New resolution regarding price fiing in franchising: the case of Foster’s Hollywood
Price fixing is considered to be one of the most serious infringements of the anti-trust regulation. The Treaty of Rome is the origin of such prohibition which is currently regulated by the European Regulation 330/2010 on the application of article 101.3 of the Treaty on the Functioning of the European Union to categories of vertical agreements and its guidelines.
Such European regulation prohibits the price fixing although it is possible to establish recommended or maximum prices as long as they don’t conceal price fixing. It is important to bear in mind that the infringement may occur not only for a defective writing of the agreement but also for concerted or deliberately parallel practices that are not reflected in the agreement.
The sanction for price fixing is the nullity of the franchise agreement plus up to a 10% sanction of the turnover of the franchise network. In addition, since all franchise agreements are substantially the same, the nullity of a franchise agreement for price fixing may affect all agreements of the franchise network.
At this stage, it is important to ascertain if some practices may be illegal. We talk about price recommendation in geographical areas, the centralized printing of menus, the necessity for the Franchisee to get an authorization before changing prices or the obligation of apply fixed prices for certain products or its promotion.
The Spanish authority who supervises the correct application of the antitrust regulation is the National Commission of Markets and Competence (Comisión Nacional de Mercados y Competencia), hereinafter NCMC, whose resolutions are public. The NCMC has recently published an agreement reached in March 10th 2016 with a Franchisor to prevent a sanction for price fixing. The content of the agreement may be considered a safe harbor (rules to behave) for any other Franchise that wish to proof that it is not fixing prices.
The case arose in 2014 from a denunciation of a Foster´s Hollywood franchisee to which other Foster´s Hollywood and Cañas y Tapas franchisees joint.
The NCMC investigation stated that the Franchisor had different prices according to geographical areas. Furthermore, the Franchisor printed annually the franchisee´s menus with their prices. Most Franchisees could directly modify the TPV prices but they had to ask the Franchisor for previous written authorization for the menus and high alcoholic drinks and certain promotions could not be modified.
The agreement reached by the Franchisor with CNMC has four parts:
The first one is that prior to printing the menu, the Franchisor commits to send a template with two columns to his Franchisees: one with the recommended/maximum prices and the other empty so that the Franchisee can fix his alternative prices. The difference between the old and the new system is that the Franchisee can, instead of asking for a price change, change himself the prices.
The second one is that from now on each Franchisee will be able to modify the prices of any product through internet and the Franchisor commits to processing each request to print the prices (at the Franchisee expenses). In this way, instead of asking for an authorization to change the prices, the Franchisees can change the prices via internet at any moment.
The third one is that the Franchisor commits to regularly sending an email to his Franchisees with the restaurant prices stating that printing the prices by the Franchisor is only a question of effectiveness but that the Franchisees can change the prices as they wish at their own expense.
The fourth one is that the Franchisee could fix the price of the menus and drinks (high alcoholic drinks included) and he will be able to do local promotions with previous notice of at least 3 weeks to check its viability and respect to the corporative image.
In our opinion, these commitments are applicable to similar franchise networks as good practices to avoid price fixing. Besides, in an indirect way, we can assume that the realization of recommended prices in geographical areas is legal. We can also assume that it is also legal that the Franchisee is obliged to fulfill a marketing plan and a price policy with the promotion products, but this is not applicable to all franchise networks in all cases. It will have to be individually analyzed for each single case.
Highly regarded team centred in the Barcelona market. Provides expert advice on franchise agreements and securities litigation to both foreign and domestic corporate clients.
Chambers & Partners (2015)
“Highly regarded team centred in the Barcelona market. Provides expert advice on franchise agreements and securities litigation to both foreign and domestic corporate clients.”
The Legal 500 (2015)