Prohibited market/area division in franchise agreements
Franchisees sometimes have more opportunities to break through market/area divisions than they think. This will create more problems for franchisors.
Many franchise agreements include a market division in the sense that each franchisee has been allocated an exclusive territory. Franchisees may then, for example, not make acquisitions in the territories of other franchisees. Such agreements aimed at sharing markets have an anti-competitive object and are, in principle, prohibited.
An exception to the prohibition may apply to franchise agreements, among other things. After all, franchise agreements can usually be seen as a “vertical” relationship in the relevant distribution chain. The franchisor is then the supplier and the franchisee the customer. In such a “vertical” relationship, a market division can also very well promote competition.
The fact that franchising does not always have to involve such a “vertical” relationship is apparent from the judgment of the Rotterdam District Court of 12 May 2016, ECLI:NL:RBROT:2016:3477, in which it was ruled that agreements on exclusive market areas (area distribution ) being forbidden. It follows from this ruling, in simplified form, that despite the fact that the parties refer to their cooperation as a “franchise agreement”, there need not be an exemption from the prohibition on market/area division. This applies if the cooperation under a franchise agreement can actually be qualified as a cooperation between the franchisees themselves.
The foregoing also raises the question of how franchise agreements should be assessed in which the franchisees are members of the same cooperative. In a cooperative, in particular, the franchisees work together and there is no vertical relationship. In that case, market sharing agreements would therefore be prohibited. Examples of such cooperative organizations are Primera, PLUS supermarkets and Coop supermarkets.
The danger is that franchisees can also be fined here by the AFM, which supervises competition law practices. Could this herald the end of the franchise organizations that aim to work together on a collective level? In any case, it seems that market sharing agreements in those situations are not without risk for the franchisee and for the franchisor.
mr. AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice.
Do you want to respond? Go to dolphijn@ludwigvandam.nl
Other messages
The Real Intentions of the Parties to a Franchise Agreement – Mr. C. Damen – dated November 23, 2020
What really was the idea of the parties when they concluded a franchise agreement?
Circumventing the prohibition of competition in the franchise agreement – mr. AW Dolphijn – dated November 10, 2020
A non-competition clause in a franchise agreement is often experienced as objectionable by franchisees, especially if the non-competition clause also applies after the franchise agreement has expired.
Article Franchise+ – “How do I get rid of my debts: Also for franchisees and franchisors” – mr. AW Dolphijn – dated October 20, 2020
A reorganization may also be necessary for franchisees and franchisors who are in financial difficulties in order to continue to exist.
Article De Nationale Franchise Gids: “Reinvestment obligation for franchisees has limits” – dated October 13, 2020 – mr. RCWL Albers
In practice, it often happens that franchisors choose to renew their franchise formula and the appropriate image
Judge anticipates Franchise Act: no mandatory formula change (without threshold value)
The District Court of Amsterdam ruled that a Blokker franchisee is not obliged to renovate the store in accordance with the latest formula principles, as instructed by Blokker.
Interview Mr. J. Sterk and mr. C. Rutten in Franchise+: “Call to the automotive sector: prepare yourself well for the new Franchise Act” dated October 2, 2020
The new Franchise Act has a broad effect, also in the automotive sector. But are people aware of it enough?