Towards franchising in interNATIONAL trade


                                          MARTIN ORGONÍK

                                Faculty of Law, Masaryk University


                                           JIŘÍ VALDHANS



Key words
Franchising, franchise, franchise agreement, competition, franchisor, franchisee, Pronuptia case.


There are more definitions of franchising, but usually mean an arrangement whereby the proprietor
of trade mark, trade name or other distinctive marketing presentation (the franchisor) grants to
one or more parties (the franchisees) a license to use that trade mark, trade name or presentation
in the supply of goods or services and to arrange their premises in accordance with the distinctive
layout or format associated with the franchisor.[1] The franchisee keeps independency, all risks in
trade, including financial risks and shall pay fees to a franchisor (calculated per amount, time,
consumption, franchisor’s expenses on marketing etc.).


The typical example of franchising company is McDonald’s. As everyone knows, there are independent
entrepreneurs running their canteens, but they fall under scope of uniformity, regionally same or
similar products, same level of services and quality. For “outsider” all the canteens look similar
or same.


We may distinguish more types of franchising than the mentioned one:

-         Distribution Franchise – the franchisee sells specified goods,

-         Service Franchise – the services are offered, typically restaurants and hotels,

-         Manufacturing Franchises – the recipient of the franchisee is a producer of some product,
example is Coca-cola.


Competition problems may arise partly from production restrictions or partly from distribution
restrictions. A condition for exemption is the preservation of freedom with respect to prices and
parallel supplies within the franchise system.[2]


There is number of clauses, which are considered as a partial or total distortion of competition.
Following clauses may be considered as restrictive:


From territorial point of view: Not to sell contract goods to somebody, who would resell it in the
located area (obligation for both franchisor and franchisee); not to sell contract goods to dealers
outside the franchising framework; not to set up new franchisee in located area; not to change the
location of shops. Price issues: Sell at (minimum) prices laid down by franchisor. Direct
competition: Not to sell competing goods (or in certain extend); not to work in competing business
during or after end of franchising agreement.


The case Pronuptia de Paris[3] showed that European Court of Justice took a relatively positive
attitude to franchising. In this case, Mrs. Schillgalis concluded a franchising agreement under the
trade mark Pronuptia de Paris to sell wedding dresses.


There are always reciprocal benefits between franchisor and franchisee as well as both sides
stipulations, which protect each other interest. The franchisor may extend his/her own business
without running many outlets, which is very demanding on capital. The franchisee may start up
business easily with no former experience, but with proved methods and know-how granted from
franchisor. They both are likely to conclude an agreement with strong provisions restricting the
competition. The Pronuptia case stated also for future, that provisions which establish the means
of control necessary for the purpose of franchise network do not constitute restrictions on
competition for the purpose of Article 81.


Kontaktní údaje na autora – email:

Martin Orgoník – email: Martin.Orgonik@law.muni.cz
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[1] Roth, P.M., Bellamy, Ch., Child, G., European Community Law of Competition, London : Sweet and
Maxwell, 2001. ISBN 0421564407, p. 503

[2] Ritter, L., Braun, W. D., Rawlinson, F., EC Competition Law, Kluwer Law International :
Cambridge, 2000. ISBN 9041112677, chapter IV

[3] Case 161/84, Pronuptia de Paris GmbH v. Irmgard Schillgalis [1986] ECR 353.