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Vol 9 (2011) - Issue 3

Non-competition covenants in a Canadian context

Edward Levitt, Partner, Aird & Berlis and Chad Finkelstein, Partner, Dale & Lessmann, Toronto, Canada

This article analysis the Canadian approach to the enforcement of non-competition covenants in franchise agreements. As a general rule, covenants restraining trade are unenforceable except in employer-employee and vendor-purchaser relationships. As the hybrid nature of franchising is such that it encapsulates both of these types of relationship, the courts have applied a broad range of analysis without any definitive trends emerging. The only clarity the case law offers is that contextual factors will be determinative in how non-competition clauses are interpreted.

The regulation of franchising around the world

Mark Abell, Partner, Field Fisher Waterhouse LLP, London, UK

There are 30 countries that have franchise specific laws and although the influence of US regulation can be detected in much of it, there is a strikingly heterogeneous approach which can make the international roll-out of franchising somewhat more complicated than it need be. This article seeks to analyse and categorise all 30 laws and identify the ways in which they seek to regulate franchising. The analysis identifies three basic categories of franchise regulations and shows that the content of franchise regulations is clearly determined by their overriding purpose, with the foreign trade/investment, antitrust and pure franchise regulations showing clear and obvious differences from each other.

Internet selling – The Pierre Fabre Dermo-Cosmétique case

Nick Pimlott, Partner, Field Fisher Waterhouse LLP, London, UK

The European Commission has consistently held the view that restrictions on internet sales in franchise and distribution systems as a rule constitute hardcore restrictions of competition and therefore fall foul of EU competition law. This article analyses the classification of such agreements as being restrictive of competition by “object” or by “effect” in light of the Advocate General’s opinion in a recent case before the European Courts concerning a selective distribution system. The author argues that doubts may begin to arise over the Commission’s “bright-line” approach to internet sales restrictions as the case law develops.

Franchising under Lebanese law

Leila Laila, Partner, Alem & Associates, Beirut, Lebanon

The Lebanese legal system does not provide for specific regulation of franchising. Certain exclusive franchise agreements could in principle be caught by the legal framework governing commercial agency and exclusive distribution arrangements, which grants exclusive distributors specific rights and provides for mandatory application of Lebanese law and jurisdiction of the Lebanese courts. However, important recent case law has clearly identified the unique characteristics and core components of franchise agreements, which suggests they are unlikely to be subject to these mandatory rules.

South Africa – Consumer Protection Act regulations at last

Eugene Honey, Partner, Bowman Gilfillan, Johannesburg, South Africa

The Consumer Protection Act of 2008, the first legislation in South Africa specifically regulation franchising, came into force on 31 March 2011. The long-awaited final regulations, setting out the detail of how the Act should be applied, were released in April. This article outlines the provisions of the regulations relevant to franchising and considers the steps franchisors should take as soon as possible to ensure that franchise agreements and disclosure documents are compliant.

SBA Financing and the Franchise Registry

David W. Oppenheim, Partner and Felicia A. Nadborny, Associate, Kaufmann Gildin Robbins & Oppenheim LLP, New York, United States

The credit crisis has had an enormous, negative impact on the growth of franchise systems as franchisees find it difficult to access capital. The U.S. Small Business Administration (“SBA”) assists small businesses, including franchisees, in obtaining financing through offering loan guarantees. This article explores the SBA guaranty and eligibility requirements for obtaining same, including the steps a franchisor can take to streamline the process for its franchisees by registering its franchise agreements on the Franchise Registry.