Franchising in the EU

1. Franchising in the EU Mark Abell Partner, Field Fisher Waterhouse LLP, London mark.abell@ffw.com 5-6 November 2008

2. Current Position • The European Union • 27 Member States • Diversity of specific franchising laws; and developments on a national level • Therefore: It is difficult to define common trends and each Member State has to be examined independently.

3. United Kingdom • Brand owner’s new right to object “bad faith” company name registrations • Company name that is the same as a name in which a brand owner has goodwill or • Is sufficiently similar to such name that its use within the UK would be likely to mislead by suggesting connection between company and brand owner • No overreaching duty of good faith in franchise agreements Jani King v Pula Enterprises Limited (2007) EWHC 2433 (QBD)

4. United Kingdom • Franchisor’s duty to pay damages for pre-contractual misrepresentation • High Court in London ordered franchisor to pay £170.000 as part of a counter-claim in respect of fraudulently made pre-contractual misrepresentations about expected turnover and profit, level of franchisee failure in the business and availability of certification by relevant trade associations- Peart Stevenson Associates Limited v Brian Holland (2008) EWHC 1868 (QBD) • Non-reliance clause found to be unreasonable under Unfair Contracts Terms Act 1977

5. Germany • Uniform presentation and the franchisor’s liability risk • Federal Supreme Court decision- X ZR 137/04, Dec 12 2007 • Risk remains for franchisor to become contractually bound by contracts between franchisee and customer if the franchisee does not point out its legal independence • Exclusive purchase obligation under review • The Court has tightened requirements for admissibility under antitrust law of a 100% purchase tie lasting more than 5 years • OLG Düsseldorf, 11 April 2007 (‘Body Shop’) • ECJ ‘Ponuptia decision’, 1986

6. Germany • Online Sales within franchising context • Court held that held that a manufacturer had no right to make the delivery of its products subject to the restriction of not selling them via an internet auction platform. A contractual provision to this effect was found to violate anti-trust law. • Judgment by the regional court of Berlin on July 24 2007, Case No 16 O 412/07 Kart, unpublished • Article 4 of the EU Regulation on Vertical Agreements (2790/1999): threshold for an exemption is a market share of 30% on the relevant market.

7. Spain • Draft Distribution Agreements Act proposes compensation payment to franchisees • Will apply to all types of franchising but ‘industrial franchising’ • Key provisions: • Authority to terminate franchise agreements against payment of 2 years earnings as liquidated damages • Entitlement of franchisees to same indemnity payment as commercial agents • Duty to put all amendments to franchise or distribution contracts in writing • Green Paper on the Draft Distribution Agreements Act

8. Italy and France • Italy • Uncertainty as to what happens in case of bankruptcy • Franchising and subcontracting in public tenders • Recent court decisions • France: • Franchisor ordered to compensate franchisee for non–renewal of a franchise agreement by the French Supreme Court • Franchisor owns national customer base, whereas franchisee owns local customer base

9. OUTLOOK • Should franchising be regulated at an EU or member state level? • What should an EU Directive comprise? • Removal of all hindrances to enhance the efficient functioning of the market and to encourage free enterprise, without stifling innovation and competition • In order to do this an EU Franchise Directive should: • Maintain market confidence in franchising • Educate everyone about franchising, incl. encouraging companies and individuals to use franchising • Provide adequate franchise protection