Franchise law history in the EU

To understand the foundation of franchise law in the EU, we must first address the jurisprudence of the Court of Justice of the European Union (CJEU). The most important case relating to franchise law in the EU is the Pronuptia case,1 which led to the creation of the block exemption regulations.2

Pronuptia case

This is a landmark case for the CJEU regarding franchising, in that it distinguished franchising from selective distribution.3 The CJEU was asked whether or not Article 101(1) Treaty on the Functioning of the European Union (TFEU) (at the time Article 81 EC), which prohibits agreements between undertakings that distort competition in the internal market, was applicable to franchise agreements. The CJEU ruled that the franchise agreements did not violate Article 101(1) of the TFEU. However, the CJEU stated that provisions in the franchise agreement that, “share markets between the franchisor and the franchisee or between franchisees constitute restrictions of competition for the purposes of that Article”. In other words, franchisees had to be an independent business. The franchisees may learn the know-how skills of the franchisor, use their brand name, have a reasonable non-compete clause and pay royalties to the franchisor. Price recommendations made by the franchisor were not prohibited as such so long as they were not construed as obligatory, which would in turn violate Article 101 (1) of the TFEU.4

The Block Exemption Regulation 67/67, at the time of this case, did not include franchise agreements. As a result of this case, a new Block Exemption was made, Commission Regulation 4087/88 which governs franchise agreements.1 Subsequent Block Exemptions regulate franchise agreements as well.

1. Judgment of the Court, Pronuptia de Paris GmbH v Pronuptia De Paris Irmgard Schillgallis, Case 161/84, 1986, P. M. Abell (reference 6), p.164
2. R. Emerson. An International Model for Vicarious Liability in Franchising. 2015 p. 16
3. E. Wulff. C. Nowak. The New Commission Block Exemption: A Blurry Roadmap for Franchising in Europe. Franchise Law Journal, Volume 20, Number 2, 2000 p.47-51
4. Judgment of the Court, Pronuptia de Paris GmbH v Pronuptia De Paris Irmgard Schillgallis, Case 161/84, 1986
5. A. McElroy. P. Haleen. Widening Gap? An Overview of U.S. and EU Antitrust Rules for Franchisors, Franchise Law Journal, Volume 29 Issue 1, 2009 p.23-57