Tuesday, January 9, 2018
Resale Price Maintenance in Franchising: Hardcore Restriction of Competition or Necessary Element of Such Business Model?
Konrad Kohutek, Faculty of Law at Cracow Frycz-Modrzewski Academy, Poland asks Resale Price Maintenance in Franchising: Hardcore Restriction of Competition or Necessary Element of Such Business Model?
ABSTRACT: Franchising is one of the most popular business models often used in many economic sectors. Main provisions of franchising agreements (essentialia negotii) have been developed in the commercial practice and many civil legal orders do not provide for any normative pattern of such contracts. Concluding franchising agreements is however perfectly legal on the general basis, i.e. freedom of economic activity (including freedom of contract). However, there are some restrictions of such freedom, which largely result from mandatory provisions of competition (antitrust) law.
Antitrust law prohibits (at least shall prohibit) practices (agreements) that restrict competition to the detriment of the economic interest of consumers. European and Polish competition rules are usually restrictive to agreements subject of which is setting or imposition of the price; this approach does not only concern horizontal agreements (between competitors) – which is not controversial – but also agreements concluded between undertakings operating on different levels of trade (vertical agreements). In the latter case, and in particular when the vertical agreements have the form of franchising, such approach raises serious doubts in the context of axiological accuracy (desirability) of adopting – for the entire category of such vertical restrictions or resale price maintenance (RPM) and independently of the circumstances of the case – severe antitrust qualifications (i.e. as the agreement with anticompetitive object within the meaning of Art. 101 (1) TFEU or Art. 6 (1) of Polish Competition Act). The norm essentially contains a per se prohibition of RPM, including RPM in franchising.
This paper contains a critical analysis of the current antitrust regime on RPM in franchising. It has been presented against the background of the Polish case against Sfinks, i.e. the company, which has been fined (ca. 110.000 Euro) for the use of a uniform price list in restaurants operated by its franchise network.