THE IMPACT OF THE EUROPEAN LEGISLATION ON FRANCHISING:

A FOCUS ON KNOW-HOW, E-COMMERCE AND RESALE PRICES 1

GUY BASSET

IGR-IAE Rennes – University of Rennes 1

& IGA School of Management – Casablanca

CREM UMR CNRS 6211

ROZENN PERRIGOT

IGR-IAE Rennes – University of Rennes 1

& ESC Rennes School of Business

CREM UMR CNRS 6211

Version to be considered for the EMNet BOOK "Interfirm Networks" (8 December 2013)

1 We thank the French National Research Agency (references: FRANBLE – ANR-12-BSH1-0011-01), the Human Sciences Institute in Brittany (reference: FRANNET) as well as the sponsors of the Center in Franchising, Retail & Service Chains for their valuable support.

1

THE IMPACT OF THE EUROPEAN LEGISLATION ON FRANCHISING:

A FOCUS ON KNOW-HOW, E-COMMERCE AND RESALE PRICES

ABSTRACT

Franchising is well developed in Europe, with about 555,009 franchised units corresponding

to 9,000 different franchisors (European Franchise Federation, 2012). For instance, in

France, there are 1,658 franchisors and 65,059 franchised units, employing 323,497 persons

and generating more than € 50.68 billion of turnover (French Franchise Federation, 2013).

These figures highlight the economic importance of franchising in Europe. At the same time,

within Europe, there are very few national laws that regulate the franchising sector (e.g.,

Doubin Law in France). But the European Commission legislation applies, in particular, the

Commission Regulation (EU) No. 330/2010 of 20 April 2010 on the application of Article

101(3) of the Treaty on the Functioning of the European Union to categories of vertical

agreements and concerted practices, and the Guidelines on Vertical Restraints - Text with

EEA relevance - 2010/C 130/01. This regulation took effect on June 2010, 1st for a period of

twelve years. In this paper, we provide a synthesis of the impact of both texts – the regulation

and the guidelines – on the behaviors and activities of franchisors and franchisees, mostly in

terms of know-how, E-commerce, and resale prices.

2

1. INTRODUCTION

Franchising is “a system of marketing goods and/or services and/or technology, which is

based upon a close and ongoing collaboration between legally and financially separate and

independent undertakings, the Franchisor and its individual Franchisees, whereby the

Franchisor grants its individual Franchisee the right, and imposes the obligation, to conduct

a business in accordance with the Franchisor’s concept. The right entitles and compels the

individual Franchisee, in exchange for a direct or indirect financial consideration, to use the

Franchisor’s trade name, and/or trade mark and /or service mark, know-how, business and

technical methods, procedural system, and other industrial and /or intellectual property

rights, supported by continuing provision of commercial and technical assistance, within the

framework and for the term of a written franchise agreement, concluded between parties for

this purpose.” (European Code of Ethics for Franchising). Due to the benefits stemming from

know-how and brand name, and the associated reduction of risks, franchising has been

growing for the last thirty years.

There are more than 2.5 million franchised units worldwide (European Franchise Federation,

2010). For instance, in the US, there are 2,200 franchise networks including 757,055

franchised units, generating 8.3 million jobs and 802 billion dollars of turnover

(PricewaterhouseCoopers, 2013). In Europe as well, franchising is particularly well

developed with about 555,009 franchised units corresponding to 9,000 different franchisors

(European Franchise Federation, 2012). In France, there are 1,658 franchisors and 65,059

franchised units, employing 323,497 persons and generating more than €50.68 billion of

turnover (French Franchise Federation, 2013). These figures highlight the importance of

franchising in Europe and particularly in France, thus justifying our choice to focus our study

on this specific market.

3

As the number of franchise networks has been constantly increasing, the number of

franchisor/franchisee conflicts has been increasing as well, whatever the industry (retailing &

services). The French trade press regularly displays the conflicts occurring between

franchisors and franchisees (e.g., Rent-A-Car, Ethnicia/ Hapsatou Sy these last weeks).

Indeed, franchisors and franchisees are both entrepreneurs who work under a same brand.

They want to achieve a higher performance, but their objectives and means can vary and

conflicts can then emerge.

We consider that regulation can influence the practices of franchisors and franchisees, the

sources, scope, types and modes of resolution of conflicts, as well as the performance of the

franchise networks. Regarding regulation, in France, there is only the Doubin Law – codified

in the article L330-3 first paragraph of the Commercial Code – which directly applies to

franchising. It imposes to the franchisor to give to the franchisee the franchise disclosure

document, i.e., a “written document providing sincere information, allowing the franchisee to

commit itself with full knowledge of the facts”. But the European Commission legislation

applies, in particular, the Commission Regulation (EU) No. 330/2010 of 20 April 2010 on the

application of Article 101(3) of the Treaty on the Functioning of the European Union to

categories of vertical agreements and concerted practices, also known as the antitrust law,

and the Guidelines on Vertical Restraints - Text with EEA relevance - 2010/C 130/01. This

regulation, that took effect on June 2010, 1st for a period of twelve years, as all regulations

and directives adopted by the European Union, applies to all member countries and takes

precedence over the national legislations.

In this paper, we focus on three key elements of franchising particularly concerned by these

recent European texts, that are know-how (Section 2), E-commerce (Section 3) and resale

price (Section 4). We simultaneously consider the European law and the French law, and

analyze the impact both of them have on franchisors and franchisees practices. We aim at

4

pointing out the elements franchisors and franchisees have to take into consideration to

comply with French and European laws, and to prevent networks from potential conflicts.

2. FRANCHISING, REGULATION AND KNOW-HOW

The transfer of know-how is a key element of the franchise agreement. Know-how has to be

transferred to the franchisee at the signature of the contract in order for this latter to be able to

apply it, and thus reiterate the success of the franchisor. Contrary to other kinds of networks

(selective distribution, trade concession), know-how – in the context of franchising – has a

very precise purpose, this of allowing the economic success of the franchisee. Know-how is

composed of information on “every aspect of the franchise business, and in particular

technical, commercial, promotional, publicity, administrative and financial matters, staff

training and general administration”2. Know-how can be transferred in a written format

(operations manual often called “bible of the franchisor”, files, software, CD-ROM, etc.), in

an oral format (training sessions at the franchisor headquarters, practical training sessions in a

company-owned or franchised store of the network), or in a visual format (videos, website…).

This notion of know-how has caught the attention of European authorities. The 2010

Commission Regulation has modified two important aspects of know-how. On the one hand,

it has inserted know-how within the definition of the intellectual property rights (2.1.). On the

other hand, it has modified the definition of know-how (2.2.).

2 87/14/EEC: Commission Decision of 17 December 1986 relating to a proceeding under Article 85 of the EEC Treaty (IV/31.428 to 31.432 - Yves Rocher), Official Journal L 008 , 10/01/1987 P. 0049 – 0059, paragraph 22 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31987D0014:EN:HTML).

5

2.1. INSERTION OF KNOW-HOW WITHIN THE INTELLECTUAL PROPERTY RIGHTS

Contrary to the 1999 Commission Regulation, the 2010 Commission Regulation integrates

know-how within the intellectual property rights, with the industrial property rights (patent,

mark and industrial design), copyright and neighboring rights3. This decision of the European

Commission has raised astonishment4, and even misunderstanding5. Indeed, the integration of

know-how within the intellectual property rights could have had negative effects on franchise

agreements, not allowing them anymore to benefit from the exemption by category as

recognized by the 2010 Commission Regulation6. This one applies to “vertical agreements

containing provisions which relate to the assignment […] of intellectual property rights,

provided that those provisions do not constitute the primary object of such agreements and

are directly related to the use, sale or resale of goods or services”7.

Nevertheless, the integration of know-how within the definition of intellectual property rights

would not have any other objective than this of alignment on the international definition of

intellectual property rights, this latter including know-how8. In fact, the integration of know-

how within these intellectual property rights by the 2010 Commission Regulation does not

have the effect of creating a new category of intellectual property rights that could be claimed

3 Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices Text with EEA relevance; Official Journal L 102, 23/04/2010 P. 0001 – 0007, paragraph 1.f (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:102:0001:0007:EN:PDF). 4 Gras G. (2010), Réflexion sur la qualification du contrat de franchise au regard du règlement No 330/2010, Concurrence, n°3, p. 48-50. Toussaint-David G. (2010), Les nouvelles règles de concurrence communautaires applicables aux réseaux de distribution, Cahiers de droit de l’entreprise, n°4, juillet, dossier 19. 5 Malaurie-Vignal M. (2010), Étude du Règlement N°330/2010 du 20 avril 2010 concernant l’application de l’article 101 paragraphe 3 à des catégories d’accords verticaux et de pratiques concertées, Contrats Concurrence Consommation, n°8, août, étude 9. 6 Toussaint-David G. (2010), Les nouvelles règles de concurrence communautaires applicables aux réseaux de distribution, Cahiers de droit de l’entreprise, n°4, juillet, dossier 19. 7 Commission Regulation (EU) No 330/2010. Ibid. (paragraph 2. 3). 8 Gurin A. (2011), Nouvelles règles relatives aux restrictions verticales, La Semaine Juridique - Entreprise et Affaires, n° 3, p. 26-33.

6

by the franchisor or the know-how licensor. Such a claim would be hardly compatible with

the “secret” characteristic of know-how.

The provisions of vertical agreements (here, the franchise agreements) relative to intellectual

property rights have to be only ancillary provisions, useful to the execution of the franchise

agreement. If the know-how was the main object of the franchise agreement, it would result

that such vertical agreements would not be normally covered by the 2010 Commission

Regulation. This is the case, for instance, for the industrial franchising subjected to the

regulation 772/2004.

The 2010 guidelines provide the franchise professionals with reassuring information when

they specify that “[f]ranchise agreements, with the exception of industrial franchise

agreements, are the most obvious example of where know-how for marketing purposes is

communicated to the buyer [here, the franchisee]. Franchise agreements contain licences of

intellectual property rights relating to trade marks or signs and know-how for the use and

distribution of goods or the provision of services. The [intellectual property rights] help the

franchisee to resell the products supplied by the franchisor or by a supplier designated by the

franchisor or to use those products and sell the resulting goods or services.”9

Besides, the 2010 guidelines clearly assert, in the paragraph 31, that in the specific case of

franchising, “marketing forms the object of the exploitation of the [intellectual property

rights]”. This paragraph 31 also specifies that “[t]he Block Exemption Regulation applies to

vertical agreements containing [intellectual property rights] provisions where five conditions

are fulfilled”. Intellectual property rights must then be transferred to the buyer, or this latter

has to be allowed to use them. It is also required that provisions related to intellectual property

rights must be part of a vertical agreement, and be directly linked to the use, the sale or the

9 Guidelines on Vertical Restraints (2010/C 130/01), paragraphs 43 & 44 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:130:0001:0046:EN:PDF).

7

resale of goods and/or services. Nevertheless, they do not have to constitute the main object of

the contract, nor include some restrictions on competition. Franchise agreements usually

respect these conditions. Provisions relative to intellectual property rights are included in

these franchise agreements. The transfer of know-how and the use of rallying signs for

customers are necessary to the commercial success of the franchisees by favoring the sale or

resale of goods and/or services.

To sum up, the 2010 Commission Regulation does apply to franchise agreements10. The

integration of know-how within the intellectual property rights does not call into question the

application of the exemption provided by the Regulation.

2.2. NEW DEFINITION OF KNOW-HOW

Know-how is compulsory in a franchise agreement. Know-how is – with rallying signs for

customers (e.g. brand, brand name…) and the technical, commercial, managerial assistance

provided by the franchisor – one of the three main pillars of the franchise agreements.

Without any know-how, there is no franchise. On numerous occasions, national courts have,

given the absence of a real transfer of know-how, reclassified the franchise agreements as

supply agreements. When the know-how is inconsistent, the franchise agreement can be

cancelled for lack of cause11.

The definition of this indispensable know-how has been reviewed by the 2010 Commission

Regulation. The general definition of the know-how remains the same than this of the 1999

text, know-how referings to “a package of non-patented practical information, resulting from

experience and testing by the supplier, which is secret, substantial and identified”12.

Regarding the three characteristics associated to the know-how, the formulation remains the

10 Product and service franchising, not industrial franchising. 11 Malaurie-Vignal M. (2012) Droit de la distribution, Sirey, 2ème édition, p. 129, 137. 12 Commission Regulation (EU) No 330/2010. Ibid. Paragraph 1 1 g.

8

same for two of them only. First, the “secret” characteristic of the know-how “means that the

know-how is not generally known or easily accessible”13. The “identified” characteristic of

the know-how “means that the know-how is described in a sufficiently comprehensive manner

so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality”14.

There is nevertheless a difference in terms of formulation for the third characteristic of the

know-how. In the 1999 Commission Regulation, it is specified that “substantial” “means that

the know-how includes information which is indispensable to the buyer [the franchisee] for

the use, sale or resale of the contract goods or services”15. In the 2010 Commission

Regulation, the know-how must not include “indispensable information” anymore, but be

“significant and useful to the buyer [the franchisee] for the use, sale or resale of the contract

goods or services” 16.

This different formulation – across the two regulations – for the “substantial” characteristic of

the know-how can be interpreted as either a relaxation of the know-how (2.2.1.), or a

consolidation of this know-how (2.2.2.).

2.2.1. Relaxation of the know-how definition

For some authors17, this modification of the definition of the “substantial” characteristic of the

know-how would have as consequence to make the justification of the existence of the know-

how by the franchisor easier. Evidence of a real and unquestionable know-how may be

required in case of conflicts with franchisees who challenge the economic reality and the legal

validity of the franchisor know-how. This interpretation of the new text is based on the fact

13 Commission Regulation (EU) No 330/2010. Ibid. Paragraph 1 1 g. 14 Commission Regulation (EU) No 330/2010. Ibid. Paragraph 1 1 g. 15 Guidelines on Vertical Restraints (2000/C 291/01), http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32000Y1013(01):EN:HTML. Paragraph 1 f. 16 Commission Regulation (EU) No 330/2010. Ibid. Paragraph 1 1 g. 17 Toussaint-David G. (2010), Les nouvelles règles de concurrence communautaires applicables aux réseaux de distribution, Cahiers de droit de l’entreprise, n°4, juillet-août, p. 28-36; Simon F-L. (2010), Savoir-faire et droit communautaire, Franchise Magazine, n° 215, décembre-janvier, p.140.

9

that the 2010 Commission Regulation takes into consideration the know-how as a whole and

not any more according to various information which have to give an unquestionable reality

to know-how. The franchisor would be thus favored because he would not have to detail

precisely the information composing the reality of its know-how anymore. He would simply

have to attest that, as a whole, its know-how is “significant and useful” to the franchisee.

This analysis deserves to catch the attention of the professionals, especially as the number of

lawsuits stemming from franchisees increases, in order to demand the cancellation of their

franchise agreements. Indeed, conflicts between franchisors and franchisees often deal with

the reality and the validity of the franchisor know-how. Considering this approach of the

relaxation of the definition of know-how, franchisees should have more difficulties than

before to prove that the know-how of their franchisor is not “significant and useful” to ensure

the success of their business given that the lack of “indispensable information” seems easier

to be demonstrated.

2.2.2. Consolidation of the know-how definition

The new definition of the “substantial” characteristic of know-how given by the 2010

Commission Regulation appears, for some authors18, as not a relaxation of the notion of

know-how but, on the contrary, as its consolidation. For supporting this point of view, it can

be considered that even indispensable, information remain information, and that if they are

not associated to training or assistance from the franchisor during the implementation of these

information, the know-how, even existing in a written format, will not be enough to ensure

the success of the franchisees.

18 Meresse G. (2009), Franchise : la nouvelle définition européenne du savoir-faire protégera les franchisés, franchisemagazine.com ; Bensoussan H. (2010), franchisemagazine.com, Règlement européen : un savoir faire mieux reconnu

10

It is therefore possible to consider that the 2010 Commission Regulation gives a wider and

more effective definition of know-how19; 1) wider given that this is the know-how, in all its

aspects, that has to be taken into consideration, and not the only indispensable information

that it includes anymore; 2) more effective given that now the know-how has to prove to be

useful, i.e., it has to allow the franchisee to succeed better than if he would have stayed an

independent small business owner, this being what is expected through the franchise

agreement.

Such an analysis is confirmed by the European Code for Ethics of Franchising which defines

the “substantial” characteristic of the know-how as the fact that it has to include “information

which is indispensable to the franchisee for the use, sale or resale of the contract goods or

services, in particular for the presentation of goods for sale, the processing of goods in

connection with the provision of services, methods of dealing with customers, and

administration and financial management; the know-how must be useful for the Franchisee by

being capable, at the date of conclusion of the agreement, of improving the competitive

position of the Franchisee, in particular by improving the Franchisee’s performance or

helping it to enter a new market.”20

Being not limited to indispensable information anymore, the know-how has to be globally

significant, and of course useful. A wider conceptual approach and a more demanding

economic purpose make that the know-how fits better with the economic realities. Between

these two interpretations of the “substantial” characteristic of the know-how, the national and

community courts will have to take sides.

19 Meresse G. (2009), Franchise : la nouvelle définition européenne du savoir-faire protégera les franchisés, franchisemagazine.com 20 European Code of Ethics for Franchising, http://www.eff-franchise.com/spip.php?rubrique13

11

3. FRANCHISING, REGULATION AND E-COMMERCE

In a Commission release of April 20th 2010 presenting the new regulation on vertical

agreements, the European Commission assures with vehemence that “[t]he Regulation and

accompanying Guidelines take into account the development, in the last 10 years, of the

Internet as a force for online sales and for cross-border commerce, something that the

Commission wants to promote as it increases consumer choice and price competition.”21. The

2010 guidelines go into the same direction highlighting that “[t]he internet is a powerful tool

to reach a greater number and variety of customers than by more traditional sales

methods”22.

Internet sales have undeniably experienced an exceptional growth during the last decade. In

Europe, in 2012, there were more than 550,000 transactional websites (among which 117,500

were French). At this European level, e-commerce represented €312 billion of turnover, 250

million of online shoppers, and directly or indirectly, involved 2 million of jobs23.

If the European authorities are aware of the deep disruption made by Internet in the retail and

service networks, they do not address the question of online sales in the 2010 Commission

Regulation itself, but only in the associated guidelines. More specifically, they indicate the

general rules applicable in the area of e-commerce (3.1.) and the requirements for selling

online (3.2.).

3.1. GENERAL RULES APPLICABLE IN THE AREA OF E-COMMERCE

The general rules which frame the e-commerce and which emanate from the successive

regulations on vertical restraints concern, on the one hand, the freedom of creation of a

21 Commission release IP/10/445, 20th April 2010 (http://europa.eu/rapid/press-release_IP-10-445_en.htm). 22 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 52. 23 Federation of online and remote sales companies (2013), http://www.fevad.com/uploads/files/Publications/Chiffres_Cles_2013%281%29.pdf.

12

transactional website (3.1.1.) and, on the other hand, the fact that the creation of a

transactional website cannot be likened to the creation of a new store (3.1.2.).

3.1.1. Freedom of creation of a transactional website

First, this freedom of creation of a transactional website exists for the franchisee. The 2000

guidelines have set the principle of the freedom of creation of a transactional website saying

that “[e]very distributor [franchisee in our case] must be free to use the Internet to advertise

or to sell products.”24. The 2010 guidelines reformulate it as follows: “[i]n principle, every

distributor [franchisee in our case] must be allowed to use the internet to sell products.”25.

The franchisor cannot, in general terms, forbid a franchisee to sell on the Internet. The 2000

guidelines underlined that “[a]n outright ban on Internet or catalogue selling is only possible

if there is an objective justification.”26 The 2010 guidelines specify that the prohibition for a

distributor [franchisee in our case] to sell on Internet is limited to exceptional circumstances,

for example “selling dangerous substances to certain customers for reasons of safety or

health is respected.”27. These 2010 guidelines are in compliance with the position of the

Competition Council (now called: Competition Authority) in its decision of March 8th 200728

which asserts that “a hardcore restriction may be objectively necessary to ensure that a public

ban on selling dangerous substances to certain customers for reasons of safety or health is

respected”29.

The Pierre Fabre laboratories have considered that the ban for their distributors to sell on the

Internet were objectively justified to preserve the luxury image of the products concerned, and

given the demand of the presence of a licensed pharmacist able to advise clients. The Pierre

24 Guidelines on Vertical Restraints (2000/C 291/01), Ibid. Paragraph 51. 25 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 52. 26 Guidelines on Vertical Restraints (2000/C 291/01), Ibid. Paragraph 51. 27 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 60. 28 Competition Council, n° 07-D-07, 8th March 2007. 29 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 60.

13

Fabre laboratories have been repudiated by the Competition Council in a decision of October

29th 200830. They petitioned for the cancellation of this decision in front of the Court of

Appeal of Paris. The latter was first referred to the Court of Justice of the European Union

which delivered a confirmatory preliminary ruling on October 13th 2011.31 In a recent

decision of January 31th 201332, the Court of Appeal of Paris has confirmed the decision of

the French Competition Authority. The Court has underlined that “not any element establishes

that information and an individualized quality advice […] cannot be organized online. A

website can be organized as a store window […] with the use of movies, and allows an

interaction between the manufacturer and the consumer through, for example, a hotline

reserved to assure customized advices by a graduated pharmacist. Internet also allows to the

consumer more reflection”.

To sum up, a general and absolute ban on Internet sales imposed by the network operator

[franchisor in our case] to its distributors [franchisee in our case] is acceptable only in

exceptional conditions. So, it is up to the franchisor to specify in the franchise agreements the

conditions of online sales.

Secondly, the freedom of creation of a transactional website also exists for the franchisor. The

2000 guidelines specified that “the supplier [the franchisor in our case] cannot reserve to

itself sales and/or advertising over the Internet.”33 This assertion implies that the franchisor is

allowed to sell online but it cannot have the exclusivity of this distribution method among its

network. The French jurisdictions have also recognized to the franchisor the right to sell on

the Internet. In a decision of March 14th 200634, the Court of Cassation affirmed that “the

agreement subscript by the parties [franchisor and franchisee] is limited to guarantee to the

30 Competition Council, n° 08-D-25, 29th October 2008. 31 CJUE 13th October 2011, Case C-439/09. 32 Court of Appeal of Paris, 31th January 2013, 2008/23812. 33 Guidelines on Vertical Restraints (2000/C 291/01). Ibid. Paragraph 51. 34 Cass.com. 14th March 2006, SA Flora Partner vs SARL Portal Rouvelet, n° 03-14639.

14

franchisee the territorial exclusivity in a determined sector and the creation of a website is

not assimilable to the implantation of the store in the protected sector”.

In brief, the principle, that is now recognized, is that the franchisor – such as the franchisees –

has complete freedom to sell its products and/or services via the Internet.

3.1.2. Creation of a transactional website and creation of a new store – a non-

assimilation

The 2000 guidelines (paragraph 54) as well as the 2010 guidelines (paragraph 57) specify that

“[s]elected dealers may be prevented from operating their business from different premises or

from opening a new outlet in a different location”35. The 2010 guidelines continue by

asserting that “the use by a distributor of its own website cannot be considered to be the same

thing as the opening of a new outlet in a different location”36. The objective of this principle

is to prevent the franchisor from forbidding the creation of a transactional website to its

franchisees by opposing the ability of the franchisee to open a different store than the one

specified in the franchise agreement. The French authorities have taken similar decisions.

Thus, the Court of Cassation has contradicted trial judges (the Court of Appeal of Bordeaux)

which considered that the opening of a website by a franchisor harmed the contractual

guarantee of territorial exclusivity granted to the franchisee.37 The French Competition

Authority confirms this national and Community positions insisting on the fact that “a website

is not a market place but an alternative selling mean used, as the direct selling in a store or

the mail order selling, by the distributors of a network which has physical points of sale”38.

35 Guidelines on Vertical Restraints (2000/C 291/01). Ibid. Paragraph 54 and Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 57. 36 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 57. 37 Cass. Com. 14th March 2006, n° 03-14-634. 38 Competition Authority, n° 08-D-25, 29th October 2008. See Competition Authority, 28th September 2009, paragraph 22.

15

3.2. REQUIREMENTS FOR SELLING ONLINE

Even if it is now undeniable that the franchisor as well as the franchisee can create their

transactional website and that it cannot be considered as a creation of a new store, some rules

must be respected in terms of presentation of the website (3.2.1.) and its functioning (2.2.2.).

3.2.1. Requirements regarding the presentation of the website

The franchisor can impose to the franchisee a number of constraints about the presentation of

the website in order to preserve the image and the uniformity of the network. However, these

qualitative norms should not be disproportionate compared to these required to the sale

activities in a physical store.

On the one hand, regarding the requirement of qualitative norms for the website, the 2000

guidelines (paragraph 51) and the 2010 guidelines (paragraph 54) give the franchisor the right

to impose quality standards to its franchisees for the operation of a transactional website.

They specify that “[t]he supplier [the franchisor in our case] may require quality standards

for the use of the internet site to resell its goods, just as the supplier may require quality

standards for a shop or for selling by catalogue or for advertising and promotion in

general”39. This requirement has been validated in France, by the Competition Council.40

The qualitative standards are mostly reflected by the respect of a graphic charter. Created by

the franchisor, it must be globally the same that the one that has to be respected for the

physical stores. The graphic charter which specifies the essential visual characteristics of the

website (characters type, boxed text nature, colors and tones, estheticism and website

ergonomics, etc.) must not contain exorbitant clauses that could discourage the franchisees in

39 Guidelines on Vertical Restraints (2000/C 291/01), Ibid. Paragraph 51 and Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 54. 40 Competition Council, n° 07-D-07, 8th March 2007, paragraph 97.

16

their intention to create a transactional website. Besides, the use of the franchisor’s trademark

as a domain name by the franchisee is a very controversial question. For some authors, the

franchisee “cannot register the franchisor’s trademark as a domain name because this would

constitute a forgery”41. For some others, if the franchisee “has received the right to use the

trademark as store name, to forbid him the access to the Internet by this mode is the same

thing as forbidding him the access to a selling form. It seems to be in contradiction with the

guidelines […]”.42 Today, we are thus waiting for a case law decision that will allow solving

this question of the use of the franchisor’s trademark as a domain name by the franchisee.

At the end, beyond those specific problems, we must recognize that the quality norms which

can be imposed by the franchisor to its franchisees are, in fact, the principal mean by which

the franchisor can control the franchisee’s access to online sales.43

On the other hand, regarding the requirement of online and offline sales non-discrimination,

the quality norms that the franchisor can impose on the franchisees at the opening of the

website should not represent an obstacle to the access to online sales by being more restrictive

than the ones required for the physical store. The 2010 guidelines, in their paragraph 56,

require the non-discrimination between online and offline sales. It is not about requiring

identical conditions for these two modes of distribution but ensuring that they follow the same

objectives and lead to similar results by taking into account the different natures of these two

selling channels. In particular, a franchisor can demand, in the case of online selling, that a

franchisee should not exceed a certain quantity of products sold to an individual final user.

This is justified by the fact that it is easier for an unauthorized distributor to get hold of

products via the Internet channel. Besides, the 2010 guidelines mention the delivery periods

41 Le Tourneau P. (2007), Les contrats de franchisage, Litec, 2ème édition. 42 Fabre R. (2001), Les contrats de distribution et internet à la lumière du nouveau règlement communautaire, Dalloz, n°5, chron., p.461 et s. 43 Toussaint-David G. (2010), Les nouvelles règles de concurrence communautaires applicables aux réseaux de distribution, Cahiers de droit de l’entreprise, n°4, July, dossier 19.

17

which can be immediate for offline selling while it is difficult to require the same conditions

for online sales. They also broach the requirements for the after-sale service that can be

different between online and offline selling “so as to cover the costs of customers returning

the product and for applying secure payment systems”44.

3.2.2. Requirements regarding the functioning of the website

In order to sell online, one should usually own a brick and mortar store and limit to passive

sales. First, about the necessary existence of a physical store and the exclusion of pure

players, the 2010 guidelines give the possibility to the franchisor to require to its franchisees

to “have one or more brick and mortar shops or showrooms as a condition for becoming a

member of its distribution system”45. As a result, the franchisor can exclude from its network,

without any justification, the pure players, i.e., the distributors which exclusively sell via

Internet without possessing a physical store. Three times – in the watch sector46, in the hi-fi

and home cinema sector47, and in the cosmetics and body hygiene sector48 – the Competition

Council validated the fact that the head of a network based on vertical agreements (producer

or supplier) grants the right to sell via the Internet solely to the members of the network that

own a brick and mortar store. Excluding the pure players of their network, the franchisors can

therefore fight the free riding phenomenon underlined by the Competition Authority saying

that it was “no[t] admissible, in particular, when the producer’s competitive strategies favor

not only the trademark image and the quality of products, but too the existence of qualified

local services as the professional advice, that some retailers don’t play the game and benefit

from mutual effort without contributing in proportion”49.

44 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 56. 45 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 54. 46 Competition Council, n° 06-D-24, 24th July 2006. 47 Competition Council, n° 06-D-28, 5th October 2006. 48 Competition Council, n° 07-D-07, 8th March 2007. 49 Competition Authority, Notice, 28th September 2009.

18

Secondly, about the limitations to passive sales for the sales on the transactional website, the

principle which is formulated several times is that online sales are usually passive sales. The

2010 guidelines underline that “[i]n general, where a distributor uses a website to sell

products that is considered a form of passive selling, since it is a reasonable way to allow

customers to reach the distributor. The use of a website may have effects that extend beyond

the distributor's own territory and customer group; however, such effects result from the

technology allowing easy access from everywhere”50.

The 2010 guidelines, globally providing the same dispositions than the 2000 guidelines, say

that the active sales consist in the prospect of clients inside a given area placed on the territory

of others distributors (the franchisees in our case) using means like direct-mailing, sending

unrequested mails, visits, advertisements in the medias including the Internet and every other

action of targeted promotion (paragraph 51). The paragraph 53 adds as modes of active sales

the “territory-based banners on third party websites”51 and “paying a search engine or online

advertisement provider to have advertisements displayed specifically to users in a particular

territory is active selling into that territory”52.

As for passive sales, they correspond to “unsolicited requests from individual customers

including delivery of goods or services to such customers”53. Passive sales remain sales

caused by “[g]eneral advertising or promotion that reaches customers in other distributors'

(exclusive) territories or customer groups but which is a reasonable way to reach customers

outside those territories or customer groups, for instance to reach customers in one's own

50 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 52. 51 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 53. 52 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 53. 53 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 51.

19

territory”54. When a consumer subscribes to a newsletter on a franchisee’s website and

decides thereafter to make a purchase, this is a passive sale (paragraph 52).

The European Commission expounded in the 2010 guidelines (paragraph 52) different

situations that represent characterized passive sales restrictions55.

Finally, active and/or passive sales of some products and/or services via the Internet or via

physical stores may be legally forbidden in two specific cases. On the one hand, when the

franchisee makes important investments to create or to develop new markets, restrictions can

be imposed to the passive sales of other retailers for a period of two years (paragraph 61). On

the other hand, when it is a question of testing a new product on a limited territory, the

franchisor can force the concerned franchisees to limit their active sales outside the tested

market during the necessary period of the test or during the product introduction (paragraph

62).

4. FRANCHISING, REGULATION AND RESALE PRICE

The franchisee must be able to freely set the price of the products and/or services it sells. The

franchisee is an independent business owner that must be granted with enough autonomy for

the setting of the prices. Therefore, the franchisor can recommend prices to its franchisees or

54 Guidelines on Vertical Restraints (2010/C 130/01). Ibid. Paragraph 51. 55 For example: The fact of forcing a franchisee to be opposed to the consultation of its website by customers located on another franchisee’s exclusive territory or automatically sending them to the franchisor or other franchisees’ websites. However, the franchisor has the possibility to require that the franchisee’s website presents links toward its website or toward other franchisees’ websites; The fact of forcing the franchisee to interrupt a current Internet sale from the moment the customer’s credit card data show that this customer does not live on the franchisee’s exclusive territory; The fact of requiring the franchisee to limit the percentage of sales it performs online. But the franchisor can require its franchisee to sell offline a minimum quantity in absolute value (volume or value) in order to preserve the effective functioning of the physical store. This demand also aims at excluding the existence of “ghost” stores that are nothing more than pretexts to the development of offline sales allowing disregarding the exclusion of pure players. This absolute amount of offline sales can be the same for all the franchisees, or specific according to objective criteria such as the franchisee’s importance in the network, it geographical situation, etc; The fact for the franchisor to make pay the franchisee a high price when the products are reserved to online selling. Nevertheless, the European Commission considers as acceptable the request by the franchisor of a fixed fee, i.e., not proportional to the turnover performed offline, in order to support its online or offline sales efforts.

20

impose them a resale price that they cannot exceed (4.1.) but it cannot impose a minimum or

fixed resale price (4.2.).

4.1. RECOMMENDATION OF A RESALE PRICE OR IMPOSITION OF A MAXIMUM RESALE PRICE

In accordance with article 4 a) of the 2010 Commission Regulation, franchise agreements

cannot, directly or indirectly, restrain the ability of the franchisee to set a resale price. The

franchisor can nonetheless “impose a maximum sale price [4.1.2.] or recommend a sale price

[4.1.1.], provided that they do not amount to a fixed or minimum sale price as a result of

pressure from, or incentives offered by, any of the parties”.

4.1.1. Recommendation of a resale price

The recommended resale price, or indicative price, is a price provided for information

purposes only, by the franchisor to its franchisees.56 This recommended resale price may lead

to a general standardization of the prices displayed by every franchisee of the network thus

creating an illegal agreement regarding the prices. The Court of Justice of the European

Community admitted that in the franchise agreements, there is a possibility to lawfully

include a recommended resale price clause with all due reserves. It claims that “if the clauses

that prejudice the ability of the franchisee to freely set its prices are restrictive of the

competition, it is not the same when the franchisor provides the franchisees with indicative

prices, provided that there are no joint practices between the franchisor and the franchisees

or between the franchisees for the effective application of the prices”57.

Like Community Law, domestic French Law recognizes the validity of the communication of

indicative prices by the franchisor to its franchisees provided that the latter keep an

56 ECJ, 28 January 1986, Case 161/84. 57 ECJ, 28 January 1986, Case 161/84, §25.

21

undisputable independence to set their sale prices58. It is considered as licit provided that the

franchisees have the possibility to practice lower prices that the ones announced. This can be

the case when the franchisor launches advertising campaigns announcing that part of the

products sold by the intermediary of its network are sold at cost price59.

The franchisees cannot be, directly or indirectly, forced to apply the prices provided by the

franchisor, thus leading to an identical pricing policy in every unit of the network and

therefore constituting an unlawful agreement60. In franchise agreements, some clauses relative

to recommended prices can have consequences harming the franchisees freedom in terms of

price setting. This is what is said about the clause according to which the franchisee “commits

to respect as far as possible the indicative margins recommended by the franchisor”61.

According the Court of Cassation, the consequence of this clause was to “dissuade the units of

the network set up by the franchisor from setting their own prices autonomously”62.

The clause in a franchise agreement granting the franchisor the power to decide of the sale

prices that are to be followed in case of conflict between franchisees within a same

geographical zone is as much debatable. The Competition Authority did not hesitate to punish

a clause written this way: “when several franchisees are located in the same city, the

franchisee commits to adopt a pricing policy that is compatible with the one of every other

hair salon (JLDD) located in that city. In case of disagreement between several franchisees

located in the same city regarding the pricing policy to practice, the franchisee commits to

follow and respect the recommendations that the franchisor would be required to provide to

end the conflict between the different franchisees concerned”63.

58 CA Paris, 10 March 1989, LPA 1990, n°37, p. 4. 59 Competition Council, decision 00-D-10, 11 April 2000. 60 Competition Council, decision 93-D-42, 19 October 1993. 61 Cass. com, 1 June 1993, n°91-14242. 62 Cass. com, 1 June 1993, n°91-14242. 63 Competition Council, decision 94-D-32, 24 May 1994.

22

It is also important to highlight the fact that the presence of a recommended price clause in the

franchise agreements cannot allow the franchisor to indulge in questionable practices such as

supplying pre-tagged products with a printed barcode and price without any mention of the

recommended price. Even if “the franchisees are granted the possibility to modify the prices

that are indicated, this ability is in practice limited by the fact that the stores of the networks

manage a very important number of items and that, for that matter, the modification of the

prices indicated on the tags of the items delivered would imply an important amount of work

which represents a cost for the franchisee that could dissuade the latter from doing so”64. Is

also punishable the fact that “the recommended sale price were pre-entered in the cash-

registers most of the franchisees were equipped with and that were directly connected to the

franchisor”. Advertising campaigns and leaflets “with the (recommended) sale price written

on, which forced the franchisees to practice the prices indicated by the franchisor when they

agreed to be part of the campaign” were also ruled unlawful. “The fact that the publicity

campaigns aforementioned only concerned a small number of items has no consequences on

the qualification of the practice”65.

4.1.2. Imposition of a maximum resale price

The 2010 guidelines specify the conditions of the acceptance of the maximum resale price

maintenance. “The practice of […] requiring the reseller to respect a maximum resale price is

covered by the Block Exemption Regulation when the market share of each of the parties to

the agreement does not exceed the 30 % threshold” (Paragraph 226). The Commission is

aware of the potential anticompetitive effects of the maximum resale price maintenance which

is likely to be followed by an important part of the franchisees or even to favor some forms of

collusions between the members of the network (Paragraph 227). The Commission adds that

64 Competition Council, decision 96-D-36, 28 May 1996. 65 Competition Council, decision 96-D-36, 28 May 1996.

23

the stronger the market position of the supplier [franchisor in our case], “the higher the risk

that a maximum resale price or a recommended resale price leads to a more or less uniform

application of that price level by the resellers [franchisees in our case] […]. They may find it

difficult to deviate from what they perceive to be the preferred resale price proposed by such

an important supplier [here, the franchisor] on the market.” (Paragraph 228).

4.2. BAN ON THE IMPOSITION OF A MINIMUM OR FIXED RESALE PRICE

Community Law as well as domestic French Law ban minimum and fixed prices imposed by

the franchisor. Here, we discuss the principles (4.2.1.), the exceptions (4.2.2.), the reasons

behind legal ban on minimum resale price maintenance (4.2.3.), the evidence of the practice

of minimum resale price maintenance (4.2.4.), and the consequences of such a ban (4.2.5.).

4.2.1. Principles

Article 101-1 of the Treaty on the Functioning of the European Union66 provides that shall be

prohibited “all agreements between undertakings, decisions by associations of undertakings

and concerted practices which may affect trade between Member States and which have as

their object or effect the prevention, restriction or distortion of competition within the internal

market, and in particular those which: (a) directly or indirectly fix purchase or selling prices

or any other trading conditions”. According to this general text, the practice of recommended

price is, in principle, likened to illegal agreement.

Article 4 a) of the 2010 Commission Regulation considers that the imposition of either a fixed

or minimum sale price represents a characterized restriction stripping the benefit of the block

exemption. The 2010 guidelines provide that, next to the fixed or minimum resale prices, a

recommended sale price “can also be achieved through indirect means. Examples of the latter

66 Ex-Article 81 of the Treaty on the Functioning of the European Union.

24

are an agreement fixing the distribution margin, fixing the maximum level of discount the

distributor can grant from a prescribed price level, making the grant of rebates or

reimbursement of promotional costs by the supplier subject to the observance of a given price

level, linking the prescribed resale price to the resale prices of competitors, threats,

intimidation, warnings, penalties, delay or suspension of deliveries or contract terminations

in relation to observance of a given price level.” (Paragraph 48).

In brief, the Commission reminds that resale price maintenance “may restrict competition in a

number of ways” (Paragraph 224). If in its developments, the Commission aims particularly at

selective distribution, operators of franchise networks should nonetheless feel concerned.

Moreover, according to the domestic French Law, minimum resale price maintenance is

determined by the fact to “impose, directly or indirectly, a minimum on the resale price of a

product or good, on the price of a service provision or on a trade margin”67. It represents a

restrictive competitive practice forbidden and punished by the Penal Code68. Minimum resale

price maintenance also represents an anticompetitive practice likened to illegal agreement

targeted by article 420-1 of the Commercial Code that provides that concerted actions shall be

prohibited “when they have the aim or may have the effect of preventing, restricting or

distorting the free play of competition in a market […], particularly when they are intended to

[…] prevent price fixing by the free play of the market, by artificially encouraging the

increase or reduction of prices”. These forbidden practices are also punished by the law by

fines and imprisonment69.

The approach of a franchisor that, via a clause in the franchise agreement, imposes to its

franchisees a minimum or fixed resale price is anticompetitive since it especially prevents the

67 Article L 442-5 of the Commercial Code. 68 Article L 442-5 of the Commercial Code. 69 Article L 420-6 of the Commercial Code.

25

franchisees to compete via the prices. According to a constant jurisprudence, the Competition

Authority reckons that a standardization of the prices at the level of the franchisees can

originate from a direct horizontal agreement regarding the prices between the franchisees, or

even from a series of vertical agreements between the franchisor and each of its franchisees70.

Moreover, the fact that the franchisor asks its franchisees to boycott a supplier that is

referenced by the network represents a particularly severe concerted practice even if this

boycott was not followed by every franchisee71. However, the fact for a franchisor to “impose

to its franchisees purchase prices that it negotiated with referenced suppliers, let alone if it

takes part in the negotiation as a representative, acting in the name of and for the franchisees,

its constituents, does not represent an anticompetitive practice per se”. In this case, the

investigation did not demonstrate that the conditions in which the purchasing prices were

negotiated [by the franchisor] were harmful for the franchisees72”.

4.2.2. Exceptions regarding the ban on minimum or fixed resale price maintenance

Inspired by the decisions of the Supreme Court of the United States and especially the Leegin

decision73, the Commission, in its 2010 guidelines, considered that minimum resale price

maintenance is not systematically anticompetitive74. They can “lead to efficiencies, which will

be assessed according to Article 101 paragraph 3”75” (Paragraph 225) in two cases expressly

mentioned:

70 Competition Council, decision 05-D-66, 5 December 2005. 71 Competition Council, decision 99-D-01, 5 January 1999. 72 Competition Council, decision 03-D-39, 4 September 2003. 73 Supreme Court of the United States, 28 June 2007, Leegin. 74 Sélinsky V., Montet C. (2007), USA : revirement de jurisprudence sur les prix minima de revente imposés, Revue Lamy de la concurrence, n°13, October-December, p. 14. 75Article 101, paragraph 3 of the Treaty of Functioning of European Union: “The provisions of paragraph 1 may, however, be declared inapplicable in the case of (…) any decision (…), any concerted practice (…) which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives (…).”

26

− during the introduction of a new product in a given market, a minimum resale price

maintenance can encourage the franchisees to increase their commercial efforts in

order to develop the chances of success of the concerned products.

− during the process of a short-term promotional campaign (2 to 6 weeks according to

the Commission) regarding the prices, effective among a franchise system or a similar

distribution system, a resale price maintenance allowing the obtaining of an extra

margin “may allow retailers to provide (additional) pre-sales services, in particular

in case of experience or complex products” (Paragraph 225). These pre-sale services

represent an additional cost for the franchisees that provide them. Those that do not

can attract the customers that enjoyed these pre-sale services by practicing lower

prices. They therefore put on the role of free-rider. In these cases, the resale price

management can be expected to “not only provide the means but also the incentive to

overcome possible free riding between retailers on these services and that the pre-

sales services overall benefit consumers” (Paragraph 225).

At the end, some authors consider that risking to practice resale price maintenance hidden

under the conditions aforementioned is very hazardous76. This is especially true because, as of

now, no justification based on efficiency gains was validated by the French authorities and

jurisdictions regarding the resale price maintenance.

4.2.3. Reasons behind legal ban on minimum resale price maintenance

Based on the domestic French Law, the practice of minimum resale price maintenance harms:

- the interests of the consumers given that minimum resale price maintenance implies

higher prices since the franchisees in this case cannot lower their prices. The

76 Vilmart C. (2010), La nouvelle exemption des accords de distribution : une insécurité grandissante, La Semaine Juridique Entreprise et Affaires, n° 23, 10 June, p. 71-22.

27

Competition Authority reckoned that the minimum resale price maintenance practices

“aim at and have as a consequence to maintain the retail price at a level that

maximizes the global surplus of the producer and of its distributors to the detriment of

the final buyers”77. This same authority underlined that it was a practice that restrains

the intra-brand competition via the prices and that “cancels the benefits that the

consumer is entitled to expect from a competitive retailing market to the benefit of the

perpetrators of the offense”78.

- the commercial dynamism because the standardization of the minimum resale price

maintenance does not encourage the consumers to travel distances hoping to get a

good deal. Moreover, the market shares stabilize within the concerned franchise

network while the franchisees are not exactly encouraged to make efforts to try to be

more efficient.

- possibly the integrity of the network because the practice of resale price maintenance

makes easier the development of possible collusions between the franchisor and its

franchisees or just between the franchisees themselves.

4.2.4. Evidence of the practice of minimum resale price maintenance

The sole fact of noticing that a certain number of franchisees match their prices with the price

recommendations of the franchisor is not enough to conclude that it is a practice of resale

price maintenance. Regarding the vertical agreements relative to resale price maintenance of

the franchisor to its franchisees, the Competition Authority79 considers that the evidence of

the agreement can be established by a body of “serious, precise and coherent” signs resulting

from the convergence of three elements:

77 Competition Authority, decision 08-D-20, 1 October 2008. 78 Competition Council, decision 07-D-50, 20 December 2007. 79 Competition Council, decision 05-D-66, 5 December 2005.

28

- The resale prices to the consumers hoped by the franchisor have to be known by the

franchisees, whether it is during a commercial negotiation or via the distribution by

the franchisor of a list of prices that have to be respected.

- A pricing police is set up in order to “avoid that the deviant distributors compromise

the long term functioning of the agreement”80. This pricing police can materialize in

several ways. For example, it can be an operation such as “we refund you ten times the

difference if you find cheaper elsewhere”. Such advertising campaign is a way of

pricing surveillance or pricing police because “by allowing its customers to be

refunded ten times the difference for a precise product, between the price paid and the

resale price applied by a competitor, in a 30-kilometer radius, (the franchisor) paid

potential indicators responsible for gathering information regarding the behavior of

its competitors”81.

- The prices that the franchisor wants to impose and that the franchisees know about

have to be significantly applied by the latter. An application rate of 80% has been

considered significant82.

4.2.5. Consequences of the ban on minimum resale price maintenance

The franchisor can desire to control the resale prices of the products/services it distributes and

may want to verify that the prices that are practiced are indeed identical in every outlet in

order to guarantee the uniformity of the network. Since the legal frame of franchising does not

grant it this right, it can therefore be tempted to opt for distribution methods less restraining

such as the commission-based affiliation, really popular among some network operators

today. The commission-based affiliation is a “method with which an independent business

owner, the affiliate commission agent, commits to sell merchandises in its own name but for

80 Competition Council, decision 07-D-05, 24 January 2007. 81 CA Paris, 28 January 2009, n° 2008/00255. 82 CA Paris, 28 January 2009, n° 2008/00255.

29

the sake of another person, the principal”83. The affiliated commission agent is, like the

franchisee, a business owner incorporated in a network. However, it is not the owner of the

merchandises it sells and, consequently, it does not have the retailer status. Therefore, the

practice of resale price maintenance can be lawfully applied.

5. DISCUSSION

5.1. Contributions to Research

This paper contributes to the literature on franchising by focusing on two key elements of

franchising, i.e., know-how and price setting, on the one hand; and on a strategy increasingly

adopted by franchisors and franchisees, i.e., e-commerce, on the other hand. These three

topics have been investigated in previous franchising research from the perspective of law

(e.g., Spencer84), business (e.g., Szulanski and Jensen for know-how85) and economics (e.g.,

Blair and Lafontaine86for price), but mostly in an Anglo-Saxon context. By focusing on the

European franchising, we respond to the call of Dant87 who pointed out the importance of

studying franchising phenomenon outside Anglo-Saxon countries.

5.2. Contributions to Practice

This paper can be viewed by the franchisors, the franchise experts, the franchisees and the

franchisee candidates as a synthesis of the impact of the European regulation on practices to

be adopted in franchise networks, more particularly in terms of know-how, e-commerce and

price setting. It also highlights the practices to be avoided in order to prevent the network

83 Aubry H. (2012), L’entrée dans la franchise. La franchise et les modèles concurrents, Revue Lamy Droit des Affaires, n° 73, July. 84 Spencer, E. (2010), Regulation of Franchising in the New Global Economy, Edward Elgar Pub. 85 Szulanski G., Jensen R.J. (2006), Presumptive adaptation and the effectiveness of knowledge transfer, Strategic Management Journal, 27, 10, 937-957. 86 Blair R., Lafontaine F. (1999), Will Khan Foster or Hinder Franchising? An Economic Analysis of Maximum Resale Price Maintenance, Journal of Public Policy in Marketing, 18, 25-36. 87 Dant R. P. (2008), A futuristic research agenda for the field of franchising, Journal of Small Business Management, 46, 91-98.

30

from potential conflicts. Surprisingly, this European legislation, despite of its significant

impact on franchisors and franchisees practices, has not caught the attention of many law

analysts since it application in 2010, and is not so well-known by franchisors and franchisees

in the French market.

5.3. Limitations and tracks for future research

This paper has some limitations that constitute tracks for future research. First, it deals with

the application of the European regulation to the French franchise sector only. This would be

relevant to extend our study to other European markets in which franchising is particularly

developed; this could be Germany, Spain and the U.K. for instance. The links and interactions

between the European Regulation and the national laws could be examined. Second, this

study is based on the analysis of law, texts and law cases. The conduction of in-depth

interviews with franchise experts such as heads of franchise federations, lawyers, franchisors,

franchisees, etc. would be of interest in order to better understand the application of the

European legislation to the franchise sector and its similarities/differences with the domestic

laws. Third, each of the three topics covered in this paper, i.e., know-how, e-commerce and

price setting, deserves more attention and could be further developed in the context of three

separate investigations so much they are critical in the success of the franchisor/franchisee

relationship.

31