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

1. 2014 UIA Florence Navigatingthecompetitionlaw aspectsoffranchising Corinne KhayatAstrid Ablasser-Neuhuber

2. 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 l2

3. Exceptions for franchise agreements Commission‘sGuidelines on VerticalRestraints • on howtoapplythe BER tolicencing IPRs (paras 24-26), • concerningefficiencygainspursuantto Art 101(3) AEUV (para. 190(1)) • and non-competeclauses(para. 190(2)). But otherwisenodistictionforvertical restraints on the purchase, sale and resale of goods and services within franchising arrangements. l3

4. Non-compete obligations in franchising A non-compete clause in franchise agreementsisjustified and mayevenexceed 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‘sGuidelines on VerticalRestraints, para. 148) l4

5. Exclusive supply clauses in franchising Exclusive supplyclauses togetherwithterritorital protection restrictcompetition, but canbejustified, in case of l5

6. Exclusive supply clauses in franchising !! MIND THE NO-GOES !! • no absoluteterritorital protection: • don‘teliminatepossibility of cross-supplybetweenfranchisees • don‘trestrict passive sales • never in combinationwithdetermination of sales prices l6

7. Pricing in franchising Magic formula … as long as the franchisees remain entirely free to determine their own prices … • NO PRICE FIXING • OK: recommendation of sales prices from franchisor to franchisees no collusion betweenfranchisor and franchiseeas well as betweenfranchiseesamongsteachother

8. 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 ownwebsite: not the samething as the opening of a new outlet l8

9. Use of the internet in franchising Authorisedrestrictions • Active selling into other franchisees’ exclusive territories or customer groups through internet may be restrained within an exclusive distribution system • Quality standards mayberequired for the use of the website • A brick and mortar point of sale may, in principle, berequired, excluding « pure players » l9

10. 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 l10

11. 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 l11

12. 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 l12

13. Post-term non-compete obligations in franchising Geographicscope • 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) l13

14. Preferential and preemptionrightsin franchising Competitionlaw aspects A right of priority (preferential right or preemption right) in favourof 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 l14

15. Contact Details bpv Hügel MMag. Dr. Astrid Ablasser-Neuhuber Rechtsanwalt/Attorney-at-Law Partner Contact: bpv Hügel Rechtsanwälte OG Donau-City-Straße 11 1220 Wien Phone: +43 1 260 50-205 Fax: +43 1 260 50-208 e-mail: astrid.ablasser@bpv-huegel.com 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, StudienvereinigungKartellrechte.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 l15

16. Contact Details bpv Hügel l16

17. Contact Details UGGC Avocats Professional Experience Partner of UGGC Law Firm (2000) Lawyer, Robert Collin & Associés (1987-1999) 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 & DroitUIA (International Union of Lawyers) Additional Professional InformationLecturer in Competition Law at the University Paris I, Pantheon Sorbonne (2011) Professor of European Union Competition Law at the Institut Catholique (1995-2002) Nominations in rankings (Legal 500, Decideurs…) and publications Corinne KhayatAvocat à la Cour Partner Contact:47 rue de Monceau 75008 - ParisPhone: +33 1 56 69 70 00 Fax: +33 1 56 69 70 71e-mail: c.khayat@uggc.com l17

18. Contact Details UGGC Avocats www.uggc.com Tel: + 33 1 56 69 70 00 Fax: + 33 1 56 69 70 71 47 rue de Monceau 75008 Paris France l18