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
Non-compete clause on the sale of a franchise business
How strict should a non-compete clause be when selling a franchise business to the franchisor? This question was raised in a dispute in which the District Court of Gelderland op
Franchisor fails by invoking a non-compete clause
Although a non-compete clause is validly formulated in a franchise agreement, a situation may arise that is so diffuse that the franchisor cannot invoke it.
Acquisitions and Franchise Interest
It will not have escaped anyone's attention, certainly in the last year it can only be concluded that the Dutch economy is once again on the rise.
Which court for a rental and franchise agreement?
Which court is competent to rule on a related rental and franchise agreement?
Interview Franchise+ – mrs. J. Sterk and AW Dolphijn – “Reversal burden of proof in forecasts honored by court”
The new Acquisition Fraud Act indeed appears to be relevant for the franchise industry, according to this article from Franchise+.
Franchisor convicted under the Acquisition Fraud Act
For the first time, a court has ruled, with reference to the Acquisition Fraud Act, that if a franchisee claims that the franchisor has presented an unsatisfactory prognosis