ADVERTORIAL
Can you compete at the end of the day?
Post-expiry of the franchise agreement can be a tricky time for franchisor and franchisee alike, says Kate Matthews
experience they have built up in the area in which the franchisee operates. Such clauses are, however, potentially anti-competitive and require careful consideration and drafting in order to be enforceable.
M
The Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union govern anti-competitive agreements to prevent distortion of the market – even where such agreements are voluntarily entered into by the franchisees. Infringement of this legislation will render the clauses unenforceable and essentially worthless.
Post-termination non-compete clauses are
ost franchisors consider post-termination non- compete clauses to be key in a franchise agreement to protect their know-how and
therefore generally carefully drafted in order to comply with the Vertical Agreements Block Exemption Regulation – which provides that post-termination clauses should be limited to premises and land from which the franchisee has operated the franchise business – to avoid such infringement. To obtain this benefi t, specifi c limitations apply. For this reason, the clauses tend to last for a maximum of 12 months after the end of the franchise agreement and are intended to protect confi dential information of the franchisor and relate to the territory in which the franchisee has operated. The European Court of Justice has, however,
recently reviewed the wording in the Block Exemption Regulation. In the Retoucherie de Manuela decision 2013, it ruled that the words “premises and land” must be interpreted restrictively, meaning that the non-compete clause must be limited to a particular building
or specifi c parcel of land, and not the territory, to be enforceable.
Clauses not limited in this way, therefore, will not benefi t from the Block Exemption. Accordingly, they are potentially unenforceable as anti-competitive unless they fall outside of the scope of the competition laws above. Unless it can be proved that there is a risk that the know-how and experience for which protection is sought is actually assisting competitors, franchisors beware. Is this the start of increased competition or simply more litigation post-termination? n
Kate Matthews is a partner specialising in risk management at Boddy Matthews Limited, an Affiilate of the bfa. The firm is the 2014 Corporate INTL Small-size Franchise Firm of the Year and Kate is a finalist for the 2014 EWIF Woman Service Provider of the Year.
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