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Legal Updates

Guidelines on Franchise Agreements which are not subject to Antimonopoly Law

In March 2009, the Supervisory Commission for Business Competition (“KPPU”) Issued Decree No. 57/KPPU/Kep/III/2009 on Guidelines for Implementation of Provision of Article 50 (b) of Law No. 5 Year 1999 on Monopolistic Practices and Unfair Business Competition with Regard to Agreements related to Franchises (“Decree 57/2009”), which to some degree seeks to exempt franchises from the applicability of the anti-monopoly law. While the Law No. 5/1999 on Monopolistic Practices and Unfair Business Competition (“Law 5/1999”) already exempted “agreements related to franchises” (Article 50.b of Law 5/1999), Decree 57/2009 gives a message that not all franchises’ related agreements can be exempted. 

Decree 57/2009 in essence states that the exemption of Article 50(b) of Law 5/1999 applies only to franchise practices in relation to (i) the transfer of license and/or intellectual properties from franchisor to franchisee and (ii) the system/concept of the franchise itself. Other franchise practices (i.e. those that are not related to the aforesaid exemption) shall be subject to Law 5/1999 if such practices give rise to anti competition business practices. 

As provided in the Decree 57/2009, examples of franchise practices that may not be exempted from Law 5/1999, and thus subject to the sanctions set out therein are as follows:

  • Resale price maintenance clause (the Franchisor sets a certain sale price that the Franchisee must comply with).

  • Requirements to purchase the supply of goods and/or services only from the Franchisor or parties appointed by the Franchisor. However, this can be excluded if the purchasing obligation is to maintain the characteristics, quality, or reputation of the Franchisor.

  • Requirements to purchase other goods and/or services from the Franchisor (tied agreements).

  • Area restriction; provided that the area restriction is established not for the purpose of establishing a franchise business network, but instead to limit the market and consumers.

  • Requirements not to conduct similar business activities during a certain period of time after the termination of the franchise agreement

However, it should be noted that as Decree 57/2009 serves as guidance for franchise businesses, it does not stipulate any legally-binding requirements, obligations, or restrictions on any practices. KPPU still reserves the right to examine franchise agreements on a case-by-case basis through both economic and legal analysis of the market, until it reaches a conclusion on whether or not a particular franchise agreement could result in the occurrence of monopoly practices or unfair business.

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