Navigating the competition law aspects of franchising Corinne Khayat Astrid Ablasser-Neuhuber 2014 UIA Florence

21 February 2013 ROADMAP General Exclusive dealing (Non-complete obligations, Exclusive Supply clauses) Pricing (Price fixing and price recommendations) Use of the internet Post-term non-compete obligations Preferential and preemption rights l 2l 2

21 February 2013 Exceptions for franchise agreements Commission‘s Guidelines on Vertical Restraints on how to apply the BER to licencing IPRs (paras 24-26), concerning efficiency gains pursuant to Art 101(3) AEUV (para. 190(1)) and non-compete clauses (para. 190(2)). But otherwise no distiction for vertical restraints on the purchase, sale and resale of goods and services within franchising arrangements. l 3l 3

21 February 2013 A non-compete clause in franchise agreements is justified and may even exceed five years, where the obligation The transfer of substantial know-how usually justifies a non-compete obligation for the whole duration of the supply agreement, as for example in the context of franchising. (Commission‘s Guidelines on Vertical Restraints, para. 148) Non-compete obligations in franchising is necessary for common identity and reputation does not exceed the duration of FR agrmt. allows for cross-supply between franchisees l 4l 4

21 February 2013 Exclusive supply clauses together with territorital protection restrict competition, but can be justified, in case of Exclusive supply clauses in franchising efficiency gains customers’ fair share franchisee’s willingness to invest l 5l 5

21 February 2013 !! MIND THE NO-GOES !! no absolute territorital protection: don‘t eliminate possibility of cross- supply between franchisees don‘t restrict passive sales never in combination with determination of sales prices Exclusive supply clauses in franchising l 6l 6

21 February 2013 NO PRICE FIXING OK: recommendation of sales prices from franchisor to franchisees no collusion between franchisor and franchisee as well as between franchisees amongst each other l 7l 7 Pricing in franchising … as long as the franchisees remain entirely free to determine their own prices …

21 February 2013 Use of the internet in franchising « IT IS FORBIDDEN TO FORBID » General rule: no prohibition or restriction on the use of the internet by a franchisee to sell products The use of a website to sell products: a form of passive selling The use of an own website: not the same thing as the opening of a new outlet l 8l 8

21 February 2013 Use of the internet in franchising Authorised restrictions Active selling into other franchisees’ exclusive territories or customer groups through internet may be restrained within an exclusive distribution system Quality standards may be required for the use of the website A brick and mortar point of sale may, in principle, be required, excluding « pure players » l 9l 9

21 February 2013 Post-term non-compete obligations in franchising Definition Post-term non-compete obligation is any direct or indirect obligation causing the franchisee, after termination of the agreement, not to manufacture, purchase, sell or resell goods or services l 10

21 February 2013 Post-term non-compete obligations in franchising Conditions of validity Post-term non-compete obligation should be covered by the BER if it:  relates to goods or services which compete with the contract goods or services  is indispensable to protect know-how transferred by the franchisor to the franchisee  is limited to the premises and land from which the franchisee has operated during the contract period  is limited to a maximum period of one year after the termination of the agreement l 11

21 February 2013 Post-term non-compete obligations in franchising Definition of know-how “non-patented practical information, resulting from experience and testing by the franchisor, which is secret, substantial and identified”  “secret”: the know-how should not be generally known or easily accessible  “substantial”: the know-how should be significant and useful for the franchisee for the use, sale or resale of the contract goods or services  “identified”: the know-how should be described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality l 12

21 February 2013 Post-term non-compete obligations in franchising Geographic scope The words ‘premises and land from which the buyer has operated during the contract period’ used in Article 5(3) of the BER refer only to the place from which the contract goods or services are offered for sale and not to the whole of the territory in which those goods and services may be sold under a franchise agreement (Order of the Court of Justice of the European Union, 7 February 2013, Case C- 117/12 - La Retoucherie de Manuela) l 13

21 February 2013 Preferential and preemption rights in franchising Competition law aspects A right of priority (preferential right or preemption right) in favour of the franchisor to acquire the franchisee’s store:  may artificially reduce competition, notably by restricting the possibility for independent stores to be purchased by competing distribution groups  could, when combined with other elements (such as a minority shareholding), confer to the franchisor a decisive influence over the franchisee under merger control rules l 14

21 February 2013 Contact Details bpv Hügel Professional Experience University of Salzburg (1993 Mag. iur., 1997 Dr. iur.), University of Salzburg: Master in Journalism and French (1997 Mag. phil.), 1995 European Commission (Directorate General for Competition, stage in the Merger Task Force), 1998 court practice at the Cartel Court (Legal Assistant to the President), 1998 internship with Linklaters & Alliance (London), 1998–2002 Associate with an International Law Firm (Vienna), since 2002 Associated Partner with bpv Hügel, since 2004 Partner, Head of Competition & Antitrust Areas of Practice European and Austrian Competition Law, (Antitrust, Merger Control and Market Dominance) Distribution Law, European Law, International Business Transactions, Representation before Austrian and European courts and competition authorities Born 1969 Languages German, English, French, Italian, Spanish Memberships International Bar Association, Union Internationale des Avocats (President of the Competition Law Commission), Vienna Bar Association, Studienvereinigung Kartellrecht e.V. (Member of the Board), International League of Competition Law Additional Professional Information Frequent speaker at seminars and conferences, numerous nominations in national and international rankings and publications MMag. Dr. Astrid Ablasser- Neuhuber Rechtsanwalt/Attorney-at-Law Partner Contact: bpv Hügel Rechtsanwälte OG Donau-City-Straße Wien Phone: Fax: huegel.com l 15

21 February 2013 Contact Details bpv Hügel bpv Jádi Németh Vörösmarty tér 4 HU-1051 Budapest Tel Fax bpv Grigorescu Stefanica 33 Dionisie Lupu Street RO Bukarest Tel Fax grigorescu.com bpv Braun Partners Ovocný trh 8 CZ Prag 1 Tel Fax bpv Hügel Rechtsanwälte Donau-City-Straße 11, ARES-Tower AT-1220 Wien Tel Fax bpv Hügel Rechtsanwälte Rond Point Schuman 9 Postfach 14 / 4. Stock BE-1040 Brüssel Tel Fax bpv Braun Partners Štefánikova 6/A SK Bratislava Tel. (+421) Fax.(+421) l 16

21 February 2013 Contact Details UGGC Avocats Corinne Khayat Avocat à la Cour Partner Contact: 47 rue de Monceau Paris Phone: Fax: Professional Experience Partner of UGGC Law Firm (2000) Lawyer, Robert Collin & Associés ( ) Admitted to the Paris Bar (1991) Civil Law Degree (International Law), Paris V-René Descartes Law School Areas of Practice French, Moroccan and European Union Competition Law (Antitrust, Merger Control and Market Dominance), Distribution Law, European Law, Intellectual Property Law, Contract Law Representation before French and European courts and competition authorities, representation before Moroccan competition authorities Languages French, English Memberships APDC (Association of the practitioners of Competion Law) Institut Art & Droit UIA (International Union of Lawyers) Additional Professional Information Lecturer in Competition Law at the University Paris I, Pantheon Sorbonne (2011) Professor of European Union Competition Law at the Institut Catholique ( ) Nominations in rankings (Legal 500, Decideurs…) and publications l 17

21 February 2013 Contact Details UGGC Avocats Tel: Fax: rue de Monceau Paris France l 18