Your franchise formula abroad?

Suppose you have a well-run franchise formula in the Netherlands. During your well-deserved vacation in Italy, you suddenly get an idea: your formula could be a great success there, too! Before you take the plunge, you will of course have to assess all the opportunities and risks. The local culture and possibly different legislation will have to be taken into account. In addition, it is of course important to keep your franchise formula, which has just proved so successful, intact. But how far may cooperation agreements between the franchisor and the franchisee actually go and what competition law aspects are involved?

The basic principle of European competition law is that agreements in the context of a cooperation may not have a negative impact on competition. For franchise agreements, however, more far-reaching agreements may be made than in a "normal" cooperation between companies. For example, the imposition of fixed prices or minimum prices is in principle not permissible under competition law. However, a franchisor may impose fixed prices in the context of a joint discount campaign, at least within a fixed period of a number of weeks.
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Market sharing agreements are also in principle not allowed. However, a franchisor may still achieve this effect by, for example, setting up an exclusive distribution system, as a result of which only one franchisee is allowed to operate in a certain geographical area. However, a franchisor may only restrict the active sales of its franchisees. This means that conditions may be imposed on, for example, advertising activities, but restricting passive sales is not allowed. Passive sales occur when the franchisee is approached directly by customers. In that case, sales may not be stopped by the franchisor. The franchisee is also allowed to have a webshop, which may not be blocked by the franchisor for certain areas, for example. However, a franchisor may impose requirements on the website used by the franchisee to the extent necessary to maintain the common identity of the formula. In addition, the franchisor may require that a minimum number of products be sold through the physical store, but without limiting the number of products sold online.

In the case of a franchise formula's expansion abroad, it may still sometimes be permissible to restrict passive sales. This is the case when entering a new market. In that case, additional investments are likely to be required from the franchisee, which may justify protecting that franchisee from sales by other franchisees for a certain period of time. In addition to the agreements discussed here, there are of course many other aspects that are important, so you should seek proper advice on the options when expanding abroad.