Exclusive supply clauses are a frequent feature of franchise contracts. In accordance with EU Law, the French Supreme Court, by decision of 20 December 20171 , ruled that the validity of such clauses depends on whether they are necessary to the preservation of the identity and reputation of the franchise network.
In the case under consideration, a bakery had entered into a nine‑year franchise contract which contained an exclusive supply clause providing that the franchisee must purchase exclusively from a particular supplier which had developed a new concept for the manufacture of traditional bread made with natural yeast.
As a result of the franchisee having terminated the contract before its agreed term, the franchisor and the supplier claimed for damages for the losses incurred as a result of the breach of the franchise contract. In defense, the franchisee claimed that the exclusive supply agreement was an anticompetitive restraint of trade.
The French Supreme Court, implicitly following the position of the European Commission in Article 190‑b) of its Guidelines on Vertical Restraints, which provides that "a non‑compete obligation on the goods or services purchased by the franchisee falls outside the scope of Article 101(1) where the obligation is necessary to maintain the common identity and reputation of the franchised network" and that "in such cases, the duration of the non‑compete obligation is (...) irrelevant under Article 101(1), as long as it does not exceed the duration of the franchise agreement itself", held that the exclusive supply clause at issue constituted a crucial element for the image and identity of the franchise network and was therefore valid.
Hence, the French Supreme Court acknowledged that exclusive supply clauses contained in franchise contracts are valid, regardless of their duration, if they are necessary to the preservation of the identity and reputation of the franchise network.