Resale Price Fixing in Franchise Agreements

European Law
German Law
Conflicts

The treatment of resale price fixing in Germany is somewhat different from that of the European Union, as German law on the issue is much stricter than EU law. However, in cases where the German ban on resale price fixing conflicts with European exemptions (see EU Block Exemption Regulation 2790/99 on Vertical Agreements), EU law will prevail.

European Law

Article 81(1) of the EC Treaty prohibits anti-competitive agreements between franchisees and franchisors which adversely affect competition within the European Union and which may affect trade between member states. Such agreements are void, and can expose the parties involved to substantial fines. Vertical agreements between franchisees and franchisors concerning resale price fixing fall within the scope of Article 81(1).

The prohibition in Article 81(1) is moderated to an extent by Article 81(3), which allows for exemptions to be made where the agreement is deemed to have certain beneficial effects. Exemptions may be made on an individual basis or, if applicable, under a block exemption. Vertical restraints concerning goods or services can be exempted under Block Exemption Regulation 2790/1999, in effect since June 1 2000. However, the block exemption is only available to franchisors with a market share of 30% or less (Article 3(1) of the regulation).

Under the block exemption a maximum resale price set by the franchisor will be exempted as long as it does not constitute a fixed or minimum price which the franchisee is pressured in any way, or offered incentives, to adopt (Article 4(a) of the regulation). Agreements containing other restrictions on the franchisee's ability to determine the resale price remain prohibited.

The franchisor is free to make price recommendations, as long as these are in no way binding. However, a price recommendation may be forbidden if it constitutes a concerted practice.

German Law

Under German law agreements between franchisees and franchisors that restrict the franchisee's freedom to determine prices with respect to agreements entered into with third parties are prohibited (Section 14 of the Act Against Restraints of Competition). The scope of Section 14 covers restrictions of any kind that determine a resale price. Even the determination of a maximum resale price thus falls under Section 14 and is prohibited, unlike under EU law.

German law further provides that the recommendation of resale prices is in principle prohibited (Section 22(1)). However, this prohibition does not apply to price recommendations for the resale of branded goods that compete on price with similar goods of other manufactures, as long as:

• they are expressly designated as non-binding;
  
  
• they indicate only a specific price;
  
  
• no economic, social or other pressure is applied to enforce them; and
  
  
• they are issued in the expectation that the recommended price will correspond to that which is likely to be charged by the majority of the parties to whom the recommendation is addressed.

'Branded goods', as defined by German law, are products whose quality is guaranteed by the initial seller, and which feature a mark indicating their origin (ie, the firm's logo) either on the goods themselves, or on the packaging or containers in which they will be delivered to consumers.

Unlike EU Regulation 2790/99, German law does not permit the recommendation of resale prices for services.

Conflicts

As stated, in cases where the German ban on resale price fixing conflicts with European exemptions, EU law will prevail.

However, this does not hold true in the case of the recommendation of resale prices for services or non-branded goods if - as in many cases - these do not fall within the scope of Article 81(1) of the EC Treaty. Consequently, the block exemption cannot be applicable in these cases. This does not contradict the provisions on recommended resale prices in Article 4(a) of the block exemption, since the latter is in these cases merely meant as clarification. In the case of a ban under German law where EU law does not apply, the national law applies according to the principle of parallel application of European and national antitrust law. The franchisor's recommendation of prices for services or non-branded goods thus remains forbidden insofar as the German territory is affected.

For further information on this topic please contact Karsten Metzlaff at Nörr Stiefenhofer Lutz by telephone (+49 30 20 94 20 00) or by fax (+49 30 20 94 20 94) or by e-mail ([email protected]).