new block exemption
regulation.
PE 578.978 133
1) Whether the model of franchising, as adopted by Regulation 330/2010

answers the needs of the franchising market, and
2) Whether the content of exempted vertical restraints is proportional and adequate,
taking into account the stage of development of the franchising market in the EU
Ad.1 Verifying the adopted franchising model

Franchising has been present in EU competition law for almost four decades. Within this
period, the competition law approach towards franchising has evolved substantially. At the
beginning (the Pronupia case), franchising was seen as a self-standing, distinct
business method with specific characteristics that clearly distinguished it from other
forms of business cooperation. As such, franchising required a specific approach that would
allow it to maintain its character. This attitude was continued in a series of the
Commission’s decisions and Regulation 4087/88. With the new approach of the
Commission towards widely understood distribution contract (as in Regulations
2790/1999 and 330/2010), franchising was put into one basket with all other
methods of distribution between the business parties. It was reduced to an
“exclusive distribution with some IPR issues.” The change of approach was not explained
by the Commission (the Action Plan simply stated that the approach had changed, but did
not explain the reasons for aligning franchising with other methods of distribution and its
consequences).
The results of the research do not allow an evaluation of whether the franchising model
adopted by EU law reflects the market practice (due to the lack of transparency and the
methodology used). Undoubtedly, this aspect requires further analysis, for which one must
first establish market practice. The question is whether franchising has really lost its
distinctive features to a degree that it is no different from other distribution contracts, and
whether a uniform approach is appropriate. The Commission has so far presented no
convincing argumentation in this regard.
Ad. 2 Exempted vertical restraints
Discussions with franchisees and franchisors revealed that there is quite a fundamental
difference between them when it comes to evaluating the content of the
exempted vertical restraints. While the franchisors praise the content of the Regulation,
the franchisees accuse it of not only further strengthening the position of franchisors
against franchisees, but also restricting the entrepreneurial spirit of franchisees, which in
turn translates to “freezing” market development instead of accelerating it.
The content of vertical restraints has not changed substantially since the adoption of
Regulation 2790/1999. This provokes the question whether the once exempted restraints
remain effective and proportional in the present market situation. This refers not to the
impact of the restraints on private law relations, but on the market – i.e. the primary target
of competition law. In addition, the question appears whether the Regulation (and the
Guidelines) takes into account in an appropriate manner the new market developments
that refer to the digitalisation of trade (the Internet) and the use of big data.
Also, the EU competition policy that aims at removing market barriers, supports
franchisors and turns a blind eye on the consequences in brings about at the national level,
where Member States introduce rules that aim at protecting franchisees. In other words,
while removing one type of barriers, it creates others (there is no such thing as a
free lunch). This aspect, i.e. the private law consequences of the competition law solutions
should be taken into account during legislative works in the future.
134 PE 578.978
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9.5. Possible further actions

The outcome of the research suggests several measures that would allow the problems
revealed in the legal and social environment of franchising in the EU to be addressed. The
recommended actions can be undertaken together, or separately (to address specific
issues).
Parliament resolution
The Parliament could call upon the Commission with a resolution:
• With the intention of ensuring that retail market legislation is more thoroughly
evidence-based, particularly as regards the need to adequately examine and
understand the impact of legislation on small businesses, as advocated by the
Parliament in the Resolution on a more efficient and fairer retail market of 25 May 2011
(2010/2109(INI)
c) to set up an online complaint channel (e.g. through Your Europe) that would
allow complaints to be filed concerning the use of unfair trade practices in
franchising contracts;
d) to start public consultations with a view to: correcting the model on which the
future block exemption regulation is based; establishing the concept of a franchising
contract to be used in any future EU legislation; and establishing a need for possible
action in the area of private law.
• With a view to facilitating the self-assessment process of any future regulation:
since the application of the regulation is primarily based on self-assessment, the
regulation must be drafted in a way that takes this into consideration. It should be easy
for the businesses that apply it to understand which contractual terms and practices
are allowed, and which are prohibited. In this context, creating a list could be
considered.
• With a view to ensuring a balanced representation of the parties to franchising
contracts: to take action to strengthen the self-organisation of franchisees at the EU
and national level, in order to grant franchisees equal access to the public debate on
franchising and establish a level playing field for any future self-regulatory action.
• With a view to correcting market failures in relations between franchisors,
through legislative action, either in by tackling unfair trading practices or by better
regulating retail, contract law or/and competition law.
Further actions, subject to the outcome of the consultations
The information gathered through the complaint channel and the public consultation should
allow the verification of the franchising market practices. The following issues should
be addressed in light of the established findings:
• Regarding the regulation in force at the moment: the possible adjustment of
the guidelines accompanying Regulation 330/2010 with a view to making it more
up-to-date with the current technological advancements (the Internet) and market
developments (for example: the relation between franchising and exclusive
distribution);
• Regarding any future regulation: (1) verifying the impact that the horizontal
approach adopted in Regulation 330/2010 has on the functioning of franchising; (2)
testing whether the franchising model adopted by the present regulation reflects
the market reality, and correcting it if necessary; (3) assessing the effectiveness
and proportionality of the allowed vertical restraints, taking into account also the
fact that they directly impact the franchising market by establishing market
standards; (4) establishing a list of issues that should be addressed in the new
guidelines.
PE 578.978 135
Possible private law instrument

In light of the findings relating to the franchising market practice, the possibility of adopting
a private law regulation dealing with certain aspects of franchising contract at the EU level
could also be considered.
Workshop
In addition, to initiate a debate, the Parliament could organise a workshop to discuss the
results of the research, and open up the debate among the stakeholders. Any such event
should ensure the proper representation of the franchisees and franchisors.
136 PE 578.978
Franchising
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Case 161/84 of 28 January 1986, Pronuptia de Paris GmbH (Frankfurt am Main) and
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Decision 88/604 ServiceMaster of 20 August 1988, OJ EEC L 332/38 of 3 December 1988

Decision 89/94/EEC Charles Jourdan of 2 December, 1988 OJ EEC L 35/31 of 7 January
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Belgium
Commercial court Brussel 15 March 1989, not published, A.R. 8733/87
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Commercial Court Hasselt 3 December 2010, R.G.D.C., 2012
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France
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Germany
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PE 578.978 137
OLG München, judgment of 17.11.1996, NJW-RR 1997, 812

OLG München, judgment of 24.04.2001, NJW 2001, 1759
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OLG Düsseldorf, judgement of 30.06.2004, U Kart. 40/02
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LG Hamburg, judgment of 06.06 2012, Az.: 315 O 77/11
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LG Dusseldorf, judgment of 21.11.2013, 14c O 129/12
The Netherlands
Rechtbank Arnhem, 18 February 1993, Prg. 1996/4455
Hoge Raad, judgement of 19 February 1993, Prg. 1996/4449 (Renault),
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Rechtbank Breda, 14 April 1998, ECLI:NL:RBBRE:1998:AI9699
Rechtbank Arnhem, 18 June 1999, ECLI:NL:RBARN:1999:AI9915

Rechtbank Den Bosch 15 June 2001 (unpublished)
Rechtbank Haarlem, 3 August 2011 (unpublished)
Hoge Raad, decision of 25 January 2002, ECLI:NL:HR:2002:AD7329 (Paalman)
Rechtbank Arnhem, 9 November 2005, ECLI:NL:RBARN:2005:AU9750
Rechtbank Dordrecht, 8 August 2007, ECLI:NL:RBDOR:2007:BB2204
Rechtbank Rotterdam, 16 May 2008 (unpublished)

Rechtbank Arnhem, 5 October 2009, ECLI:NL:RBARN:2009:BK1781
Rechtbank Den Haag, 17 February 2011, KG-ZA 10-1536
Rechtbank Arnhem, 15 June 2011, ECLI:NL:RBARN:2011:BR0232

Rechtbank Maastricht, 17 November 2011, ECLI:NL:RBMAA:2011:BU5153
Rechtbank Utrecht, 23 December 2011, ECLI:NL:RBUTR:2011:BV3058
Rechtbank Almelo, 7 March 2012, ECLI:NL:RBALM:2012:BV8702
Rechtbank Breda, 18 April 2012, ECLI:NL:RBBRE:2012:BW4396

Gerechtshof Den Bosch, 21 August 2012, ECLI:NL:GHSHE:2012:BX5661
138 PE 578.978
Franchising
Rechtbank ‘s-Gravenhage, judgement of 19 September 2012

ECLI:NL:RBSGR:2012:BY1753
Rechtbank Utrecht, 24 April 2013, ECLI:NL:RBUTR:2013:BZ9503

Rechtbank Den Bosch, 29 May 2013, ECLI:NL:RBOBR:2013:CA1429.
Rechtbank Amsterdam, 21 August 2013, ECLI:NL:RBAMS:2013:6591

Rechtbank Midden-Nederland, 11 June 2014, ECLI:NL:RBMNE:2014:7395
Rechtbank den Haag (KG), 16 July 2014, ECLI:NL:RBDHA:2014:8667
Poland
UOKiK decision DOK-1/2013 of 25 June, 2013
Supreme Court judgement of 22.01.1998, III CKN 365/97; OSNC 1998 nr 9 item 144
Romania
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http://www.consiliulconcurentei.ro/uploads/docs/items/id7313/
decizia_nr_51_28102011_site.pdf
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http://www.consiliulconcurentei.ro/uploads/docs/items/id8105/decizia_fornetti-
publicare_site.pdf
Consiliul Concurentei, Decision No 32 of 12 August 2015
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Jurisprudenta/DispForm.aspx?ID=50
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jurindex/obligatia-de-a-face-131-2010-4gm
Spain
STS 27 September 1996, RJ 1996\6646
STS 4 March 1997, RJ 1997\1642
STS 30 April 1998, RJ 1998\3456
STS 2 March 2001, RJ 2001, 2616
STS 21 October 2005, Roj STS 6410/2005 - ECLI:ES:TS:2005:6410
STS 9 March 2009, Roj: STS 1129/2009 - ECLI:ES:TS:2009:1129
STS 30 June 2009, Roj: STS 4437/2009 - ECLI:ES:TS:2009:4437
STS 30 July 2009, Roj: STS 5933/2009 - ECLI:ES:TS:2009:5933
STS 27 February 2012, Roj: STS 1327/2012 - ECLI:ES:TS:2012:1327
SAP Valencia 21 May 1993, AC 1993\1024
SAP Barcelona 16 December 1996, AC 1997\1650
SAP Huesca 20 November 1998, AC 1998\2476
PE 578.978 139
SAP Zaragoza 23 February 1999, ARP 1999\447

SAP Valencia 28 April 2000, AC 2000\1193
SAP Barcelona 10 May 2000, JUR 2000\211264
SAP Zaragoza 18 July 2000, JUR 2000\272692
SAP Zaragoza 25 July 2000, JUR 2000\273349
SAP Valencia 17 January 2001, AC 2001\1269
SAP Asturias 22 January 2001, AC 2001\959
SAP Barcelona, 23 January 2001, JUR 2004\54712
SAP Barcelona 31 March 2001, JUR 2001\215218
SAP Teruel 24 October 2001, AC 2001\1931
SAP Sevilla 28 January 2002, JUR 2002\47775
SAP Burgos 11 February 2002, AC 2002\892
SAP Barcelona 9 September 2002, AC 2002\1728
SAP Zaragoza 16 September 2003, AC 2003\1507
SAP Zaragoza 17 November 2003, AC 2003\2350
SAP Barcelona 24 March 2004, JUR 2004\122633
SAP Baleares 20 June 2005, SAP IB 851/2005 - ECLI:ES:APIB:2005:851
SAP Madrid 5 June 2006, IdCendoj: 28079370102006100346
SAP Madrid 23 April 2007, Roj: SAP M 5478/2007 - ECLI:ES:APM:2007:5478
SAP Granada 2 July 2007, Roj: SAP GR 1241/2007 - ECLI:ES:APGR:2007:1241
SAP Madrid 27 July 2007, Roj: SAP M 11747/2007 – ECLI:ES:APM:2007:11747
SAP Madrid 16 October 2007, Roj: SAP M 13755/2007 - ECLI:ES:APM:2007:13755
SAP Madrid 11 July 2008, Roj: SAP M 12103/2008 - ECLI:ES:APM:2008:12103
SAP Madrid 30 December 2009, Roj: SAP M 17675/2009 - ECLI:ES:APM:2009:17675
SAP Madrid 11 April 2012, EDJ 2012/84546
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SAP Castellón de la Plana 24 April 2014, Roj: SAP CS 920/2014 - ECLI:ES:APCS:2014:920
SAP Valencia 29 December 2014, Roj: SAP V 5978/2014 ECLI:ES:APV:2014:5978
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DIRECTORATE GENERAL FOR INTERNAL POLICIES

POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC POLICY

IP/A/IMCO/2015-05 April 2015

Dr. Aneta WIEWIÓROWSKA – DOMAGALSKA, Osnabrück University

ABOUT THE EDITOR

To contact Policy Department A or to subscribe to its newsletter please write to:

Manuscript completed in April 2016

This document is available on the Internet at:

GENERAL INFORMATION: RESEARCH CHALLENGES AND

FRANCHISING: THE PRESENT EU REGULATORY FRAMEWORK 30

FRANCHISING: EU REGULATORY FRAMEWORK 36

4.5.4. Communication from the Commission on the applicability of the

REGULATION 330/2010 AT A NATIONAL LEVEL 57

NATIONAL PRIVATE LAW APPLICABLE TO FRANCHISING – GENERAL

6.4. No specific rules: France, Germany, the Netherland and Poland 80

NATIONAL PRIVATE LAW APPLICABLE TO FRANCHISING – SPECIFIC

7.2.6. Switching status from employee to franchisee without sufficient

THE QUESTIONS OF THE EUROPEAN PARLIAMENT –

8.2.2. Various perspectives for answering the question 129

1.2. EU regulatory franchising framework

[Evolution of EU franchising model] Initially, EU law approached franchising as a

decisions in franchising cases as well as in Regulation 4087/88, which dealt exclusively

1.3. Regulation 330/2010 at a national level

[Shortage of data] In general, there is little information available on the functioning of

1.4. National franchising regulation

[Specific national legislation] Specific national regulation of franchising contracts exists

1.5. Conclusions (the questions of the European Parliament)

1) Does EU Regulation No 330/2010 need any adjustments concerning long-

2) Does existing EU legislation simply need better enforcement?

3) Could possible European solutions be found in self-regulatory initiatives

(1) Better balance in representation

(2) The content of contracts

(3) The competition law impact

Gathering information on the content of franchising contracts should also allow an

(4) Verifying the correctness and effectiveness of competition law

1) Whether the model of franchising, as adopted by Regulation 330/2010 answers the

Box 1: Verifying the adopted franchising model

2) Whether the content of exempted vertical restraints is proportional, adequate, and

Box 2: Exempted vertical restraints

(5) Possible further actions

GENERAL INFORMATION: RESEARCH CHALLENGES

2.1. Franchising – what is it?

2.2. Distinctive features of the franchising contract

2.3. Advantages of franchising

benefits will be passed on to consumers.

According to Abel, franchising can also contribute to the establishment of a unified

2.4. Franchising on the EU market

2009 2010 2011 2012 2013 2014

Austria 390 411 435 420 440 445 445

Belgium 200 240 320 360 350 350

Croatia 120 145 150 168 175 180 180 180

Czech Rep 131 137 150 168 200 219 219

Denmark 180 185 188 188 188 188

Finland 220 255 265 270 270 275 277 294

France 1137 1129 1169 1477 1569 1658 1719 1796

Germany 910 950 960 980 990 990

Greece 544 560 563 450 456 456

Hungary 330 350 350 361 361 361

Italy 847 852 869 883 878 938 939 939