COMPETITION/ANTI-TRUST REGULATION – EU and NATIONAL
From the late 1980’s, the EU adopted successive antitrust laws devised for business-to-business agreements in a vertical relationship which include provisions restrictive of trade (vertical restraints). Franchise agreements are by definition a vertical agreement. If in addition, the franchise agreement includes restraint clauses, then the terms of this legislation must be carefully considered when drafting the agreement.
The latest applicable law is the European Commission (EC) Regulation 330/2010 of 20 April 2010 on the application of article 101(3) of the Treaty of the Functioning of the European Union (TEFU) to categories of vertical agreements.
An EC Regulation, by definition, becomes immediately enforceable as law in all EU Member States simultaneously.
This Regulation came into force on 1 June 2010 and will expire on 31 May 2022. Official Journal L 102, 23.4.2010, p.1-7
Available in all EU languages:
The EU legal source that defines the principles of antitrust law applicable to vertical restraints is article 101(1) of the Treaty of the Functioning of the European Union (TEFU). In the perspective of promoting an open and competitive Single Market, this article prohibits agreements between undertakings (i.e. franchise agreements)
that (i) may affect trade between EU Member States AND (ii) that have as their object or effect the prevention, restriction or distortion of competition within the EU.
Article 101(2) TEFU renders such agreements void/null UNLESS they satisfy the conditions for exemption under article 101(3). If the terms of the agreement (in particular the restrictive clauses it contains) can be shown to provide economic benefits to both parties as well as to the EU consumer which outweigh the anti-competitive effects of its restrictive clauses, then the agreement may benefit from the (EC) Regulation 330/2010.
Examples of vertical restraints: territorial protection, customer restrictions, exclusive purchase obligations, resale price fixing, non-compete obligations (in-term and post-term), exclusive distribution and certain types of selective distribution.
What if a franchise agreement contains restrictive clauses (vertical restraints) but is not likely to affect trade between Member States but may have an impact on trade within one Member State? The competition law of that country must be taken into account.
To facilitate the understanding and the scope of application of the (EC) Regulation 330/2010, it is accompanied by the Commission Notice Guidelines on Vertical Restraints
Official Journal C 130, 19.05.2010, p. 1-72
Available in all EU languages:http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52010SC0411
Other useful references:
• Commission Notice – Guidelines on the effect on trade concept contained in Art. 81 & 82 of the Treaty (now TEFU art. 101 and 102), OJ C101, 27 April 2004
Available in a number of EU languages: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV:l26113
• DE MINIMIS NOTICE
52014XC0830(01): Communication from the Commission — Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) – revised and published on 30 Aug. 2014
Available in all EU languages:
This Notice details the circumstances in which agreements, including vertical agreements, will not be viewed by the European Commission as infringing Art. 101 of TEFU.
Circumstances relate to the absence of “hard-core” clauses and limited market share.
AN EC Notice on the Commission but not binding on Member States or on national competition authorities.
1) Examples of restrictive clauses/vertical restraints permitted in franchise agreements provided that various other conditions of the Regulation are met:
an obligation not to compete with the franchisor’s business
an obligation not to buy a stake in a competing franchisor
an obligation not to disclose the franchisor’s KNOW-HOW
an obligation to license to other franchisees of the same brand/network any know-how developed in relation to the exploitation of the franchise
an obligation to assist in the protection of the franchisor’s IPRs
an obligation only to use the KNOW-HOW for the purposes of exploiting the franchise
an obligation not to assign the IPRs without the franchisor’s consent.
2) absolute relevance for a franchise to be built upon real, tested and evolving KNOW-HOW, and for the franchise agreement to reflect both a description of the know-how and the means of its transfer to the franchisee:
The Regulation’s Guidelines explain that “the more important the TRANSFER of KNOW-HOW, the more easily vertical restraints fulfill the conditions for exemption [under art. 101(3) of TEFU. In this respect, the jurisprudence of the landmark PRONUPTIA (ECJ 28 janvier 1986) case remains of actuality.
Available in several EU languages: http://eur-lex.europa.eu/legal-content/FR/ALL/?uri=CELEX:61984CJ0161
other source of information in relation to franchising in particular: Getting the Deal Through, Vertical Agreements 2013, p. 99
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