News

There are a number of interesting recent developments in the field of franchise and distribution:

Franchise bill ‘on hold’

First of all, the franchise bill, on which an internet consultation was held in 2017, has been put ‘on hold’ in October 2017. In the coalition agreement Rutte III[1], which the new Dutch government presented on 10 October 2017, says about franchise:

“There will be additional legislation in the field of franchise in order to strengthen the position of franchisees in the pre-competitive phase.”

In doing so, the new government appears to distance itself emphatically from the franchise bill and to opt for franchise legislation in the pre-contractual phase. Of course, we will have to wait and see how this will develop further. We will of course keep you informed.

Sales restrictions internet platforms permitted! (Coty Germany/Akzente)

On 6 December 2017, the EU Court of Justice (the EU Court) gave judgment in the much discussed case of Coty Germany[2]. The EU Court has decided that a supplier of luxury products can prohibit its authorized resellers to sell products on third-party internet platforms. The case concerns Coty’s selective distribution system, supplier of luxury cosmetics in Germany. Coty’s distribution agreement prohibits distributors to sell the relevant products using third-party online platforms, recognizable as such by the consumer. A judicial procedure was started when Coty’s distributor Akzente was selling products using the platform ‘amazon.de’.

Among others, the EU Court was asked whether selective distribution systems for the sale of luxury and prestigious articles and having the primary aim to maintain the “luxury image” of the products are compatible with article 101(1) VWEU. In the 6 December 2017 judgment, the EU Court refers to settled case-law that such distribution systems are allowed if the resellers have been selected on the basis of objective qualitative criteria uniformly determined and applied without discrimination, and which do not reach beyond what is necessary. Conditions such as Coty’s, prohibiting authorized resellers from using third-party platforms for selling purposes, are also permitted when serving to maintain the luxury image of these products, having been uniformly determined, applied without discrimination and proportionate to the objective in question. It is up to the national judge to apply this criterion, but the EU Court suggests the conditions have been complied with, all the more so since Coty’s requirement aims at insuring that consumers associate the particular products only with the authorized (luxury) distributors – which is precisely the objective of a selective distribution system. In addition, the EU Court suggests that the Coty clause can benefit from the group exemption for vertical agreements of EU-regulation 330/2010, since it is not meant to restrict the competition. In particular, it does not restrict the territory where the distributor can sell the products, nor prevent the distributor from selling to a specific clientele.

This judgment is without doubt a great victory for the proprietors of (luxury) brands, who have had to grit their teeth and stand idly by witnessing how their products were being sold using platforms such as Amazon. Nevertheless, they will still have to accept that they cannot completely control the resale channels, because of the group exemption vertical agreements and the question remains what the revised version of 2020 will look like.

Issuing a prognosis in franchise agreements: rather not (Street-One judgment)

Issuing prognoses when entering into a franchise agreement remains a delicate matter. In the Street One judgment[3], the Dutch Supreme Court of Justice has explained the Paalman/Lampenier judgment[4] insofar as it deals with a prognosis drawn up by the franchisor himself (in Paalman/Lampenier it concerned a prognosis drawn up by a third party). The Supreme Court rules that the franchisor is liable for erroneous prognoses when he himself has drawn them up, also when the franchisor did not know that the prognosis contained an error. Of course, this does not mean that the prognosis was inaccurate. Anyway, it appears to be sensible for franchisors, if they want to issue a prognosis at all, to attach a disclaimer indicating the franchisee’s own responsibility to do research and to check the data (or have them checked) independently.

The termination of continuing performance contracts (Goglio/SMQ judgment)

On 2 February 2018, the Dutch Supreme Court has given an interesting judgment about the possibility of terminating continuing performance contracts[5]. It concerns a (patent) licensing agreement, in which a term of 15 years had been agreed on, with an 8% annual royalty payment. In addition, a possibility of termination had been included in the agreement and the arrangement to pay a ‘break-up’ fee by the licensee. Licensor (SMQ) made a payment request relating to payment of the 2012 license, and when payment was not forthcoming, they issued a notice of default by the licensee (Goglio). Next, SMQ terminated the agreement for breach of contract by Goglio. Goglio did not agree with the termination and took SMQ before court. The Court ruled that the termination of the agreement is in line with the contractual termination possibility and that it is up to the parties themselves to determine what to decide about the possibility of termination.

The Supreme Court rules that even when the law or a contract of continuing performance does include a termination arrangement, the Dutch principle of reasonableness and fairness (also: good faith) in relation to the nature and content of the agreement and the circumstances of the case (on the basis of article 6:248 sub 1 of the Dutch Civil Code) could set this arrangement aside. Termination of a contract resulting from the law or agreement can be unacceptable in the given circumstances, according to the principle of reasonableness and fairness. It is up to the one that invokes that legal effect to claim and substantiate this. In this case, the Court ruled that Goglio had not sufficiently substantiated its claim that SMQ had terminated the agreement unlawfully and the contractual termination procedure was considered reasonable.

 

^{[1] VVD, CDA, D66 en ChristenUnie, Vertrouwen in de toekomst, Coalition agreement 2017 – 2021, 10 October 2017, p. 35.}

^{[2] HvJEU 6 December 2017 C-230/16 (Coty)}

^{[3] HR 24 February 2017, ECLI:NL:HR:2017:311 (Street-One).}

^{[4] HR 25 January 2002, ECLI:NL:HR:2002:AD7329, NJ 2003/31 (Paalman/Lampenier).}

^{[5] HR 2 February 2018, ECLI:HR:2018:141 (Goglio/SMQ).}