Franchise and the different fields of law

Franchise and intellectual property law

Intellectual property rights ("IP rights") are an important element of any franchise formula Intellectual property is the collective name for a large number of different rights regarding intellectual creations. In the case of franchise formulas, trademark law, trade name law and copyright law in particular play an important role. The protection of domain names and trade secrets is also of great importance in franchise formulas.

These IP rights and related rights can be valuable assets for both the franchisor and the franchisee. For example, the uniform use of the rights will result in public awareness and recognition of the franchise formula. The granting of IP rights by franchisors to franchisees represents one of the most important elements of the franchise agreement.

Proper protection of and agreements on IP rights will protect the success of the franchise formula.

Franchise and tenancy law

In franchise relationships, it often happens that the franchisee (sub)leases business premises from the franchisor for the exploitation of the franchise formula. In this way, the franchisor keeps control over its locations. In such a case, the franchisor and the franchisee not only conclude a franchise agreement, but also a lease agreement. Practice shows that it is important to make proper arrangements regarding the interaction between the franchise agreement and the lease agreement, so as to avoid complicated problems.

The lease agreement may be included in the franchise agreement, creating a mixed agreement, or it may be added separately as an appendix, causing the two agreements to be linked to each other. The latter is particularly common; many franchise agreements and lease agreements contain so-called 'tie-in clauses'. These stipulate that, if one agreement is terminated, this will also result in the termination of the other agreement. In this way both agreements become inextricably linked. To a franchisor, as a (sub)lessor, it is important to create such a connection between the franchise agreement and the lease agreement, for the franchisor will want to continue having the business premises at its disposal, once the franchise agreement has ended – regardless of the reason.

Franchise and competition law

Often a franchisor has invested a lot of time, money and effort in the development of its franchise formula. Obviously, the franchisor wishes to protect the accumulated knowledge, identity and reputation of this formula, among other things by making arrangements with its franchisees and by imposing certain obligations. However, this protection may be at odds with competition law, more in particular with the prohibition of cartels.

The prohibition of cartels prohibits agreements between undertakings that are capable of appreciably restricting competition. Acting in breach of the prohibition of cartels can have far-reaching consequences, such as the nullity of the provision concerned or of the entire franchise agreement. Large fines may also be imposed on both the franchisor and the franchisee.*


*This text will be amended due to the entry into force of the Vertical Block Exemption Regulation.

Franchise and privacy

Franchise organisations collect a lot of data from their customers. Often this even happens unnoticed. When customers order products through a web shop, subscribe to a newsletter or to offers, apply for a loyalty card or make a reservation, they are invariably asked for data such as name, sex, age and (e-mail) address. All these data are often exchanged between the franchisor and the franchisee and are used for a variety of purposes. For example, a customer base can be created, the product range may be tailored to the consumers' preferences and personalised offers can be made.

It is important that all these data are collected and processed properly. Both the franchisor and the franchisee must comply with data protection laws and regulations. The most important regulations can be found in the General Data Protection Regulation (hereinafter: GDPR).

The GDPR not only strengthens and extends the rights of those whose data are processed, but also brings more responsibilities for organisations. If an organisation does not comply with the regulations, this may have far-reaching consequences. Under the GDPR, the regulator has the possibility to impose fines of up to EUR 20 million.

Below a few important points of attention are explained regarding the processing of personal data in light of the GDPR.

Franchise and labour law

It is important for franchisees and franchisors that it is clear to both parties what they can expect from each other and what obligations they are under in that relationship. In general, a franchise contract is concluded for this purpose. What is special about the franchise construction is the use of a joint formula, e.g. by way of joint advertising or uniform business operations. Another feature is the independent entrepreneurship of the franchisee. It is therefore not the parties’ intention to conclude an employment contract whereby the franchisee is employed by the franchisor.

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