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The Impact of European Legislation on Franchising: A Focus on Know-How, E-Commerce and Resale Prices

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Abstract

Within Europe, there are very few national laws that regulate the franchise sector (e.g., the Doubin Law in France). However, the European Commission legislation does apply; for instance, the Commission Regulation (EU) No. 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, and the Guidelines on Vertical Restraints—Text with EEA relevance—2010/C 130/01. In this paper, we provide a synthesis of the impact of both texts—the regulation and the accompanying guidelines—on the behaviors and practices of franchisors and franchisees, mostly in terms of know-how, e-commerce, and resale prices. We highlight the elements that franchisors and franchisees have to take into consideration in order to comply with European and French laws and to prevent networks from potential conflicts.

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Notes

  1. 1.

    European Code of Ethics for Franchising, http://www.eff-franchise.com/spip.php?rubrique13.

  2. 2.

    87/14/EEC: Commission Decision of 17 December 1986 relating to a proceeding under Article 85 of the EEC Treaty (IV/31.428 to 31.432 - Yves Rocher), Official Journal L 008, 10/01/1987 P. 0049 – 0059, paragraph 22 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31987D0014:EN:HTML).

  3. 3.

    Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices Text with EEA relevance; Official Journal L 102, 23/04/2010 P. 0001 – 0007, paragraph 1f (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:102:0001:0007:EN:PDF).

  4. 4.

    Commission Regulation (EU) No 330/2010. Ibid. (paragraph 2. 3).

  5. 5.

    Guidelines on Vertical Restraints (2010/C 130/01), paragraphs 43 and 44 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:130:0001:0046:EN:PDF).

  6. 6.

    Product and service franchising, not industrial franchising.

  7. 7.

    Commission Regulation (EU) No 330/2010. Ibid. Paragraph 1 1g.

  8. 8.

    Commission Regulation (EU) No 330/2010. Ibid. Paragraph 1 1g.

  9. 9.

    Commission Regulation (EU) No 330/2010. Ibid. Paragraph 1 1g.

  10. 10.

    Guidelines on Vertical Restraints (2000/C 291/01), http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32000Y1013(01):EN:HTML. Paragraph 1f.

  11. 11.

    Commission Regulation (EU) No 330/2010. Ibid. Paragraph 1 1g.

  12. 12.

    European Code of Ethics for Franchising, http://www.eff-franchise.com/spip.php?rubrique13.

  13. 13.

    Commission release IP/10/445, 20 April 2010 (http://europa.eu/rapid/press-release_IP-10-445_en.htm).

  14. 14.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 52.

  15. 15.

    Federation of online and remote sales companies (2013), http://www.fevad.com/uploads/files/Publications/Chiffres_Cles_2013%281%29.pdf.

  16. 16.

    Guidelines on Vertical Restraints (2000/C 291/01), Ibid. Paragraph 51.

  17. 17.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 52.

  18. 18.

    Guidelines on Vertical Restraints (2000/C 291/01), Ibid. Paragraph 51.

  19. 19.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 60.

  20. 20.

    Competition Council, n° 07-D-07, 8 March 2007.

  21. 21.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 60.

  22. 22.

    Competition Council, n° 08-D-25, 29 October 2008.

  23. 23.

    Court of Justice of the European Union, 13 October 2011, Case C-439/09.

  24. 24.

    Court of Appeal of Paris, 31 January 2013, 2008/23812.

  25. 25.

    Guidelines on Vertical Restraints (2000/C 291/01). Ibid. Paragraph 51.

  26. 26.

    Court of Cassation - Commercial Division, 14 March 2006, SA Flora Partner vs SARL Portal Rouvelet, n° 03-14639.

  27. 27.

    Guidelines on Vertical Restraints (2000/C 291/01). Ibid. Paragraph 54 and Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 57.

  28. 28.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 57.

  29. 29.

    Court of Cassation - Commercial Division, 14 March 2006, n° 03-14-634.

  30. 30.

    Competition Authority, n° 08-D-25, 29 October 2008. See Competition Authority, 28 September 2009, paragraph 22.

  31. 31.

    Guidelines on Vertical Restraints (2000/C 291/01), Ibid. Paragraph 51 and Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 54.

  32. 32.

    Competition Council, n° 07-D-07, 8 March 2007, paragraph 97.

  33. 33.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 56.

  34. 34.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 54.

  35. 35.

    Competition Council, n° 06-D-24, 24 July 2006.

  36. 36.

    Competition Council, n° 06-D-28, 5 October 2006.

  37. 37.

    Competition Council, n° 07-D-07, 8 March 2007.

  38. 38.

    Competition Authority, Notice, 28 September 2009.

  39. 39.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 52.

  40. 40.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 53.

  41. 41.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 53.

  42. 42.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 51.

  43. 43.

    Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 51.

  44. 44.

    For example:

    Forcing a franchisee to disallow customers located on another franchisee’s exclusive territory to consult the franchisee’s website or automatically sending them to the franchisor or other franchisees’ websites. However, the franchisor is allowed to require that the franchisee’s website contains links to its website or to other franchisees’ websites.

    Forcing the franchisee to interrupt a current Internet sale from the moment the customer’s credit card data shows that the customer does not live in the franchisee’s exclusive territory. Requiring the franchisee to limit the percentage of sales it makes online. However, the franchisor can require its franchisee to sell a minimum quantity in absolute value (volume or value) offline in order to preserve the effective functioning of the physical store. This demand is aimed at excluding the existence of “ghost” stores that are nothing more than pretexts for the development of offline sales that disregard the exclusion of pure players. This set amount of offline sales can be the same for all the franchisees or specific according to objective criteria, such as the franchisee’s importance in the network, its geographical situation, etc.

    Charging franchisees a higher price when products/services are aimed at online selling. Nevertheless, the European Commission considers the request by the franchisor of a fixed fee, i.e., not proportional to the turnover performed offline, in order to support its online or offline sales efforts to be acceptable.

  45. 45.

    Commission Regulation (EU) No 330/2010. Ibid. (paragraph 4a).

  46. 46.

    European Court of Justice, 28 January 1986, Case 161/84.

  47. 47.

    European Court of Justice, 28 January 1986, Case 161/84, §25.

  48. 48.

    Court of Appeal Paris, 10 March 1989, LPA 1990, n°37, p. 4.

  49. 49.

    Competition Council, decision 00-D-10, 11 April 2000.

  50. 50.

    Competition Council, decision 93-D-42, 19 October 1993.

  51. 51.

    Court of Cassation - Commercial Division, 1 June 1993, n°91-14242.

  52. 52.

    Court of Cassation - Commercial Division, 1 June 1993, n°91-14242.

  53. 53.

    Competition Council, decision 94-D-32, 24 May 1994.

  54. 54.

    Competition Council, decision 96-D-36, 28 May 1996.

  55. 55.

    Competition Council, decision 96-D-36, 28 May 1996.

  56. 56.

    Ex-Article 81 of the Treaty on the Functioning of the European Union.

  57. 57.

    Article L 442-5 of the Commercial Code.

  58. 58.

    Article L 442-5 of the Commercial Code.

  59. 59.

    Article L 420-6 of the Commercial Code.

  60. 60.

    Competition Council, decision 05-D-66, 5 December 2005.

  61. 61.

    Competition Council, decision 99-D-01, 5 January 1999.

  62. 62.

    Competition Council, decision 03-D-39, 4 September 2003.

  63. 63.

    Supreme Court of the United States, 28 June 2007, Leegin.

  64. 64.

    Article 101, paragraph 3 of the Treaty of Functioning of European Union: “The provisions of paragraph 1 may, however, be declared inapplicable in the case of (…) any decision (…), any concerted practice (…) which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives (…).”

  65. 65.

    Competition Authority, decision 08-D-20, 1 October 2008.

  66. 66.

    Competition Council, decision 07-D-50, 20 December 2007.

  67. 67.

    Competition Council, decision 05-D-66, 5 December 2005.

  68. 68.

    Competition Council, decision 07-D-05, 24 January 2007.

  69. 69.

    Court of Appeal Paris, 28 January 2009, n° 2008/00255.

  70. 70.

    Court of Appeal Paris, 28 January 2009, n° 2008/00255.

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Acknowledgments

We thank the French National Research Agency (references: FRANBLE—ANR-12-BSH1-0011-01), the Human Sciences Institute in Brittany (reference: FRANNET), as well as the sponsors of the Center in Franchising, Retail & Service Chains for their valuable support.

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Authors and Affiliations

  1. IGR-IAE Rennes – University of Rennes 1, CREM UMR CNRS 6211, Rennes, France

    Rozenn Perrigot & Guy Basset

  2. ESC Rennes School of Business, Rennes, France

    Rozenn Perrigot

  3. IGA School of Management, Casablanca, Morocco

    Guy Basset

Authors
  1. Rozenn Perrigot
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  2. Guy Basset
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Correspondence to Rozenn Perrigot or Guy Basset .

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Editors and Affiliations

  1. Department of Management, University of Vienna, Vienna, Austria

    Josef Windsperger

  2. Centre Recherche en Economic et Management (CREM), Universite de Rennes 1, Rennes Cédex 7, France

    Gérard Cliquet

  3. Institut für Strategisches Management, University of Münster, Münster, Germany

    Thomas Ehrmann

  4. Department of Organization, Erasmus University, Rotterdam, The Netherlands

    Georg Hendrikse

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Perrigot, R., Basset, G. (2015). The Impact of European Legislation on Franchising: A Focus on Know-How, E-Commerce and Resale Prices. In: Windsperger, J., Cliquet, G., Ehrmann, T., Hendrikse, G. (eds) Interfirm Networks. Springer, Cham. https://doi.org/10.1007/978-3-319-10184-2_8

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