This book provides a wide-ranging review of the European rules relating to distribution: exclusive purchase and exclusive supply, exclusive and selective distribution, motor vehicle distribution, franchises, commercial agents.

French Distribution Law

Franchise agreements often contain a non-compete clause restricting the freedom of the former franchisee by preventing it from exploiting a professional activity in competition with that of the franchisor for a limited period on a given territory. Non-compete clauses are inherent in franchising insofar as they guarantee the protection of know-how, which must only benefit network members, and give  …

Conditions of validity.

Franchise agreements often contain a non-compete clause restricting the freedom of the former franchisee by preventing it from exploiting a professional activity in competition with that of the franchisor for a limited period on a given territory. Non-compete clauses are inherent in franchising insofar as they guarantee the protection of know-how, which must only benefit network members, and give the franchisor the time to set up another franchisee in the exclusive area. A non-compete clause does not unduly interfere with the rights of the franchisee where the latter is already bound by an obligation of confidentiality where the object of the two stipulations is different, one preserving the secrecy of the know-how, the other prohibiting its exploitation . To avoid being caught by the ban on restrictive agreements, such clauses must remain proportionate to the objective they pursue, i.e. the protection of know-how, the identity and reputation of the network . A non-compete clause whose scope extends to “similar activities”, “in whole or in part”, is not disproportionate as long as the franchisee can understand that it applies to the activities listed in the definition of the subject matter of the know-how and that it is limited, where the franchisee carries out several activities, to those which compete with the franchisor's activities .

The Vertical Restraints Regulation makes the exemption of post-contract non-compete clauses subject to material, spatial and temporal limitations: the obligation cannot exceed one year as of the date of termination of the agreement, may only relate to goods or services in competition with the contract goods or services and must be limited to the premises and land from which the buyer has operated during the contract period. The non-compete obligation must also be indispensable to protect know-how transferred by the supplier to the buyer . While those conditions do not apply, in principle, when trade between Member States is not affected, the French courts have a strong tendency to verify compliance with them even outside that hypothesis. Thus, the prohibition on engaging in any similar trade for two years in the exclusivity area has been held excessive in relation to the objective of protection of know-how . A non-compete clause of which the object and temporal scope are limited is nevertheless unlawful when it extends to a radius of 30 km, which is disproportionate for a rural area . Likewise, a non-compete clause not essential to the protection of the franchisor’s know-how - characterized by its low technicality level and the fact it is no longer technically accessible at the term of the contract - and which is not limited to the franchisee’s premises, is not proportionate to the franchisor’s legitimate interests and, as it is unable to benefit from an automatic exemption, is therefore void . On the other hand, a post-contractual non-compete clause which is limited to one year and to the place of the franchisee’s business is lawful under competition law .

The fate of disproportionate post-contractual non-compete clauses has been the subject of much debate. Should the court reduce the scope of application of such clauses thus making them fairer or simply void them with no reduction of their scope? 

The analogy could be made in favor of the first option that in many areas of the law, the courts adopt a realistic and pragmatic approach simply by reducing the scope of provisions deemed disproportionate. This is usually the case for exclusive obligations of more than 10 years' duration in violation of the Law of 14 October 1941, now codified in Article L. 330-1 of the Commercial  Code , or for non-compete clauses in deeds of transfer . In employment law too the Court of Cassation has moderated the scope of disproportionate non-compete clauses giving trial courts the power to limit the effect in the time, space or having regard to its other terms . In matters relating to franchises, although the courts tend to have adopted different solutions , the Court of Cassation has been stricter and would appear to have clearly opted for the second, more rigourous solution. If a non-compete clause is disproportionate, it is void, and it is not for the court to reduce its scope to a lawful level either of its own motion  or when requested to do so by the supplier .

CA Paris, 3 October 2018, LawLex201800001488JBJ.

Guidelines on Vertical Restraints, pt 190 (2): "A non-compete obligation on the goods or services purchased by the franchisee falls outside Article 101(1) when the obligation is necessary to maintain the common identity and reputation of the franchised network".

Cass. soc., 20 October 2008, No 07-42.035; 18 September 2002, No 00-42.904; 27 September 1989, No 86-43.701; Cass. com., 26 February 1970, No 69-40.191. Adde, Cass. soc., 26 February 1970 n° 69-40.191.

In favor of a limitation of excessive clause: CA Paris, 26 juin 1997, LawLex200200005028JBJ: limitation from 2 years to 1; for a geographic limitation: CA Paris, 3 June 2011, LawLex201100001037JBJ. But see CA Aix-en-Provence, 18 October 2007, JCP E, 2008, 2172.

Cass. com., 12 March 2002, LawLex200200000545JBJ.

Cass. com., 30 March 2016, LawLex201600000710JBJ. 

CA Paris, 3 October 2018, LawLex201800001488JBJ, cited above.

CA Paris, 18 March 1997, LawLex200200002672JBJ: the technical level of the sale of clothes did not justify the inclusion of such a clause.

CA Paris, 3 October 2018, LawLex201800001482JBJ.

CA Paris, 13 December 2017, LawLex201700002064JBJ.

CA Paris, 30 May 2018, LawLex201800000844JBJ; 3 October 2018,  LawLex201800001488JBJ, cited above.

Cass. com., 10 February 1998, LawLex200200005103JBJ.

CA Orléans, 30 January 2011, RG 13/01443.

In order to attempt to get around the harshness of the system applicable to post-contract non-compete clauses (need to justify know-how, restriction to one year and to the subject-matters of the franchise), less restrictive clauses have in practice been cleverly conceived. Clauses of non-reaffiliation “only” cover the membership of the former franchisee to a similar franchise and not the individual exercise of the former trade. Their validity gives rise to considerable controversy since the legitimacy of such clauses seems debatable in view of the regulation on vertical restraints. A non re-afilliation clause that is limited as to duration and territory and which only prohibits the franchisee from joining a franchise of similar national or regional reputation, without preventing it from exercising an identical activity, has been held not to be contrary to any provision of national or EU competition law . In addition, a non-affiliation clause is in principle only anticompetitive if it appreciably restricts the play of competition on the relevant market . By contrast, this is not the case for non re-afilliation clauses which do not protect substantial know-how, but are aimed at rendering more difficult the early termination of the contract by the franchisee and the penetration of rivals in the sector in question  or for clauses which in fact are intended to deter franchisees, on pain of a sanction exceeding the compensation for the franchisor's loss, from terminating the contract in advance and at making market penetration by competing franchises more difficult , for obligations which protect know-how of little value in terms of technicality, specificity or originality and of which the temporal and geographic scope is disproportionate to that aim , or those which prevent the franchisee from joining nationally or regionally known chains or from selling products of brands related to them for a period of one year and within a five kilometer radius, depriving the party of the support of a structured supply network thus making it impossible to pursue the operation of his business under economically viable conditions . The Paris Court of Appeal has annulled a national non-reaffiliation clause imposed on a local franchisee for being insufficiently limited in space whilst at the same time acknowledging the justification for the obligation by the franchisor's know-how . It has been held that a non-reaffiliation or a non-re-establishment clause cannot be automatically regarded as the same as a non-compete clause which prohibits the exercise of an activity similar to that of the network that the franchisee has left .

When assessing the lawfulness of thoses clauses, the French authorities make use of the regulation on vertical restraints as guidelines, as part of the rule of reason, where EU law is not applicable, particularly when trade between Member States is not affected . Thus, a post-contractual non-compete clause has been held contrary to the regulation where it does not limit its scope of application to the premises or lands from which the franchisee has operated for the term of the contract  or where it exceeds one year and extends to the whole French territory . By contrast, an authorization clause is lawful where it purports to prevent the franchisor's specific know-how from being to the advantage of a direct rival . The courts will now also have to rule in the case of reliance on the provisions of Article L. 341-2 of the Commercial Code  resulting from the Macron Law of 6 August 2015 , which deems as unwritten (void ab initio) “any clause having as its effect, after the expiry or the termination of one of the contracts referred to in Article L. 341-1,  the restriction of the freedom to exercise the commercial activity of the operator who was previously party to that contract”, by providing for a derogation in favor of the clauses meeting the four cumulative conditions inspired by Regulation No 330/2010. In order to benefit from the exemption, the clause must relate to goods or services which compete with the contract goods or services; be limited to the premises and land from which the operator has carried out his activity during the contract period; be indispensable to protect the substantial, specific and secret know-how transferred under the contract; be limited to a period not exceeding one year after the expiry or termination of one of the agreements referred to in Article L. 341-1. A franchisee was thus able to escape any sanction for breach of a non-reaffiliation clause since, contrary to the requirements of Article L. 341-2, it was not limited to the land and premises from which the franchise had been operated .

CA Caen, 10 December 2002, LawLex200600000592JBJ; Cass. com., 17 January 2006, LawLex200600000506JBJ.

CA Paris, 20 July 2014, LawLex201400002187JBJ, for the local general foods distribution market.

CA Douai, 7 November 2000, LawLex200200005326JBJ; CA Paris, 14 April 1999, LawLex200200005201JBJ.

CA Paris, 21 September 2005, LawLex200500010391JBJ.

Law 2015-990 of 6 August 2015 for growth, activity and equality of economic opportunities, JORF No 181 of 7 August 2015, 13537.

CA Paris, 22 November 2018, LawLex201800001805JBJ.

CA Caen, 29 September 2005, LawLex200600000828JBJ.

CA Caen, 15 January 2009, LawLex200900002973JBJ.

CA Paris, 6 March 2013, LawLex201300000350JBJ;  upheld by Cass. com., 23 September 2014, LawLex20140000967JB; CA Paris, 3 April 2013, LawLex201300000516JBJ upheld by Cass. com., 16 September 2014, LawLex201400000954JBJ; Ca Paris, 11 September 2013, LawLex201300001325JBJ.

Cass. com., 18 December 2012, LawLex201200002501JBJ.

CA Paris, 9 February 2011, LawLex201100000716JBJ.

Cass. com., 28 September 2010, LawLex201000001062JBJ.

Cass. com., 29 June 2009, LawLex200900002929JBJ.

French Distribution Law

345. Conditions of validity.

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

345. Conditions of validity.

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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