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

Many franchise agreements give the franchisor a preemption right requiring the franchisees wishing to sell their business or shares therein to first offer the franchisor first refusal. Such clauses are often associated with an option to purchase clause with the prices fixed by an independent expert or providing for a maximum buyback price in order to prevent the blocking of the preemption right by the setting of prices which are abusively high. Such stipulations also have the object of preserving the coverage of the network and the franchisor's investments against destabilizing actions by competitors to destroy a competing network or to purchase it cheaply when the franchisor has made investments in terms of prospecting and launching costs when building the network from scratch. 

The Competition Authority has been rather critical in respect of preemption rights in food retail distribution contracts with franchisees . It recommended the suppression of such rights in cases where the large retail group is not the owner of the store and has no financial stake in the company operating the business, but does accept the legitimacy of such rights where the network leader has been an actual partner in the development of the independent trader's business .  In its decision-making practice, the Authority has however opted for a much more moderate approach: it has upheld a preference clause in favor of a large retail chain in the food sector , as well as a preemption clause of a distribution cooperative in the DIY sector in the case of the transfer of  a franchise store on the grounds that all the clauses relating to the exit from the network (preemption, penalties etc.) did not produce any effect limiting the possibility for the stores to change their trade names . 

The Court of Cassation, firstly ruled anticompetitive the stipulation of a right of preemption in favor of the franchisor, valid throughout the duration the term of the contract and one year after its term, as it limits the potential for competing distribution groups to buy independent stores . Then, in the same case on referral, the Court of Cassation recognized that the priority right granted by the franchisee to its franchisor in the event of the divestiture of its business is not anticompetitive when it constitutes consideration for a solid commercial partnership with the latter, who is able to secure investments made, and where no evidence is brought to enable the court to measure in concreto, from an analysis of the market and of economic data, any possible artificial restriction of competition .  Now the courts ruling on the merits will no longer hesitate to give full effect to such clauses , e.g. by sanctioning franchisees for selling their shares to a competitor without having first offered them to the franchisor . In particular, a franchisee who, in fraud of the rights of its franchisor, confers control, if not sole, at least joint control of its company on a competitor, thereby circumventing the right of preference and preemption of its co-contractor, incurs the invalidity of the transfer and an order to pay damages .

The third party undertaking responsible for supplying the franchisee with goods is even entitled to claim in tort that the franchisee failed to respect the franchisor's right of first refusal .

The Macron Law of 6 August 2015  has adopted an intermediate position.  New Article L. 341-2 of the Commercial Code now deems automatically void ab initio or “unwritten” “any clause having as its effect, after the expiration or termination of one of the agreements referred to in Article L. 341-1, the restriction of  the freedom to carry on his commercial activity of the trader having previously entered into this agreement”. There is nevertheless provision for a derogation for the clauses which fulfill the four cumulative conditions inspired of Regulation No 330-2010 on vertical restraints. The clauses must relate to goods or services which compete with the contract goods or services; be limited to the premises and land from which the trader has operated during the contract period; be indispensable to protect the know-how, which is secret, substantial and identified, transferred by the supplier to the trader in the context of the contract; be of a duration not exceeding a period of one year after expiry termination of one of the agreement referred to in Article L. 341-1.

Competition Authority Opinion No 10-A-26 of 7 December 2010 relative to affiliation contracts with independent stores and the terms for acquiring commercial property in the food retail sector.

Competition Authority Opinion No 10-A-26 of 7 December 2010, pt 227.

Law No 2015-990 of 6 August 2015 for the growth, activity and equality of economic opportunities.

Competition Authority Decision No 11-D-20 of 16 December 2011, LawLex201100001949JBJ, limiting the preferential right to the duration of the contract.

Competition Authority Decision No 13-D-19 of 29 October 2013, LawLex201300001565JBJ.

Cass. com., 4 November 2014, LawLex201400001238JBJ.

Cass. com., 3 May 2018, LawLex201800000680JBJ.

CA Aix-en-Provence, 10 March 2022, LawLex202200001490JBJ, holding that the letter from the franchisee notifying the franchisor of its intention to transfer the business to a third party triggers the opposition period even if it does not expressly mention the right of first refusal. See however CA Riom, 28 June 2023, LawLex202300008918JBJ, finding that the clause providing, in the event of the transfer of the franchisee’s business, for compensation to the franchisor for early termination of the agreement where the provisions relating to its right of first refusal have not been complied with and where the franchisor has neither exercised this right nor approved the transferee for valid reasons, does not apply where only the second condition is met.

 CA Paris, 6 March 2019, LawLex201900000315JBJ; Also see CA Lyon, 25 February 2021, LawLex202100000609JBJ, holding that the franchisor may request to be substituted for the purchaser at auction of the franchisee’s business where the agreement granted it a right of first refusal even in the event of a judicial sale by public auction; CA Paris, 22 September 2021, LawLex202100005415JBJ, specifying that the harm suffered by the franchisor due to the franchisee’s failure to comply with its right of first refusal cannot be equal to the royalties not received until it took possession of the business, but only to the loss of opportunity to operate it as franchisor and collect royalties.

See Cass. com., 15 March 2017, LawLex201700000526JBJ and, in the same case, Cass. com., 26 February 2013, LawLex201300000265JBJ.

CA Paris, 28 October 2020, LawLex202000003004JBJ.

439. Right of preemption.