passive selling. The franchisor may be in breach of competition law if it prohibits it. There are, of course, possible
solutions. The franchisee could be required to use an ex-directory number, subscribe in his private name, or only use a mobile phone. All of these would mean his business would not appear on the online directories at all. Alternatively, all calls to his landline
could be diverted to the franchisor’s central number for re-direction, or the franchisee could be required to pass all such calls to the appropriate territory franchisee, or just prohibited from passive selling. He could be required to maintain an accommodation address within his territory and subscribe for his landline from there. These solutions have various
disadvantages - loss of free advertising, additional cost, and the franchisee’s unwillingness to turn away business. Furthermore, all require provisions in the franchise agreement or operations manual if the franchisor is to enforce them, which are likely to contravene the legal prohibition on anti-competitive practices because they are intended to prevent passive selling.
A better approach might be for the franchisor to positively assist the
franchisee to maximise sales within his own territory using the “new technologies”, part of which could be setting up a scheme which discourages (but does not prohibit) out-of-territory sales. There are consultancies with the necessary expertise, and some with specific franchising experience. The anti-competitive behaviour prohibition is of agreements, and concerted practices likely to restrict or distort competition in part of the UK or EU. As I have mentioned, export bans (and this would include bans on the export of goods or services across the boundary between two franchisees’ territories) are regarded as likely to restrict or distort competition. On the face of it, therefore, doing anything to restrict passive selling by one franchisee into the territory of another is contrary to that prohibition, even if not legally enforceable. There is, however, one saving grace.
The law acknowledges that because the prohibition is so wide that agreements and practices are only prohibited if they cause “an appreciable effect on competition” in the relevant area. Most franchisees operate in intensely
competitive markets (the example of plumbing being a case in point) and are
in any event micro-businesses which, however hard they try, are unlikely to create “an appreciable effect” or to attract the attention of the competition authorities.
It is, of course, possible that a
disgruntled franchisee could argue in court that his agreement was void for breach of the prohibition, but such claims have not, on the whole, been successful in the past and in any event are expensive to make which may discourage them. There is also the remote possibility that a third party could bring a claim against the franchisor, alleging that he paid more for his plumbing than he would have done had full competition been permitted between the different franchisees. That is very remote, indeed. If, therefore, the average franchisor
(this excludes large international concerns with substantial market shares) is being troubled by cross-territory competition between its franchisees caused by the use of online directories it can be reasonably confident that sensible use of technological, and contractual and operating manual provisions to prevent such competition is unlikely to cause legal problems.
i geoffreysturgess@
warnergoodman.co.uk
Inspiring master class at LIPA 4:19
Leah Hackett, who played Tina McQueen in Hollyoaks on Channel 4, led a master class at the Knutsford academy of LIPA 4:19, the part-time performing arts franchise for 4 to 19-year-olds. Leah graduated from LIPA in 2006 and has appeared in Doctors, The Case and is currently working on a new BBC drama, Savage. Alison Gorton, co-principal at Knutsford, said: “Leah’s success is proof of the benefits of quality performing arts training.” LIPA 4:19 is linked to the Liverpool Institute for Performing Arts, co-founded by Sir Paul McCartney.
i
www.lipa.ac.uk
April/May 2012
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