Exclusivity, Supply and Competition Rules in French Franchising

How exclusivity and competition work in French franchising

Exclusivity and competition in French franchising sit in permanent tension. A franchise network needs enough territorial protection to make each outlet worth the franchisee's investment, and enough supply discipline to keep the brand uniform. Both instincts collide with competition law, which treats a franchise as a vertical agreement that must not partition markets, foreclose supply, or fix resale prices. This is the stage where a foreign brand entering France, and any candidate about to sign, most often misjudges its exposure: it assumes exclusivity is guaranteed, that the network website is the franchisor's to exploit freely, and that a total supply tie is normal. None of those assumptions is safe.

This overview sets out the territory-and-competition frame at hub level and points to the deeper analysis in the cluster. Six questions govern it: is territorial exclusivity owed at all; what exactly does the exclusivity cover; can the franchisee sell online, and can the franchisor; how tightly may supply be tied, and for how long; may resale prices be dictated; and at what point does control become so heavy that the contract is requalified. Each is treated below, with the governing statute or holding, then the edge cases.

Territorial exclusivity is not of the essence of a French franchise

The single most useful correction to make at the outset of any French franchise exclusivity discussion is this: no exclusivity is of the essence of a franchise. A franchise contract cannot be annulled on the sole ground that the franchisee was granted no territorial exclusivity. The refusal to grant an exclusive zone does not even, by itself, amount to a significant imbalance between the parties. Exclusivity is a commercial term, not a defining element of the contract, and a network can lawfully operate without granting it.

In practice, it is nonetheless rare for a franchisee to receive none. A franchise contract often stipulates exclusivity clauses, and where it does, the franchisor must ensure their enforcement throughout the network — including against other franchisees who prospect the protected zone. Exclusivity may even be tacit, inferred from the parties' conduct, though relying on an implied grant is poor practice. A franchisee who wants protection should insist on an express clause with an annexed map delimiting the territory precisely, and should identify the exact nature of the right granted.

Where an express exclusive zone is necessary to the franchisee's commercial success, there is a respectable argument that it should be treated as a natural consequence that equity attaches to the contract under Article 1194 of the Civil Code, which binds the parties not only to what they expressed but to all consequences that equity, usage, or law give to the obligation. That argument has persuaded some courts. It explains why franchisors should not assume that silence on exclusivity is cost-free.

The three types of exclusivity in a French franchise agreement

Once a network decides to grant exclusivity, the drafting must define what the exclusivity covers, because the label conceals very different levels of protection. In every case the franchisor undertakes not to provide certain services to third parties within a delimited territory reserved to the franchisee. Beyond that, everything depends on the wording of the clause. Three types must be distinguished, and confusing them is a frequent and expensive error.

• Franchise exclusivity. The franchisor undertakes not to install another franchisee in the granted zone. This is the narrowest form: it says nothing about the franchisor's own outlets.
• Establishment exclusivity. The franchisor additionally undertakes not to install a branch of its own in the zone. The franchisee is assured of being the sole representative of the brand on its territory.
• Supply exclusivity. The strongest form: the franchisor may not even supply a third party located in the granted zone.

Layered over these is a distinction that recurs in the case law and must not be blurred: establishment exclusivity is not the same as exploitation exclusivity. An undertaking not to establish a competing outlet in the zone is not the same as an undertaking that no sales into the zone will occur by any channel. That gap is precisely where online sales and the network website drive through, as the next sections explain.

One limit binds all three types. An exclusivity clause cannot have the effect of prohibiting passive sales — sales made in response to spontaneous requests from individual customers, including delivery of goods or services to the customer where the sale was not initiated by actively targeting the specific customer, customer group, or territory, and including sales resulting from participation in public tenders or private procurement procedures. A clause that seeks to shut down passive sales into a reserved territory offends competition law regardless of the exclusivity granted.

Franchise supply and competition online: passive sales protected by EU law

A recurring question in any franchise exclusivity dispute is whether the franchisee may run its own merchant website, and whether the franchisor may prohibit it. The competition-law answer is that online sales are analysed as passive sales, and a network cannot flatly forbid its members from selling contract products online. The guidelines that accompanied the earlier vertical block exemption, Regulation (EC) No 330/2010, stated the point expressly: each distributor must be allowed to sell the contract products online. In the Pierre Fabre matter (Court of Justice of the EU, Case C-439/09, 13 October 2011), the French competition authority and the European case law confirmed that partitioning distribution channels is capable of being anticompetitive and, on that basis, prohibited.

The position is now codified in Regulation (EU) 2022/720 of 10 May 2022, which since 1 June 2022 has replaced Regulation (EC) No 330/2010. A general or de facto ban on a franchisee's online sales is treated as a hardcore restriction that removes the benefit of the block exemption. A network cannot, therefore, contract its members out of the internet.

The practical reality is more constrained than the principle. It remains rare for a franchisee to operate its own merchant website, for two reasons. First, the franchisor may impose standards to preserve the network's image, and its requirements are often so exacting that they discourage individual initiative. Second, the franchisee joined a network precisely to benefit from the collective dynamic, of which the network website is a spearhead. The right to sell online is real; the room to exercise it independently is narrow.

The network website versus French franchise exclusivity

The mirror problem is the franchisor's own website, and here the balance tilts sharply the other way. Whatever exclusivity has been granted to the franchisee, French courts have held that the franchisor retains the power to operate a merchant website, and that the creation of such a site is not treated as the establishment of a point of sale within the protected territory. The consequence is stark: territorial exclusivity, as construed, does not reserve online sales into the zone to the franchisee.

The risk for the franchisee is to be reduced to a showroom. It bears the cost of operating physical premises without sharing in the sales the franchisor makes online — sales that, when concluded with customers in the franchisee's catchment area, are a direct loss of turnover. Consumers increasingly treat the physical shop as a fitting room and a complaints desk: they inspect goods in store, then buy online. A franchisee left to absorb those costs while the network website captures the revenue has a genuine grievance.

Because the case law offers little protection, the answer lies in drafting. The prudent course is to negotiate a specific clause governing online sales — for example, a clause entitling the franchisee to a commission on sales delivered within its territory. In some sectors, ready-to-wear above all, such a clause is practically indispensable. There is also a good-faith argument, drawn from Article 1194 of the Civil Code and the duty to renegotiate a partnership whose balance has been upset, that a franchisor should not operate the network site so as to siphon off the franchisee's local customer base. Some lower courts are receptive to it; the Cour de cassation has been notably liberal toward franchisors, so the franchisee should not rely on judicial protection alone.

Exclusive supply and competition in France: the ten-year cap

The supply side of exclusivity is where French domestic law imposes its hardest quantitative limit. A franchise contract may require the franchisee to source only from the franchisor, one of its subsidiaries, or referenced suppliers. That obligation may be total, or it may cover only a percentage of the franchisee's purchases, in which case it is a quasi-exclusive supply clause. Either way, its validity depends on conditions that come from both domestic and EU law.

In domestic law, Article L 330-1 of the Commercial Code caps the duration of such a clause at ten years. Three refinements matter. First, a clause exceeding ten years is void only as to the part that exceeds that duration, not in its entirety. Second, Article L 330-2 provides that where a contract containing the exclusivity clause is later followed, between the same parties, by further analogous engagements bearing on the same kind of goods, the exclusivity clauses in the new agreements end on the same date as the clause in the first contract. Third, the case law clarifies that these provisions do not prohibit the uninterrupted renewal of exclusivity relationships over a total period exceeding ten years; they prohibit only a single exclusivity clause running for more than ten years.

Duration is not the only domestic hurdle. Validity also turns on competition law, and here the Cour de cassation (Commercial Chamber) requires that the supply clause be indispensable to preserve the identity and reputation of the franchise network. A supply tie bearing on mere cash registers, for instance, has been held unlawful. French courts have held that in food retail the exclusivity may cover only goods specific to the network, so that the objective of maintaining the network's common identity and reputation permits the franchisor to control a minimum assortment in its own brands, ensuring that customers find a homogeneous branded product across all outlets. More recently, French courts have held that a supply clause can be the vehicle of a significant imbalance within the meaning of Article L 442-1 of the Commercial Code where it imposes a competitive handicap on the franchisee.

The outer limit is nullity. A clause forbidding the franchisee from sourcing anything at all — even national brands, even from competing purchasing groups — where the products differ from one wholesaler to another only in price, is wholly disproportionate to the franchisor's legitimate interests. Such a clause aims to secure the entire supply of the outlet at prices set by the franchisor and prevents the franchisee from obtaining better terms; those aims illegitimately restrict the franchisee's freedom to trade under normal conditions. The sanction is nullity of the clause for breach of Article L 420-1 of the Commercial Code.

EU rules on franchise supply and competition: the 80% non-compete threshold

Where the franchise engages trade between Member States, EU competition law layers onto the domestic ten-year cap. A franchise is a vertical agreement, and the relevant instrument is Regulation (EU) 2022/720 of 10 May 2022, applying Article 101(3) TFEU to categories of vertical agreements and concerted practices. The historic starting point is Pronuptia (Court of Justice of the EU, Case 161/84, 28 January 1986), which first set the conditions for the validity of an exclusive supply clause in a franchise: the clause must be justified by the need to preserve the identity and reputation of the network, and it cannot prevent the franchisee from sourcing from other franchisees of the same network.

Regulation (EU) 2022/720 now defines a non-compete obligation to include not only any direct or indirect obligation forbidding the buyer to manufacture, buy, sell, or resell competing goods or services, but also any direct or indirect obligation requiring the buyer to purchase, from the supplier or an undertaking designated by the supplier, more than 80% of its annual purchases of the contract goods or services and their substitutes, calculated on the value or, where standard in the sector, the volume of the previous year's purchases. In other words, a supply tie above 80% is treated as a non-compete.

That characterisation has a consequence. If the network affects trade between Member States and the exclusivity bears on more than 80% of purchases, Article 5(1) of Regulation (EU) 2022/720 requires, a priori, that the clause be of a fixed duration not exceeding five years. The Commission's guidelines of 28 June 2022 soften this for franchising. They recognise that a franchise has specific features — a uniform trade name, uniform commercial methods including intellectual-property licensing, and royalties in exchange for the benefits granted — and that provisions strictly necessary to the operation of the franchise system may fall outside Article 101(1) altogether. Among these are restrictions preventing the franchisee from using the franchisor's know-how and assistance for the benefit of competitors, and non-compete obligations on the goods or services purchased that are necessary to maintain the network's common identity and reputation. In that last case, the guidelines state, the duration of the non-compete obligation is irrelevant, provided it does not exceed the duration of the franchise agreement itself.

Resale prices, exclusivity and competition in French franchising

Whatever exclusivity and supply discipline a network imposes, one lever is off limits: the franchisor cannot impose minimum resale prices. Because the franchisee acts on its own account and owns its stock, it retains a natural margin of manoeuvre, and the franchise deprives the network head of the power to fix resale prices. A network that wants to control final prices has chosen the wrong structure.

The distinction to hold is between the supply price and the resale price. In a distribution franchise the franchisor supplies the contract goods in accordance with its general terms of sale, and it may reserve the power to fix the supply price of those goods unilaterally, subject only to abuse, which would give rise to termination or compensation. What the franchisor may not do is dictate the price at which the franchisee resells to the public. Recommended prices and maximum prices are, in principle, permissible; imposed minimum or fixed resale prices are resale price maintenance and are prohibited. Presenting a "recommended" price in a way that in practice compels the franchisee to apply it will be treated as an imposed price.

When excessive control collides with French franchise exclusivity

Exclusivity and supply discipline are legitimate, but there is a point at which control becomes so heavy that the contract is no longer a franchise. Fidelity is not dependence. The franchisee must comply with the franchisor's commercial methods, promotional standards, supply standards, graphic charter, and distinctive signs, but it keeps the natural room to manoeuvre of an independent trader. When the constraints imposed by the franchisor become too heavy and too intrusive, two requalification risks arise, and both are worse for the franchisor than the restriction it was trying to secure.

The first is requalification as an employment contract. Fixing the franchisee's opening hours, imposing a particular uniform, controlling its bank accounts, or taking charge of its hiring are the kinds of interference that point toward subordination rather than partnership. The second is the status of branch manager (gérant de succursale) under Articles L 7321-1 et seq. of the Labour Code. That status attaches, on cumulative conditions, to a person whose profession consists essentially in selling goods supplied exclusively or almost exclusively by a single undertaking, in premises supplied or approved by that undertaking, and at conditions and prices imposed by it. The conditions are cumulative: a claimant who fails to establish even one of them cannot obtain requalification, but a franchisor who imposes exclusive supply, approves the premises, and dictates prices has assembled the elements against itself.

Beyond these two statutory risks, excessive interference in the management of the franchisee's business can engage the franchisor's liability, and in insolvency the franchisor may even be treated as a de facto director of the franchisee company. The judge is not bound by the label the parties gave their contract; where the substance shows subordination or a mere disguised branch, the court will requalify. The lesson for a franchisor is that the tools of exclusivity and supply control must be calibrated to brand protection, not to running the outlet.

The general competition frame for exclusivity in French franchising

All of the rules above sit inside a single competition-law frame. A franchise agreement is a vertical agreement capable of harming competition — franchisees are, in principle, the only operators able to exploit the franchisor's brand in a given geographic sector, which gives them an advantage over competitors. Yet a franchise does not harm competition in itself; it justifies particular treatment because it lets traders access methods they could otherwise acquire only after long effort, and in turn amplifies the success of the franchisor's concept. What competition law forbids is the excess.

Four reference points govern the field. Where the agreement affects trade between Member States, Article 101 TFEU applies, together with the vertical block exemption, Regulation (EU) 2022/720, and the Commission's guidelines of 28 June 2022 which interpret it. In domestic law, Article L 442-1 of the Commercial Code controls a significant imbalance in the parties' rights and obligations, and an over-broad restrictive clause is void under Article L 420-1 of the Commercial Code. A clause that a network treats as ordinary — a total supply tie, a suppression of passive sales, an imposed resale price, a disproportionate non-compete — can fail any of these four tests at once.

Frequently asked questions about exclusivity and competition in French franchising

Is territorial exclusivity guaranteed in a French franchise?

No. No form of exclusivity is of the essence of a franchise, and a contract cannot be annulled merely because the franchisee received no exclusive territory. The absence of exclusivity is not, in itself, a significant imbalance. In practice most franchisees obtain an exclusive zone, but only an express clause with a precise map secures it.

What is the difference between establishment exclusivity and exploitation exclusivity?

Establishment exclusivity means the franchisor will not open its own branch, or install another franchisee, in the zone — the franchisee is the sole representative of the brand there. Exploitation exclusivity is broader and would concern sales into the zone by any channel. The two are not the same, and the network website exposes the gap between them.

Can a French franchisor sell online into my exclusive territory?

Under the current case law, yes. The creation of a franchisor's merchant website is not treated as establishing a point of sale in the protected territory, so territorial exclusivity does not reserve online sales into the zone to the franchisee. The remedy is a negotiated clause — for instance, a commission on sales delivered in the territory.

Can a franchise agreement prohibit the franchisee from selling online?

No. Online sales are passive sales under EU competition law. Following Pierre Fabre (Case C-439/09) and now Regulation (EU) 2022/720, a general ban on a franchisee's online sales is a hardcore restriction. In practice, though, image standards and the network's collective website leave franchisees little room to run their own site.

How long can an exclusive supply clause last in a French franchise?

Article L 330-1 of the Commercial Code caps an exclusive or quasi-exclusive supply obligation at ten years, and a longer clause is void only for the excess. Under EU law, a purchase obligation above 80% of annual purchases is a non-compete, subject a priori to a five-year limit under Regulation (EU) 2022/720, softened for franchising by the 2022 guidelines.

Can the franchisor set my resale prices?

No. The franchisor may fix the supply price of the goods it sells you, subject to abuse, but it cannot impose your minimum or fixed resale prices. Resale price maintenance is prohibited. Recommended and maximum prices are permissible, provided a recommended price is not enforced as a compulsory one.

When does supply and pricing control turn a franchise into an employment relationship?

When control becomes too intrusive. Fixing hours, imposing a uniform, controlling bank accounts, or directing hiring point toward employment. The branch-manager status under Articles L 7321-1 et seq. of the Labour Code attaches on cumulative conditions where the franchisee sells goods supplied almost exclusively by one undertaking, in approved premises, at imposed conditions and prices.

What competition rules can void an over-broad exclusivity clause?

Article 101 TFEU and Regulation (EU) 2022/720 for cross-border agreements; Article L 442-1 of the Commercial Code for a significant imbalance; and Article L 420-1 of the Commercial Code, under which a disproportionate restrictive clause is void. A single clause can fail more than one of these tests.

Key takeaways on exclusivity and competition in French franchising

How our French lawyers help with exclusivity and competition in French franchising

Our firm advises foreign franchisors entering France and franchise candidates evaluating a network on the territory-and-competition stage of the agreement. We define the exact scope of exclusivity — franchise, establishment, or supply — and align it with the network's real distribution channels, including the online question that so often undoes an exclusive zone. We draft and stress-test supply clauses against the ten-year cap of Article L 330-1, the 80% non-compete threshold of Regulation (EU) 2022/720, and the significant-imbalance and nullity controls of Articles L 442-1 and L 420-1 of the Commercial Code, so that discipline holds without tipping into an unlawful restraint.

This article is for general information only. It does not constitute legal advice on exclusivity, supply, or competition rules in French franchising, each of which turns on the precise clauses, the market affected, and the network's structure. Contact our French lawyers for qualified advice before granting, accepting, or drafting any exclusivity or supply clause in a French franchise agreement.