Jolling de Pree June 14 2012 Franchise argument in laundry cartel won't wash with the Competition Authority De Brauw Blackstone Westbroek | Competition & Antitrust - Netherlands Jolling de Pree Competition & Antitrust The Competition Authority recently imposed a fine of €18 million on four industrial laundries operating a franchise under the brand name Rentex. Surprisingly, the authority ruled that the franchise constituted a system of horizontal market-sharing arrangements between the franchise members and thus did not fall within the scope of the EU block exemption on vertical agreements.(1)The market-sharing arrangement was part of a wider cooperation between the laundries on joint purchasing and innovation, which they qualified as a 'soft franchise'. The laundries set up Rentex Nederland, a jointly controlled subsidiary, to conclude franchise agreements with each of them.However, the authority did not regard these franchise agreements as vertical agreements entered into between undertakings at different levels of the production or distribution chain.(2) The authority considered the agreements to be inextricably linked to the cooperation between the laundries as shareholders of Rentex Nederland. As shareholders, the laundries decided on the admission of new laundries to the Rentex franchise, as well as on Rentex Nederland's policy towards the franchisees. In addition, the Rentex franchise agreements focused on joint purchasing and innovation under a single brand name, instead of on the use of a particular business method as – in the authority's opinion – 'normal' franchise agreements do.As a result, the authority concluded that the Rentex formula constituted not an actual franchise, but rather a horizontal agreement. The authority subsequently qualified the market-sharing arrangement – part of the franchise agreements – as a horizontal agreement with the objective of restricting competition, which could not be independently justified by efficiencies. The authority therefore imposed a fine of €18 million in total on the four laundries.It remains to be seen whether this controversial decision will be upheld on appeal. Meanwhile, franchisees should be aware that, according to the authority, their influence on the franchisor may imply that the franchise agreement has a horizontal nature. It is not by definition problematic for franchisees to jointly hold shares in an undertaking acting as franchisor. However, being a (franchisee) shareholder carries the risk of 'meddling' too much with the franchisor's daily policy making, which – in the view of the authority – could be regarded as cooperating too closely with their 'competitor' franchisees.For further information on this topic please contact Jolling De Pree or Erik H Pijnacker Hordijk at De Brauw Blackstone Westbroek by telephone (+31 70 328 53 28), fax (+31 70 328 53 25) or email ([email protected] or [email protected]). Endnotes(1) Regulation 330/210 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices; OJ 2010, L102/1.(2) See the definition of a 'vertical agreement' laid down in Article 1(1)(a) of Regulation 330/210 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices; OJ 2010, L102/1.