Dutch Franchise Act also applicable to (selective) Distribution and Dealer Contracts or Trademark Licenses?

17 March 2020 – Tessa de Mönnink, Annelies van Zoest

As we previously reported, a reviewed Franchise Bill has been presented by the State Secretary of Economic Affairs, Mona Keijzer, to Parliament. Next to all kind of interesting substantial and procedural aspects involved in this legislative process, there is one aspect that has been a bit neglected so far. This concerns the delimitation and scope of “franchise agreement” as defined in the Franchise Bill and explained in the associated Explanatory Memorandum.

BOVAG, the interest group of car dealers in the Netherlands states (a bit simplistically) “dealer agreement = franchise agreement”. It is of the opinion that all mobility retailers, such as car dealers, bicycle companies, caravan dealers, car lease companies and driving schools, should fall under the effects of the Franchise Act. This is an interesting stand which, if adhered to by the court, could have far reaching effects.

In the (future) Franchise Act “franchise agreement” is defined as follows: “the agreement in which the franchisor grants a franchisee against remuneration the right and imposes the duty to operate a franchise formula in the manner specified by the franchisor for the production or sale of goods or for the performance of services.”

The definition of “franchise formula” is “operational, commercial and organizational formula for the production or sale of goods or for the performance of services which is decisive to a homogenous identity and image of the franchise companies within the chain where this formula is used and which comprises in any case: 1o a trademark, design or tradename, house style or drawing, and 2o knowhow, i.e. a complex of uncopyrighted practical information, resulting from the experience of the franchisor and from the studies carried out by him, whereat such information is secret, essential and identified.”

It is quite hard to imagine how a regular distribution or dealer contract, but also a selective distribution agreement or a limited trademark license could fall within this franchise definition. After all, usually these instances do not involve a franchise formula, homogenous identity, nor any knowhow that is secret, essential and identified.

The Explanatory Memorandum states that to the question whether there is a franchise relationship, or not, it is not the qualification, denomination or title used by the parties for their agreement that is decisive, but the actual content of their mutual relationship. The Explanatory Memorandum explicitly says about this: “If such a relationship involves all the elements that are included in the definition “franchise agreement” and consequently “franchise formula”, “franchisor” and “franchisee”, as defined in the second paragraph, then such a title applies to the relationship.”

Most likely this will not be true for most cases. However, the BOVAG started a (public) debate which may result into quite a bit of legal (un)certainty and the risk of dealers, distributors and licensees invoking the Franchise Act in the future. If this is honored by the court, then this could rather be to the disadvantage of trademark owners / suppliers, seeing that several far reaching protective clauses have been included in the Franchise Act (including the right of consent and goodwill that may have to be paid upon end of the agreement). Trademark owners and suppliers must be aware that the (future) Franchise Act may have a substantial impact on their relationships with their dealers, distributors and licensees.

Next Steps

The Franchise Bill is currently before the Dutch Parliament. On Tuesday 18 February 2020, the Commissie EZK (Commission for Economic Affairs and Climate) has decided to put the Franchise Bill on the agenda for the 12th of March 2020. After the Parliament has passed the act (with or without further amendments), it will go to the Dutch Senate for approval. Usually this is a mere formality. There is a lot of pressure on the Ministry of Economic Affairs to expedite the process. It is generally expected that the Franchise Bill will be enacted within this year (2020).

Although the Franchise Bill has not yet been passed and its content may still change, it is important to verify for each company active in franchising (and distribution and licensing) in the Netherlands whether and in what manner anticipation is recommended.

We will keep you posted about any further developments.

Tessa de Mönnink


Annelies van Zoest