Source: EURLEX
Language: en
Format: md

27. 8. 87 Official Journal of the European Communities No C 229/3

Communication pursuant to Article 5 of Council Regulation No 19/65/EEC of 2 March 1965
on the application of Article 85 (3) of the Treaty to categories of agreements and concerted

practices (')

(87/C 229/03)

In accordance with the terms of Article 5 of Regulation No 19/65/EEC, the Commission
invites all interested parties to send their comments on the attached draft 'Commission Regulation (EEC) on the "application of Article 85 (3) of the Treaty to categories of franchising
agreements' by no later than 1 November 1987 to the following address:

Commission of the European Communities,
Directorate-General for Competition,
Directorate for General Competition Policy,
rue de la Loi 200,

B-1049 Brussels.

Draft Commission Regulation (EEC) on the application of Article 85 (3) of the Treaty to

categories of franchising agreements

THE COMMISSION OF THE EUROPEAN
COMMUNITIES,

Having regard to the Treaty establishing the European
Economic Community,

Having regard to Council Regulation No 19/65/EEC of
2 March 1965 on the application of Article 85 (3) of the
Treaty to certain categories of agreements and concerted
practices ('), as last amended by the Act of Accession of
the Kingdom of Spain and the Republic of Portugal, and
in particular to Article 1 thereof,

After consulting the Advisory Committee on Restrictive
Practices and Dominant Positions,

Whereas:

1. Regulation 19/65/EEC empowers the Commission
to apply Article 85 (3) of the Treaty by Regulation to
certain categories of bilateral exclusive agreements falling
within the scope of Article 85 (1) which either have as
their object the exclusive distribution or exclusive
purchase of goods, or include restrictions imposed in
relation to the assignement or use of industrial property
rights;

2. Franchising agreements consist essentially of
licenses of intangible property rights concerning trade
marks or signs and know-how, which can be combined
with restrictions relating to supply or purchase;

0) OJ No 36, 6. 3. 1965, p. 533/65.

3. Several types of franchise can be distinguished
according to their object: industrial franchise concerns
the manufacturing of goods, distribution franchise, either
by a producer or by a distributor, concerns the retailing
of goods, and service franchise, concerns the supply of
services;

4. It is possible on the basis of the experience of the
Commission to define categories of franchising
agreements which fall under Article 85 (1) but can
normally be regarded as satisfying the conditions laid
down in Article 85 (3); this is the case for franchising
agreements whereby one of the parties supplies goods or
provides services to end users; on the other hand,
industrial franchise agreements shall not be covered by
the present Regulation; such agreements, which relate to
relationships between producers, present different
characteristics than the other types of franchise; they
consist of manufacturing licenses based on patents
and/or technical know-how, combined with trade-mark
licenses; some of them can benefit from the block
exemptions relating to patent ( [2] ) or know-how ( [3] )
licences if they fulfill the conditions defined by those
regulations;

O Commission Regulation (EEC) No 2349/84 of 23 July 1984
on the application of Article 85 (3) of the Treaty to certain
categories of patent licensing agreements (OJ No 219, 16. 8.
1984, p. 15).
( [3] ) Commission Regulation (EEC) No ..../.. of 1987,
on the application of Article 85 (3) of the Treaty to certain
categories of know-how licensing agreements (OJ No . . .

, P-         -         - )•

No C 229/4 Official Journal of the European Communities 27.8.87

5. For the purposes of this Regulation, franchise
agreements are agreements whereby an undertaking, the
franchisor, confers on another, the franchisee, in
exchange for financial consideration, the right to exploit
a franchise to retail goods and/or provide services to end
users. A distinction can be drawn between producer's
franchise, concerning the retail of goods manufactured
or selected by the franchisor or on its behalf and bearing
the franchisor's name or trade mark, distributor's
franchise, concerning the retail of goods manufactured
by third parties and selected by the franchisee in collaboration with the franchisor and, lastly, service franchise,
concerning the provision of services according to the
franchisor's instructions and on a subsidiary basis the
supply of goods directly linked to the provision of the
services; the franchise includes a uniform presentation of
the contract installations based on the use of a common

name or sign, a substantial know-how relating to the sale
of goods and/or the provision of services to end users
and a continuous commercial or technical assistance

provided by the franchisor to the franchise; this Regulation shall also cover cases where the relationship
between franchisor and franchises is made through the
intermediary of a third company, the master franchisee;

6. Franchising agreements can fall under Article 85(1)
when they include territorial protection of the
franchisees, in particular where it is provided that neither
the franchisor, nor other franchisees will be allowed to
set up franchised installations in a determined area; such
restrictions result in a sharing of markets between
franchisor and franchisees or between franchisees, which
is capable of affecting trade between Member States even
if franchisor and franchisees are established in the same

member state in so far as they prevent franchisees from
setting up franchised installations in other Member
States;

7. Franchising agreements as defined in this Regulation normally improve distribution as they give
franchisors the possibility of establishing a uniform
distribution network without the need for major
investments, which may assist the entry of new
competitors on the market, particularly in the case of
small and medium-sized undertakings, thus increasing
interbrand competition; they also allow independant
traders to set up outlets more rapidly and with higher
chance of success than if they had to do so without the
franchisor's experience and assistance; they have
therefore the possibility to compete efficiently with large
distribution undertakings;

8. As a rule, franchising agreements also allow
consumers and other end users a fair share of the

resulting benefit, as they combine the advantage of a
uniform distribution network with the existence of

traders personally interested in the efficient operation of
their business;

9. The limited territorial protection granted to the
franchisees is indispensable to protect their investment
and to guarantee that they will concentrate their activity
on the contract territory;

10. The Regulation must specify the conditions which
must be satisfied for the exemption to apply; to
guarantee that competition cannot be eliminated for a
substantial part of the products in question, it is
necessary that parallel imports remain possible;
therefore, cross deliveries between franchisees should
always be possible; furthermore, where a franchise
network is combined with a selective distribution system,
franchisees should be free to obtain supplies from
approved distributors; to ensure that consumers receive a
fair share of the resulting benefits, it must be provided
that where the franchisees have to honour guarantees for
the products which are the object of the franchise, this
obligation shall also apply to products supplied by other
franchisees. Even if franchisees can be prohibited from
competing with the franchisor, they should never be
prevented from investing in competing companies, where
they are not involved personnally, in particular, where
they do not have the control, or are not a member of the
board, of a competing company;

11. It is desirable to list in the Regulation a number of
obligations that are commonly found in franchising
agreements and are normally not restrictive of
competition and to provide that if, because of the
particular economic or legal circumstances, they fall
within Article 85 (1), they are also covered by the
exemption; this list, which is not exhaustive, includes
clauses which are essential either to preserve the
common identity and reputation of the network or to
prevent the know-how made available and the assistance
given by the franchisor from benefitting competitors;

12. The Regulation must also specify restrictions
which may not be included in franchising agreements if
these are to benefit from the exemption granted by the
Regulation by virtue of the fact that such provisions are
restrictions falling within Article 85 (1) for which there is
no general presumption that they will lead to the positive
effects required by Article 85 (3); this is the case in
particular when the franchisee is restricted as to the
determination of its prices by way of agreement or
concerted practice;

27.8.87 Official Journal of the European Communities No C 229/5

13. Agreements which are not automatically covered
by the exemption because they contain provisions that
are not expressly exempted by the Regulation and not
expressly excluded from exemption may nonetheless
generally be presumed to be eligible for application of
Article 85 (3). It will be possible for the Commission
rapidly to establish whether this is the case for a
particular agreement. Such agreements should therefore
be deemed to be covered by the exemption provided for
in this Regulation where they are notified to the
Commission and the Commission does not oppose the
application of the exemption within a specified period of
time;

14. If individual agreements exempted by this Regulation nevertheless have effects which are incompatible
with Article 85 (3), the Commission may withdraw the
benefit of the block exemption, in particular in cases
where competition is significantly restricted because of
the structure of the relevant market;

15. Agreements which are automatically exempted
pursuant to this Regulation need not be notified; undertakings may nevertheless in a particular case request a
decision pursuant to Council Regulation No 17 ( [1] ), as
last amended by the Act of Accession of Spain and
Portugal;

16. Agreements to which this Regulation is applicable
cannot benefit from the provisions of other block
exemption regulations,

HAS ADOPTED THIS REGULATION:

_Article 1_

1. Pursuant to Article 85 (3) of the Treaty and subject
to the provisions of this Regulation, it is hereby declared
that Article 85 (1) of the Treaty shall not apply to
franchising agreements entered into between two undertakings, which include one or more of the restrictions
listed in Article 2.

2. For the purposes of this Regulation:

(a) a franchising agreement means an agreement
whereby one undertaking, the franchisor, grants the
other, the franchisee, in exchange for financial
consideration, the right to exploit a franchise for the

O OJ No 13, 21. 2. 1962, p. 204/62.

purpose of marketing determined goods and/or
services.

(b) a franchise means a package of intangible property
rights relating to trade marks, trade names, shop
signs, utility models, designs, copyrights, know-how
or patents, to be exploited for the resale of goods or
the provision of services to end users and which
includes at least:

— the use of a common name or sign and a uniform
presentation of contract premises,

— the communication by the franchisor to the
franchisee of a substantial know-how capable of
conferring a competitive advantage on the latter,
and

— the continous provision by the franchisor to the
franchisee of commercial or technical assistance

during the life of the agreement.

(c) _Know-how_ means a body of non-patented practical
knowledge, resulting from experience and testing by
the franchisor, which can be passed on to others and
is not immediately accessible to the public, relating
to the sale of goods or the provision of services to
end users, and in particular to the presentation of
goods for sale, the processing of goods in connection
with the provision of services, methods of dealing
with customers, and administration and financial

management.

3. This Regulation applies also to franchising
agreements of the kind described in paragraphs 1 and 2
whereby the franchisee agrees to retail certain goods
supplied by the franchisor and bearing its name or
trademark in a defined area of the common market (the
contract territory).

4. The exemption provided for in paragraph 1 also
applies to master franchise agreements, that is
agreements between two undertakings whereby one, the
franchisor, grants the other, the master franchisee, in
exchange for financial consideration, the right to exploit
a franchise in a specified territory for the purposes of
concluding with third parties, the franchisees, franchising
agreements as defined in paragraph 2. All references in
this Regulation to relations between franchisor and
franchisee must be understood as including also relations
between master franchisee and franchisee.

No C 229/6 Official Journal of the European Communities 27. 8. 87

_Article_ _2_

The exemption provided for in Article 1 shall apply to
franchise agreements which include one or more of the
following restrictions of competition:

(a) an obligation on the franchisor, in a defined area of
the common market, the contract territory, not to

— give the right to exploit all or part of the
franchise to third parties,

— exploit itself the franchise, or supply itself the
goods or services which are the subject of the
franchise under a similar formula,

— in the case of Article 1 (3), supply itself the goods
which are the subject of the franchise to third
parties,

(b) an obligation on the franchisee to exploit the
franchise only from the contract premises;

(c) an obligation on the franchisee to sell the goods
which are the subject of the franchise only to end
users or to other franchisees, without prejudice to
the right of the franchisee to resell them to third
parties which may also obtain from other sources
those goods for resale;

(d) an obligation on the franchisee, in the case of
Article 1 (3), not to manufacture or distribute goods
competing with the goods which are the subject of
the franchise in the contract territory or in a territory
allotted to another member of the franchised

network.

_Article_ _3_

1. Article 1 shall apply notwithstanding the presence
of any of the following obligations on the franchisee:

(a) in so far as it is necessary to protect the franchisor's
know-how or to maintain the common identity and
reputation of the franchised network, to sell
exclusively goods matching minimum objective
quality specifications laid down by the franchisor;

(b) in so far as it is necessary to protect the franchisor's
know-how or to maintain the common identity and
reputation of the franchised network, to sell goods
which are manufactured only by the franchisor or
by third parties designated by it, where it is impracticable, owing to the nature of the goods which
are the subject of the franchise, to formulate
objective quality specifications;

(c) not to engage, directly or indirectly, in any similar
business in a territory where it would compete with
a member of the franchised network;

(d) not to use the know-how and itellectual property
rights licensed by the franchisor for purposes other
that the exploitation of the franchise; the franchisee
may be held to this obligation after the agreement
has expired as long as the know-how confers a
competitive advantage on it;

(e) not to disclose to third parties the know-how
provided by the franchisor, and to impose the same
obligation on its staff; the franchisee may be held to
this obligation after the agreement has expired;

(f) to inform the franchisor of infringements of the
licensed intellectual property rights, to take legal
action against infringers or to assist the franchisor in
any legal actions against infringers;

(g) to attend or have its staff attend training courses
arranged by the franchisor;

(h) to use its best endeavours to sell the goods or
provide the services that are the subject of the
franchise, achieve a minimum turnover, plan his
orders in advance, keep minimum stocks and
provide customer and warranty services;

(i) to pay to the franchisor a specified proportion of its
revenue for advertising and obtain the franchisor's
approval for the nature of the advertising it carries
out itself;

(j) to apply the commercial methods devised by the
franchisor and use the licensed know-how, trade
marks and signs;

(k) to comply with the franchisor's standards for the
equipment and general appearance of the contract
installations;

(1) to allow the franchisor to carry out checks on its
inventory and accounts and of the contract installations;

(m) not without the franchisor's consent to change the
location of the contract installations;

(n) not without the franchisor's consent to assign the
rights and obligations under the franchise
agreement.

2. The exemption provided for in Article 1 shall also
apply to franchise agreements which include obligations
referred to in paragraph 1 where, because of particular
circumstances, such obligations fall within the scope of
Article 85 (1).

27. 8. 87 Official Journal of the European Communities No C 229/7

_Article 4_

The exemption provided for in Article 1 shall apply on
condition that:

(a) the franchisee is free to obtain the goods that are the
subject of the franchise from other franchisees;
where such goods are also distributed through
another network of authorized distributors, the
franchisee must be free to obtain the goods from
those;

(b) where the franchisor obliges the franchisee to
honour guarantees for products bearing the
franchisor's trade mark, this obligation applies also
to such products supplied by other franchisees;

(c) the franchisee is free to acquire financial interests in
the capital of competitors of the franchisor where
this investment does not involve it personally in
carrying on competing activities;

(d) the parties have described in as much detail as
possible in the contract or any related document the
know-how and other rights which are the subject of
the franchise.

_Article 5_

The exemption granted by Article 1 shall not apply
where:

(a) manufacturers of identical goods or goods which are
considered by users as equivalent in view of their
characteristics, price and intended use, enter into
reciprocal franchising agreements in view of the
distribution of such goods;

(b) in cases other than provided in Article 1 (3), the
franchisee is prevented, for reasons other than
protecting the franchisor's know-how or maintaining
the common identity and reputation of the
franchised network, from obtaining supplies of
goods of equivalent quality to those offered by the
franchisor;

(c) in cases other than provided in Article 1 (3), the
franchisee is obliged to sell goods manufactured by
the franchisor or third parties designated by the
franchisor and the franchisor refuses, for reasons
other than protecting the franchisor's know-how or
maintaining the common identity and reputation of
the franchised network, to designate as authorized
manufacturers third parties proposed by the
franchisee;

(d) the franchisee is restricted, directly or indirectly, in
the determination of resale prices for the products or
services which are the subject of the franchise;

(e) the franchisor prohibits the franchisee from
challenging the validity of the intellectual property
rights which form part of the franchise;

(f) one or both of the parties are obliged not to supply
the products or services which are the subject of the
franchise to end users because of their place of
residence;

_Article 6_

1. The exemption provided for in Article 1 shall also
apply to franchising agreements which fulfil the
conditions laid down in Article 4 and include obligations
restrictive of competition which are not covered by
Articles 2 and 3 (2) and do not fall within the scope of
Article 5, on condition that the agreements in question
are notified to the Commission in accordance with the

provisions of Commissions Regulation No 27 and that
the Commission does not oppose such exemption within
a period of six months.

2. The period of six months shall run from the date
on which the notification is received by the Commission.
Where, however, the notification is made by registered
post, the period shall run from the date shown on the
postmark of the place of posting.

3. Paragraph 1 shall apply only if:

(a) express reference is made to this Article in the
notification or in a communication accompanying it,
and

(b) the information furnished with the notification is
complete and in accordance with the facts.

4. The benefit of paragraph 1 can be claimed for
agreements notified before the entry into force of this
Regulation by submitting a communication to the
Commission referring expressely to this Article and to
the notification, Paragraph 2 and 3 (b) shall apply
_mutatis mutandis._

5. The Commission may oppose the exemption. It
shall oppose exemption if it receives a request to do so
from a Member State within three months of the

forwarding to the Member State of the notification
referred to in paragraph 4. This request must be justified
on the basis of considerations relating to the competition
rules of the Treaty.

6. The Commission may withdraw the opposition to
the exemption at any time. However, where the
opposition was raised at the request of a Member State,
it may be withdrawn only after consultation of the
Advisory Committee on Restrictive Practices and
Dominant Positions.

7. If the opposition is withdrawn because the undertakings concerned have shown that the conditions of
Article 85 (3) are fulfilled, the exemption shall apply
from the date of the notification.

No C 229/8 Official Journal of the European Communities 27.8.87

8. If the opposition is withdrawn because the undertakings concerned have amended the agreement so that
the conditions of Article 85 (3) are fulfilled, the
exemption shall apply from the date on which the
amendments take effect.

9. If the Commission opposes exemption and the
opposition is not withdrawn, the effects of the
notification shall be governed by the provisions of Regulation No 17.

_Article 7_

1. Information acquired pursuant to Article 6 shall be
used only for the purposes of this Regulation.

2. The Commission and the authorities of the

Member States, their officials and other servants shall
not disclose information acquired by them pursuant to
this Regulation of a kind that is covered by the
obligation of professional secrecy.

3. Paragraph 1 and 2 shall not prevent publication of
general information or surveys which do not contain
information relating to a particular undertaking or
associations of undertakings.

_Article 8_

The Commission may withdraw the benefit of this
Regulation, pursuant to Article 7 of Regulation
No 19/65/EEC, where it finds in a particular case that
an agreement exempted by this Regulation nevertheless
has certain effects which are incompatible with the

conditions laid down in Article 85 (3) of the Treaty, and
in particular where territorial protection is awarded to
the franchisee and:

(a) access to the relevant market or competition therein
is significantly restricted by the cumulative effect of
parallel networks of similar agreements established
by competing manufacturers or distributors;

(b) the products or services which are the subject of the
franchise do not face, within the contract territory,
effective competition from identical goods or goods
considered by users as equivalent in view of their
characteristics, price and intended use;

(c) the parties prevent the end users, because of their
place of residence, to obtain the products or services
which are the subject of the franchise, within the
contract territory;

(d) the franchisor uses its right to check the franchisee's
inventory and accounts, or refuses its agreement to
requests by the franchisee to move the contract
installations or assign his rights and obligations
under the franchise agreement, for reasons other
than verifying that the franchisee abides by its
obligations under the agreement.

_Article 9_

This Regulation shall enter into force on 1 January 1989.

It shall remain in force until 31 December 1999.

This Regulation shall be binding in its entirety and
directly applicable in all Member States.

Conversion rate to be used for sales of alcohol by invitation to tender

(87/C 229/04)

_(Article 15 of Regulation (EEC) No 1915/86)_

Currency

1 Bfr

1 Dkr

1 DM

1 FF

1 £Irl

1 Fl

1 £

100 Lit
100 Dra

100 Pta

100 Esc

(') 1 ECU - 100 x ... national currency.

= ...ECU

0,0207096
0,111981
0,427144
0,127359

1,14430
0,379097

1,26900
0,0588809
0,562737
0,629496
0,545584

1 ECU = . . . national currency

48,2869

8,93009
2,34113
7,85183
0,873898
2,63785
0,788022
16,9834 (')

1,77703 0)
1,58857 C)
1,83290 (')