Competition Issues
Franchise Agreements
Franchise agreements are vertical agreements under Irish and EU competition law. They are potentially compatible with competition law. They may benefit from the block exemptions for vertical agreements. They may be justified on competition law first principles, broadly on the basis that their benefits may exceed the adverse effects on competition.
Block Exemption
The Block Exemption provides a “safe harbour” for distribution and other “vertical” agreements, provided that its conditions are met. The market share of the supplier must not exceed 30 percent of the relevant market in which it sells its goods or services. The market share of the buyer in the purchasing market must not exceed 30 percent.
Blacklist Restrictions I
The block exemption contains a “black list” of restrictions. If any are included, the exemption will not apply.
First-Principles Analysis
If that vertical agreement does not come under the exemption, it must be analysed under competition law. The question of whether the agreement has the effect of restricting competition is made by comparing the actual and likely future position in the relevant market, with the restraints in place. and the position which would apply without them.
Guidelines on Risks
There are guidelines on vertical restraints which inform the competition law analysis.
Protecting Intellectual Property
A franchise agreement requires the communication of know-how to the franchisees and the provision of assistance to enable them to apply the franchisor’s methods. It is legitimate that the franchisor protects his know-how and intellectual property from competitors. Restrictions which do so will are usually valid, provided that they are not excessive.
Post-Termination Restrictions
Restrictions on the franchisee during the contract period and for a reasonable time afterwards from opening a shop, or a similar restriction on competing with a member of the network is generally legitimate.
Trading Restrictions
Franchisors may take measures in order to maintain the identity and reputation of the network bearing their name and symbol. Provisions which effect this control and are necessary, will not generally breach competition law.