December News


Regulation at the European Union level: exists in the context of EU Competition law only

The European Commission, in its role as guardian of the principles and conditions for promoting an open and competitive Single market, has in its founding Treaty allowed for exemptions, under strict conditions, for agreements that contain contractual “restraints” (restraints to free and open competition within the Single market) if these restraints are deemed to be pro-competitive under the conditions set out (cf. Article 81 of the Treaty of Amsterdam).

Indeed, franchise agreements, but not only franchise agreements, typically contain types of restraints qualified in competition law as “vertical”restraints.
A vertical restraint is a restraint defined in the frame of a “vertical” agreement by which, for the purposes of the agreement, the parties are not in a position of being potential competitors (which they would be in a “horizontal” relationship). This difference of position in terms of being potential competitors defines the “verticality” of the relationship.
Restraints or “tie clauses” typical to franchising may or may not include one or a combination of clauses of territorial exclusivity, exclusive supply, pricing policies, post-term non-compete clauses, etc.

The above principles are embodied in the following EU Regulation:
 Commission Regulation (EC) N° 2790/1999 of 22 Dec. 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices. OJ L 336, 29/12/1999 p. 0021 – 0025(LINK TO THIS DOCUMENT)

It came into application in December 1999 and is valid until December 2009.
It covers the case of franchising, but is not exclusive to franchising.
The details on franchising appear in the Regulation’s Guidelines:

Commission Notice: Guidelines on Vertical Restraints. OJ C 291, 13/10/2000 (LINK TO THIS DOCUMENT)

In certain respects, this Regulation “replaces”, for franchising, an earlier EU Regulation
Commission Regulation (EEC) N° 4087/1988 of 30 Nov. 1988 on the application of Article 85(3) of the Treaty to categories of franchise agreements. OJ L 359 - which was designed specifically for franchising.(LINK TO THIS DOCUMENT)

It was in force from 1989 to 1999.

When devising a franchise system and its contract, and in order to fall favourably under the terms of the EU Regulation, franchisors should be particularly sensitive to the following notions:

 the “relevant” market share of their product/service,
 the importance and professionalisation of their franchise know-how,
 the nature, and proportionality of their “tie clauses” (exclusivity clauses).

The following Commission notice helps to understand what is meant by “relevant” market share:
 Commission Notice on the definition of the relevant market for the purposes of Community competition law. OJ C 372 of 9/12/1997 (LINK TO THIS DOCUMENT)

The following Commission notice helps to understand what is meant by "the effect on trade concept" contained in Articles 81 and 82 of the Treaty
 Commission Notice on the Guidelines on the "effect on trade"concept contained in Articles 81 & 82 of the Treaty (2004/C 101/07) (LINK TO THIS DOCUMENT)

Franchise contracts operating market shares which are too small to pose a threat to competition within the Single market, nevertheless need to consider the following Commission Notice:
The Commission Notice on Agreements of Minor Importance which do not appreciably restrict competition under Art. 81(1) of the Treaty established in the EC (de Minimis) – 2001/C368/07) of 22 December 2001 (LINK TO THIS DOCUMENT)