Three Italian consumer bodies, supported by a number of unions, have lodged a formal antitrust complaint against McDonald’s with the European Commission. The complaint alleges that the way in which McDonald’s operates its franchise network, infringes the EU antitrust rules.
The main allegations made against McDonald’s are:
- that it abuses its position as a landlord by charging excessive rents to franchisees, with prices alleged to be up to 10 times market rates;
- that its contract terms unlawfully restrict the ability of franchisees to switch to other fast food brands; and
- the contracts are excessively long (20 years on average), include non-compete provisions that are too long, and mandate the location of the franchised outlets.
As a matter of EU antitrust law (Pronuptia case), provisions in franchise agreements that restrict the conduct of franchisees (both in term and post term) are generally accepted to fall outside the scope of the antitrust rules provided they are essential for protecting the know-how transferred by the franchisor, and/or for maintaining the identity and reputation of the franchise network.
For example, clauses restricting franchisees from competing with the franchisor and other members of the franchise network for the duration of the franchise agreement and for a period after termination generally would be essential for protecting the franchisor’s know-how. In addition, restrictive provisions that do not meet the Pronuptia test, often fall within the safe harbour of the Vertical Restraints Block Exemption which exempts restrictive agreements provided neither franchisor nor franchisee has a market share of more than 30% and the agreement does not contain certain specified ‘hard core’ restrictions.
Please click here to read our more detailed article on restrictive covenants in franchise agreements.
For the McDonald’s case, the next step will be for the Commission to decide whether it wishes to gather further information, and/or open a formal investigation.
If you would like to discuss these issues please do not hesitate to contact us.
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