A Study On Restrictive Terms And Conditions In Franchise Agreements

Originated from Singer sewing machines of United States, franchise has been a great success in foreign countries and has been a successful business mode in many countries. Franchise also boom fast in our country. However, accompanied by quick development, problems arise. In this article, the author will analyze restrictive terms and conditions in franchise agreements from the perspective of antitrust law.Franchising literally means authorization of right of franchise. As a matter of fact, it is a business and service mode. Restrictive terms and conditions are quite common in franchise agreement, such as tying, limited distribution, prohibition of competition. Restrictive terms and conditions in franchise agreement are different from those in other types of agreements in that franchisors and franchisees are closely related and single brands shall be established for the success of business.Euporean Union and United States have distinct franchise regulating legal regimes. The regime in European Union consists of regulations, guidelines and cases. Focusing on the effects of franchise agreements on economy and consumption, in contrast with harm on competition, article 81 of the Rome Treaty is one of the main principles regulating franchise agreements. It's true that franchising stipulation is a developing system itself. When comparing old regulatioh with new one, it is evident that European Union is taking more efforts on economic analysis and balance of strict and loose provisions, which makes EU regulation a more practical and adaptive legal regime.Courts of United States generally do not treat restrictive terms and conditions strictly. Courts hold that success of franchisee depends almost entirely on protection of the brand name and integrity of franchising system, which is vital in deciding franchise cases. Restrictive terms and conditons can be classified into different categories . Tying is classified into requirement ties and inventory disposition ties according to practice of U.S., and analyzed according to its separation with the tied product, its impact on multi-state trade, its economic interests, market power and relevant maket. Besides, United States also have specific regulation and practice in terms of resale price maintenance, limited distribution and et. al. We could see from the practice of European Union and the United States that rule of reason analysis is applied in many countries and more felxible legislation is being carried out.Franchising regulations in China are far from perfect and provisions with respect to restrictive terms and conditions in franchise agreements are inadequite. The author holds that supplementary legislation shall be used to regulate restrictive conducts in franchise. Further, more attention shall be paid to conform with current legislation and the proposed Antitrust Law. Certain rules, such as rule of reason analysis. Protection of cousumers'interests and facilitation of the development of franchsing industry, should all be included in the proposed regime.