Source: EURLEX
Language: en
Format: md

20. 8. 88 Official Journal of the European Communities No C 218/3

Notice pursuant to Article 19 (3) of Council Regulation No 17 ( [x] ) concerning case

No IV/32.358 — ServiceMaster

(88/C 218/03)

I. GENERAL DESCRIPTION OF THE SERVICEMASTER

FRANCHISE SYSTEM

1. On 3 June 1987, ServiceMaster Limited (England)
whose registered office is situated in Leicester, United
Kingdom, notified to the Commission a standard form
service franchise agreement for use in all the Member
States of the EEC. ServiceMaster has applied for a
negative clearance or alternatively an exemption under
the competition rules of the EEC Treaty.

2. ServiceMaster Limited (England) is a whollyowned subsidiary of ServiceMaster Operations AG
(Switzerland) which in its turn is largely owned by
ServiceMaster Company Limited Partnership, a US
company. ServiceMaster Switzerland owns, besides
ServiceMaster Limited, a subsidiary in the Federal
Republic of Germany, ServiceMaster Operations
Germany GmbH, and a subsidiary in France, ServiceMaster Sari. The business of the ServiceMaster group is
the provision of services in the health care, educational,
industrial, residential and commercial markets. The
services provided relate to the management and
performance of housekeeping, plant maintenance, food
service, laundry and linen, material usage and handling,
pest control, cleaning and auxiliary services as well as
lawn care services. Some of the services are performed
with products or equipment manufactured and designed
by ServiceMaster.

At the end of 1987, ServiceMaster had 3 700 franchise
licences in operation worldwide. In the EEC, there exist
245 ServiceMaster franchise licences which at present are
principally located in the United Kingdom. ServiceMaster has the intention to establish a European-wide
network of franchise licences. In 1987, the total network
turnover of the ServiceMaster group amounted to 1 790
million ECU. The EEC operation, at present principally
within the United Kingdom, had a turnover of about 24
million ECU. Revenues from franchised services consist

of initial franchise fees, monthly fees based on each franchisee's volume of business and income received from

sales of products and equipment to franchisees.

3. The notified franchise agreement concerns the
provision of housekeeping, cleaning and maintenance
services to both commercial and domestic customers

according to the franchisor's methods and, on an
ancillary basis, the supply of goods directly linked to the
provision of these services. The franchisor has established

(') OJ No 13, 21. 2. 1962, p. 204/62.

a substantial know-how in the provision of these services
and the methods of conducting and marketing the
business are secret and the exclusive property of ServiceMaster. ServiceMaster is also the owner of trademarks

associated with products employed in the operation of
the business. The ServiceMaster franchise system is based
on the use by all franchisees of the ServiceMaster name
and know-how relating to the provision of the services
and on a continuous commercial and technical assistance

provided by ServiceMaster to the franchisees. The franchisees are proprietors of their business, which they
operate for their own account and at their own risk. In
exchange for the right to exploit a ServiceMaster
franchise, the franchisees have to make various financial
contributions and are bound by obligations aimed at
preserving the uniformity and quality standards of the

system.

4. The market of the services affected by the notified
franchise agreement is a fragmented market since it
concerns a variety of services and a variety of customers.
The market is highly competitive: there are a large
number of firms of varying size supplying the services of
housekeeping, cleaning and maintenance to both
commercial and domestic customers. It is relatively easy
for new suppliers to enter the market since most of these
services require no sophisticated equipment.

The market share of ServiceMaster in the EEC is at

present still below 5 %. ServiceMaster operates principally in the United Kingdom, where it holds a market
share of about 6 %. However, ServiceMaster is
developing its franchise network with the intention to
expand it throughout the EEC. Also, ServiceMaster
reckons that its EEC market share will increase in the

near future and exceed 5 %. In the United States and

Canada, Service-Master holds a strong position in the
service markets in question. This is in particular shown
by the number of its franchisees on that market (2 937
franchisees at the end of 1987), and by its recent
acquisitions of two other US service companies, i.e.
Terminix and American Food Management.

II. RELEVANT FEATURES OF THE

FRANCHISE AGREEMENT

NOTIFIED

Following observations made by the Commission,
ServiceMaster accepted to make a certain number of
amendments to its originally notified franchise
agreement. At the same time, ServiceMaster prepared
separate agreements for commercial customers and
domestic customers. These agreements are, however,
identical as regards the clauses to be considered under
the EEC competition rules. ServiceMaster communicated
the amended franchise agreements on 10 May 1988.
Only the relevant features of these amended agreements
are set out hereafter.

No C 218/4 Official Journal of the European Communities 20. 8. 88

1. Selection of the franchisees

In order to be admitted to the ServiceMaster franchise

network, the applicant must meet the ServiceMaster
standards with respect to business experience and
financial status and successfully complete a training
programme organized by ServiceMaster. Each agreement
is concluded _intuitu personae._

_2._ Use of the ServiceMaster know-how, name, trademark
and copyright

(a) _Right of use and uniform presentation_

The franchisee has the right to use in its business the
ServiceMaster know-how, trademark, tradename and
copyright. In addition to these rights, ServiceMaster
supplies the franchisees with an operational manual
containing details of the ServiceMaster methods of
operation and thereafter with continuous
commercial, technical and administrative assistance.
ServiceMaster further provides the franchisees with
advice on the location and installation of the business

premises.

The franchisee agrees to use the ServiceMaster
methods of operation and to comply with all
instructions with regard to the franchisor's standard
for the equipment and general appearance of the
business premises and with regard to standard and
quality of the services to be provided.

(b) _Field of use restriction_

The franchisee may not at any time use the knowhow and intellectual property rights licensed for
purposes other than the exploitation of the franchise.

(c) _Obligation to preserve secrecy_

The franchisee agrees to respect, before and after the
termination of the agreement, the confidentiality of
all information and know-how he receives from

ServiceMaster and to impose a similar obligation on
his employees.

(d) _Grant-back obligation_

The franchisee must report to ServiceMaster any
improvements in the method of operation of the
business he makes and permit ServiceMaster and all
other franchisees of the ServiceMaster network to

use these improvements without any payment being
made. In his turn, he will benefit from the free interchange of improvements made by other franchisees.

(e) _Post-term use ban_

Upon termination of the agreement, the franchisee
must cease using the tradename, trademarks or any
other signs of ServiceMaster and return any material
received to ServiceMaster. The franchisee must

further cease using the information and know-how

concerning the ServiceMaster system unless the
whole of the system as a package has fallen into the
public domain otherwise than in breach of obligation.

3. Location clause

The franchisee may only provide the ServiceMaster
services from the premises agreed upon by ServiceMaster. The franchisee is prohibited from setting up
premises in the territories of other franchisees.

4. Exclusivity and territorial protection

With regard to ServiceMaster itself, the franchisee has
only a non-exclusive right to use the ServiceMaster
know-how and intellectual property rights within his
territory. ServiceMaster reserves the right to compete
itself or appoint other franchisees within the territory of
each franchisee. However, ServiceMaster intends to use
this right only in case of bad performance of a franchisee
or in case the size of the allocated territory requires the
appointment of a further franchisee. Also, ServiceMaster
reserves the right to enter into contracts with customers
who prefer negotiating their cleaning and maintenance
contracts on national or even EEC-wide basis rather

than on a local basis. In such cases, the franchisees can
be required to carry out the services to be provided
under these contracts. The franchisees remain free to

enter into contracts with all other customers not

requiring a national or EEC-wide cleaning or main
tenance contract.

With regard to other franchisees, each franchisee
benefits from a limited territorial protection. All franchisees are under an obligation not to actively seek
customers outside their own territory. However, the
provision of services to non-solicited customers outside
the territory is permitted.

5. Obligation to promote the ServiceMaster business

The franchisee agrees to use its best endeavours to
promote and increase the turnover of the ServiceMaster
business in his territory. He must devote the necessary
time and attention to that business during the hours of
operation of the business and during such other hours as
are necessary to perform the administrative, marketing,
promotional and accounting function required in the
conduct of the business.

6. Obligation to purchase equipment and products

The franchisee must acquire and use such cleaning and
other equipment as shall be required for the operation of
the business. This equipment must be approved of by
ServiceMaster. The franchisee must further purchase

20. 8. 88 Official Journal of the European Communities No C 218/5

certain chemicals used in the operation of the business
from ServiceMaster or suppliers nominated or approved
of by ServiceMaster. Provided the franchisee can find
suppliers able to provide the required equipment and
chemicals which satisfy certain objective criteria, ServiceMaster's approval will not be withheld. For example, the
criteria used for chemicals are safety, non-toxicity, biodegradability and effectiveness. The franchisee is also
free to obtain the equipment or chemicals from other
ServiceMaster franchisees.

7. Resale of chemicals linked to the provision of services

In principle, the franchisee must concentrate on his
primary business of providing services rather than acting
as retailer of goods. However, with the prior written
consent of ServiceMaster, which will take into account
the need for uniformity in the operation of the franchise
system, the franchisee may from time to time sell home
care products to the customers for whom he provides
services. The franchisee may also sell home care products
to other ServiceMaster franchisees.

8. Advertising and pricing policy

Advertising can be done by either ServiceMaster or the
franchisee. For the advertising done by ServiceMaster,
the franchisee has to pay a monthly fee calculated on his
gross sales income less VAT. Advertising by the franchisee is subject to ServiceMaster's approval.

ServiceMaster leaves the franchisees free in the determi
nation of their prices for the supply of services or home
care products, but it may recommend prices to them.

9. Right to inspect

In exchange for the right to exploit a ServiceMaster
franchise, the franchisees must pay an initial franchise
fee and subsequently a monthly fee calculated on their
gross sales income less VAT. The franchisees must
submit regular financial statements and ServiceMaster is
allowed into the premises during working hours in order
to inspect all aspects of the operation.

10. Non-compete obligation

During the term of the agreement, the franchise may
acquire a financial interest in the capital of a competing
company provided it is a publicly quoted company and
the capital acquired does not exceed 5 °/o of the issued
shares of such a company. The acquisition of financial
interests in non-competing companies is completely
unrestricted.

After termination of the agreement, the franchisee may
not for a period of one year be engaged in a business
competing with the ServiceMaster franchise system
within any territory within which he has provided
services prior to the termination of the agreement.
Outside these territories, the franchisee may not for a
period of one year solicit customers who were during the
period of two years prior to the termination of the
agreement customers of the ex-franchisee.

11. Sale of business

Assignment of the agreement or sale of the business to
third parties must be consented to by ServiceMaster.
ServiceMaster's approval will not be withheld if the
proposed purchaser of the business fulfils the selection
conditions applicable to all franchisees and is not a
competing business of ServiceMaster.

12. Term and Renewal

The duration of the agreement is five years with the
possibility to renew the agreement for periods of five

years.

The Commission proposes to adopt a favourable decision
towards the ServiceMaster franchise agreement described
above. Before doing so, it invites interested third parties
to submit any observations they may have within one
month from the date of publication hereof. Submissions
should quote the reference TV/32.358 — ServiceMaster'
and be sent to:

Commission of the European Communities,
Directorate-General for Competition (DG IV),
Directorate for Restrictive Practices, Abuse of Dominant
Positions and other Distortions of Competition — I,
200 rue de la Loi,

B-1049 Brussels.