A franchise agreement often includes provisions that restrict competition among franchisees, such as an exclusive purchase obligation, the allocation of an exclusive area, a location clause or a noncompete clause. This type of provision is often necessary to protect or to stimulate the success of a franchise formula and is exempt from the cartel prohibition (see also this blog and this blog). Sometimes franchisors and franchisees go too far and run the risk of (significant) fines being imposed by competition authorities.
A case in point is the €12.8 million fine that ACM (the Netherlands Authority for Consumers & Markets) imposed on four laundries. In that case ACM found that their cooperation as part of a franchise formula infringed the cartel prohibition. The franchisees were not only shareholders in the franchise formula, but were also able to influence the admission of new members and the allocation of territories. The franchisees furthermore consulted on compliance with the allocation of territories. The laundries filed an appeal against the fine.
One of the grounds for appeal was that the cooperation should have been assessed in the context of the Block Exemption for Vertical Agreements; the cooperation would then have been eligible for exemption from the cartel prohibition. The Trade and Industry Appeals Tribunal (CBb) recently dismissed the appeal filed by the laundries. The CBb found that the cooperation was largely of a horizontal nature (and therefore consisted of cooperation among competitors). The CBb took into account not only that the franchisees were the sole shareholders in the franchise formula, but also that they were closely involved in the franchise policy and called each other to account regarding the performance of their obligations. The Rotterdam Court had previously also found that the Block Exemption for Vertical Agreements did not apply in this case.
This ruling demonstrates that franchisors and franchisees must take particular care when franchisees make agreements among themselves regarding prices, customers and territories. That is likely to constitute prohibited cartel formation rather than legitimate cooperation.
Tip
Franchisors and franchisees are well advised to check their franchise agreements, for instance by engaging a lawyer specialising in competition law, to avoid unpleasant surprises in the future.
More information on franchise and competition can be found in our article in Franchise & Recht.
More information on dawn raids by ACM and the European Commission can be found at invalacm.nl.
