No C 175/30 Official Journal of the European Communities 4. 7. 88 
Additional Opinion on the draft Commission Regulation (EEC) on the application of Article 
85 (3) of the Treaty to categories of franchising agreements 
(88/C 175/11) 
On 20 October 1987 the bureau of the Economic and Social Committee, acting under the 
third paragraph of Article 20 of the rules of procedure, decided, in conjunction with the 
Committee Opinion on the Commission's sixteenth report on competition policy, to prepare 
an Opinion on the abovementioned document. 
The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing 
the Committee's work on the subject, adopted its Opinion on 6 April 1988. The rapporteur 
was Mr Hilkens. 
At its 255th plenary session (meeting of 27 April 1988), the Economic and Social Committee 
adopted the following Opinion by 74 votes to 34 with 6 abstentions. 
1. Introduction 
1.1. Since the beginning of the sixties franchising, as 
a modern form of marketing, has been expanding rap­
idly throughout the European Community, though its 
advance has been more marked in some Member States 
than in others. In 1987 the EC Commission published 
a study outlining the situation in each Member State (*). 
Statistics show that close to two thousand franchisors 
are now operating in the Community. These franchisors 
have concluded contracts with approximately 100 000 
franchisees. According to the European Franchise Fed­
eration, the turnover of these franchise chains was 
already more than 35 000 million ECU by the end of 
1985 (2). With the completion of the internal market a 
further expansion of franchising in the Community can 
be expected. 
1.2. Now that this important form of commercial 
cooperation between entrepreneurs has grown to such 
proportions in the EC, clear guidelines are needed indi­
cating to what extent the EC competition rules apply 
to franchise agreements and networks. 
1.3. Under Council Regulation No 19/65 of 2 March 
1965, the Commission is empowered to apply Article 
85 (3) to certain categories of bilateral exclusive agree­
ments falling within the scope of Article 85 (1) (general 
prohibition) which either have as their object the exclus­
ive distribution or exclusive purchase of goods, or 
include restrictions imposed in relation to the assign­
ment or use of industrial property rights. 
1.4. The aim of the draft Regulation is to define a 
new group of agreements eligible for a block exemption. The Treaty has, in fact, laid down that certain agree­
ments which are prohibited in principle by Article 
84 (1) can be exempted from prohibition under certain 
conditions. It is therefore quite in order for the Com­
mission to list in a block exemption Regulation those 
cases where it recognizes that the provisions of Article 
85 (1) are not applicable. 
(J) Franchising in ausgewahlten Bereichen des Handels in der 
Gemeinschaft, eine wettbewerbspolitische Analyse, published 
by the EC Commission, Luxembourg, 1987 (exists in German 
only). 
(2) Not including the turnover of franchised hotel chains. 2. General comments 
2.1. Subject to the comments set out below, we 
approve the Commission's proposal to issue a block 
exemption Regulation for certain categories of fran­
chise agreements which fall under Article 85 (1) but 
satisfy the conditions laid down in Article 85 (3). 
2.2. It cannot be denied that franchising as a form 
of marketing has its positive side: for one thing, the 
combination of recognizability and uniformity in the 
goods and services on offer has a number of advantages. 
Compared with the branch manager of a multiple store, 
a franchisee, as an independent entrepreneur, may be 
more directly involved in his business. From the compe­
tition angle, franchising makes it possible to set up 
chains of small entreprises which can compete with the 
branches of large companies. In addition, because the 
start-up costs can be relatively low and because of the 
transfert of know-how, franchising can facilitate the 
entry of new competitors into a market. 
2.3. These positive aspects do not alter the fact that 
in practice franchising may also have some not insignifi­
cant negative aspects: 
— Franchising can affect competition between 
retailers. The know-how and commercial assistance 
provided to a franchisee may place a competing 
independent retailer at a disadvantage. It is impor-
4. 7. 88 Official Journal of the European Communities No C 175/31 
tant to ensure that this competition be fair and in 
the interest of the consumer. 
— While we realize that block exemption is primarily 
an instrument of EC competition policy, the Com­
mission should also bear in mind that by granting 
block exemption it is recognizing franchising. Hence 
it is encouraging a form of cooperation with impli­
cations beyond the realm of competition law. We 
would urge the Commission to take into account 
above all, the social aspects, especially the problems 
which may arise from the hierarchical and contrac­
tual relationship between franchisor and franchisee. 
In many cases the franchisee is in a weak position 
vis-a-vis the franchisor. Another factor is the pos­
ition of the franchisee's employee(s). In practice 
employees have no influence over the contractual 
relationship between the franchisor and the franch­
isee, although they are directly affected by the reper­
cussions of this relationship. Appropriate steps 
should therefore be taken to safeguard both the 
contractual position of the franchisee and the social 
and contractual position of the employees. Concern 
must also be expressed about certain franchises 
which provide little or nothing in the way of benefit 
to the franchisee in comparison to the cost. These 
are often sold to groups such as redundant workers 
who have little or no experience of business. The 
promoters of such schemes normally do not belong 
to reputable franchisor associations and this means 
need to be devised for dealing with such abuses. 
2.4. We note with satisfaction that the Commission's 
draft Regulation makes a distinction between various 
types of agreement, namely those in the manufacturing, 
distribution and service sectors (the first-mentioned not 
being covered by the Regulation). But even within the 
group of franchise agreements which are covered by 
the exemption, there are in practice great differences. 
There is no standard franchise contract. Some franchise 
agreements reveal strong similarities in parts with selec­
tive distribution agreements and/or exclusive sales 
agreements. In view of this great diversity, consider­
ation should be given to whether there is a sound case 
for block exemption in this instance. At all events, 
such demarcation problems highlight the need for great 
consistency with the provisions governing block exemp­
tions for other forms of cooperation. 
2.5. Examination of the draft Regulation has revea­
led a highly unsatisfactory lack of consistency between 
the different language versions. It is also vague and 
confusing in places. Especially as this is a legal instru­
ment in the area of competition policy, the Commission must ensure that the text is consistent and that the 
different language versions correspond. 
This will be dealt with in greater detail in the specific 
comments on the individual Articles. 
3. Specific comments on the Commission draft 
3.1. Article 1 (3) 
Article 1 (2)(b) second indent: in the definition of fran­
chise the Dutch version refers to belangrijke know-
how, the German version to wesentlichen Know-how 
and the French version to savoir-faire substantiel. 
The word belangrijke is too vague and should, in the 
Dutch version at least, be replaced by wezenlijke which 
better expresses the indispensable nature of the know-
how in question. 
Article 1 (3) 
The meaning of this paragraph is not very clear in 
several of the language versions. This paragraph is 
particularly important for a proper understanding of 
the draft Regulation as it is referred to in other Articles 
[Article 2 (a), (c), (d); Article 5 (b), (c)]. Clarification 
is needed, using the (easily comprehensible) French 
version as a basis. 
3.2. Article 2 
Article 2 (a): is not readily comprehensible in the 
Dutch version and should be amended as follows. The 
word niet (after contractsgebied) should be incorpor­
ated in the indents. 
Article 2 (b): does not offer the franchisee sufficient 
scope to exploit the franchise from mobile shop or 
office premises. The paragraph should be expanded so 
that such methods of operation are covered by the 
Regulation too. 
Article 2 (c): differs in the English version: the 
second indent is missing and the first indent is incorpor­
ated in the paragraph. 
3.3. Article 3 
Article 3 (1) 
This paragraph states that the exemption shall apply 
notwithstanding the presence of a number of specified 
obligations on the franchisee. 
No C 175/32 Official Journal of the European Communities 4. 7. 88 
The Dutch version refers to een van de volgende ver-
plichtingen (one of the following obligations), imposing 
a restriction which is not contained in the other ver­
sions. 
As the text stands it is not clear whether the obligations 
listed under (a) to (n) can be included cumulatively in 
a franchise agreement. 
It would be preferable to use the phrase een of meer 
van de volgende verplichtingen (one or more of the 
following obligations) by analogy with Article 1 (1) and 
Article 2. 
Article 3 (l)(b) in conjunction with Article 4 (a) in 
conjunction with Article 5 (c) 
These paragraphs lay down to what extent exclusive 
purchasing obligations imposed on the franchisee are 
permitted. 
The Commission has adopted an even-handed 
approach, taking into account the interests of both 
franchisor and franchisee. Article 5 (c), however, raises 
the question on whom does the onus of proof fall when 
a refusal is based on protection of the franchisor's 
reputation. 
In our view the text should make it clearer that in this 
instance the onus rests on the franchisor. 
Article 3 (l)(c) and (d) 
Both these paragraphs deal with the competition clauses 
contained in many franchise agreements. In the interests 
of legal certainty both paragraphs should clearly state 
the maximum period of validity of such clauses. 
In its present form paragraph (c) means a change—not 
supported by any arguments—in the Commission's pre­
sent policy which has been consistenly based on a 
maximum period of one year after expiry of the fran­
chise agreement. In our view such a period is sufficient 
to provide the franchisor with the necessary protection. 
The maximum period stipulated in paragraph (d) is 
'... as long as the know-how confers a competitive 
advantage'. This vague wording should be replaced by 
Done at Brussels, 27 April 1988. '... as long as the know-how is not directly accessible 
to the public'. 
3.4. Article 4 
The various language versions of paragraph (b) raise 
questions. The German and French versions refer 
respectively to diese Waren and aux dits produits (En­
glish version: 'such products'), i.e. those products bear­
ing the franchisor's trademark as mentioned earlier in 
(b). The Dutch version refers only to produkten, so 
that a broader interpretation is possible. 
We consider that the text should be amended to the 
effect that all products supplied under the franchise are 
covered by the guarantee obligation: in other words, 
even products not bearing the franchisor's trademark 
should be covered by the guarantee obligation. 
Article 4 (c) 
Again the necessary consistency between the different 
language versions is lacking. The German and to a 
lesser extent the French versions are more vaguely 
worded than the English and Dutch versions. All ver­
sions should make it clear that financial investments 
are prohibited only where the franchisee is personally 
involved in carrying on competing activities. 
Article 4 (d) states that the exemption shall apply only 
on condition that 'the know-how and other rights which 
are the subject of the franchise' are 'described in as 
much detail as possible'. In our view this vague wording 
could lead to considerable legal uncertainty. The 
Commission should lay down further criteria for this 
detailed description. 
The following new paragraph (e) should be added to 
Article 4 to protect the social position of the franchisee's 
employee(s): 
'... the agreement does not contain any pro­
visions which could result in the social regu­
lations covering the franchisee's employees, 
including collective agreements, being under­
mined.' 
The Chairman 
of the Economic and Social Committee 
Alfons MARGOT