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Vol 1 (2003) - Issue 2

Current competition issues in franchising

Stephen Rose, Eversheds, London

Competition law applies to franchising agreements in the same way as it applies to any other commercial agreement between independent companies. That means that franchisors and franchisees must satisfy themselves that their agreements and their conduct do not infringe competition law. The risks of getting it wrong are serious. Infringements of EU and UK competition law expose companies to the risk of fines of up to 10 per cent of group turnover and damages actions by aggrieved parties (including franchisees). A restriction in an agreement which falls foul of the competition rules would be unenforceable. In the UK, dishonest participation in a cartel is now a criminal offence under the Enterprise Act. What is more, directors of companies found guilty of infringing competition laws may be liable to disqualification for up to 15 years if they knew or should have known of the infringing conduct. This article looks at five aspects of a typical franchising relationship which may pose problems under competition law. The five elements are: price fixing; export bans and territorial protection; control of internet sales; product ties; post-term non-compete covenants.

Proposed Franchise Bill for Italy and laws fostering franchising

Professor Avv. Aldo Frignani, University of Turin, Frignani and Associati, Turin and Milan

In this feature, Professor Avv. Aldo Frignani discusses the main provisions of Italy’s Franchising Bill—the first specific new law on this area in Italy. A translation of the provisions is set out at the end of the article. In addition, he explains the recent laws which are intended to encourage franchising in Italy, through making available various financial incentives to encourage such business initiatives.

Global protection of intellectual property rights

William A. Finkelstein, Alschuler Grossman Stein & Kahan, Santa Monica, California

The value and success of most franchising concepts are often substantially based on intellectual property primarily trademarks, trade names, copyrights, trade secrets and patents. This property often includes names, symbols, designs, trade dress, advertising and other artistic creations, domain names, software, inventions, formulas and special methods of doing business. If a franchisor is to capitalise on the exclusivity of its unique intellectual property to provide it and its franchisees a competitive advantage, legal protection of these valuable assets is essential in all countries of present and contemplated business.

Privy Council upholds franchise obligations

Paul Sumpter, Faculty of Law, The University of Auckland

The House of Lords in London (sitting in Commonwealth appellate mode as the Privy Council) has overturned the New Zealand Court of Appeal in a case concerned with the basic obligations of a franchisee to be loyal to the team: Dymocks Franchise Systems (NSW) Pty. Ltd. v John Todd et al [2002] UK Privy Council, October 7, 2002.

EU Report October 2003

André Bywater, Eversheds, Brussels

The EU has been busy this autumn as it has issued a lengthy legislative “package” of draft rules in order to complete its enforcement of competition law reforms, and, in addition, it has also issued a draft transfer of technology block exemption. Both of these laws are designed to come into effect on May 1, 2004 when the EU is expected to enlarge from 15–25 members.

US Report October 2003

Michael G. Brennan and Tara A. Cope, Piper Rudnick LLC, Chicago

In a recent case from California, It’s Just Lunch Franchise, LLC v BLFA Enterprises, LLC and Angela Stephens, 2003 WL 21735005 (S.D.Cal. July 21, 2003), a federal trial court in California re-examined an issue that was central to a headline making decision from the state courts of California in 1996. In July 2003, the United States District Court for the Southern District of California addressed whether a franchisor could seek compensation for future lost royalties from a franchisee after the franchise agreement between the two was terminated.