Competition law and franchise agreements

The following Competition practice note provides comprehensive and up to date legal information covering:

  • Competition law and franchise agreements
  • What is a franchise?
  • Types of franchise agreements
  • Franchise agreements and competition law
  • Franchise agreements and vertical restraints
  • Applying the Block Exemption
  • Protecting IP rights
  • Individual exemption and 'ancillary restraints'

Competition law and franchise agreements

As with other commercial arrangements, 'franchise agreements' are potentially subject to EU and Member State competition law requirements (in particular, the Article 101(1) TFEU prohibition on restrictive agreements and/or equivalent provisions under national law). Before considering the application of Article 101 TFEU, it is necessary to consider what is meant by a 'franchise agreement' and to identify the different kinds of arrangements that might be pursued by commercial parties.

What is a franchise?

Franchising is the grant of specified rights by one party to another in return for a fee and exists in various forms. Thus a 'franchise' is an arrangement whereby the franchise owner (Company A) allows third parties (such as Company B) to use a name, trademark and/or a particular business method (for example, know-how) which is associated with the franchisor. Company A supervises that use and provides training and other assistance (eg publicity) to Company B in order to help it run the franchise. A franchise therefore amounts to a licence to use a business method for a specified period subject to a royalty.

Many businesses use franchising. It is particularly common in the fast food sector (eg KFC, Burger King, etc), leisure sector (eg hotel chains), utility services (Dyno-Rod) and retail products (eg B&Q).

Use of the franchise distribution model has significantly increased in the last few decades and

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