NEWS

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25-06-2018

 

In terms of franchising, an exclusive supply clause for an indefinite period may be valid

 

Under European law, exclusive supply clauses which have the purpose or effect of allocating sources of supply are in principle prohibited pursuant to Article 101 §1 of the Treaty on the Functioning of the European Union (TFEU). These clauses can nevertheless benefit from an exemption with regard to article 5-1 of EU Regulation n°330/2010 of April 20, 2010 on the main condition of providing for a fixed term, less than or equal to 5 years. An exclusive supply clause less than or equal to 5 years, but renewable tacitly, is considered to have an indefinite duration and therefore does not benefit from the exemption regulation with regard to European law prohibiting cartels.

 

However, it is still possible to benefit from an individual exemption from the visa of Article 101 §3 of the TFEU if the economic balance sheet of the restriction of competition generated by the exclusivity clause is positive and if the disputed clause proves to be essential for achieve it.

 

In a judgment of December 20, 2017, the Court of Cassation offers us an interesting illustration of the validation of an exclusive supply clause for an indefinite period contained in a bakery franchise contract which it considered to be "_cc781905-5cde-3194 -bb3b-136bad5cf58d_a decisive element for the image and identity of the franchise network ” (Cass. Com., December 20, 2017, appeal no. 16-20.501).

 

In this case, the parties had entered into a franchise contract for the production of traditional sourdough bread for a period of nine years, automatically renewable for five-year periods. The franchise contract provided for the franchisee's commitment to obtain supplies exclusively from a specific supplier. The franchisee having notified the termination of the franchise contract, he was sued by the franchisor and the supplier for compensation for the consequences of the wrongful breach of the franchise contract and the exclusive supply commitment. The franchisee then opposed the nullity of the exclusivity clause provided for an indefinite period. The franchisee was dismissed by the Paris Court of Appeal.

 

Before the Court of Cassation, the franchisee argued that exclusivity vis-à-vis the supplier was not useful for the protection of the know-how of the franchisor and therefore that the latter could not benefit from an individual exemption.

 

The Court of Cassation rejected the argument and approved the Court of Appeal for having considered that an exclusive supply clause entered into for an indefinite period constitutes a non-competition clause, null and void unless the party who benefits from it manages to justify that the litigious exclusivity clause comes under an individual exemption, which was the case in this case since "  in terms of franchise, the clauses which organize the essential control to the preservation of the identity and reputation of the network, symbolized by the sign, do not constitute restrictions of competition”.

 

This solution favorable to franchisors should be extended to any franchise where the control and preservation of the network's identity and brand image is a major issue.

 

Roland Rinaldo, lawyer, Cabinet ARTLEX Nantes

 

Commercial Chamber of the Court of Cassation, judgment of December 20, 2017, appeal no. 16-20501, exclusive supply clause, EU Regulation no. 330/2010 of April 20, 2010, article 101 of the Treaty on the functioning of the Unions European Union, article L.420-1 of the Commercial Code, franchise agreement, clause organizing the control necessary to preserve the identity and reputation of the network, competition restrictions