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Abuse of dominant position in franchises

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Abuse of dominant position in franchises

Abuso de posición dominante en franquicias
Abuse of dominant position in franchises

In a franchise contract the franchisor requires certain conditions from the franchisee for the opening of an establishment with his name and its integration into the franchise network. The franchisee, for his part, obtains the commercialization of the franchised product and the use of the brand and other distinctive signs.

Frequently, the franchisee will be required to make an investment to meet the many requirements that are normally imposed by the franchise. In any case, these requirements must abide by the parameters of good faith, and must also respect during the contractual term all the agreed conditions.

However, abusing the position of superiority that franchises hold over their franchisees, they sometimes fall into unfair behavior taking advantage of the economic dependence they have their franchisees. In these cases, we find an «Abuse of dominant position in franchises«

The exploitation is especially flagrant when the franchisees are small companies with few resources that cannot resist the abuses suffered.

Presentation of a specific case of abuse of dominant position in franchises

He went to our Commercial Law department the owner of a franchised establishment to a well-known franchise network. The franchisor had begun to introduce, completely unilaterally, important changes in the operation of its entire franchise network. Certain irregularities in the commercial relations between the parties began to occur. Later on, these irregularities would end up becoming flagrant abuses carried out by the franchising company.

This conduct had not only affected our client, but the entire franchise network of the firm. It took advantage of its predominant position and the economic dependence of its franchisees on it to breach the contracts signed and impose substantial changes to them.

First, it changed the marketing system for franchised products, going from a resale system, in which the product sold was owned by the franchisees, to a system of sale on commission, in which the product was delivered to the franchisees on a deposit basis.

The franchisor decided that the franchisees integrated into its franchise network, would stop obtaining their income through the purchase and subsequent resale, at the price they considered appropriate , of the genre previously acquired from the franchisor.

Consequently, it implemented a commercial system completely different from the one contractually agreed: the franchisees had to market the product that the franchisor sent them in deposit, transferring to it all the income produced for such marketing. In exchange, the franchisees would later receive a commission equivalent to a percentage of said income.

A much higher volume of product began to be delivered than had been delivered up to now, with important changes regarding the genre and even the brand of the product sold, with the consequent confusion that all this produced among the clients.

As a consequence of this behavior, our client began to lose part of its clientele and found itself in a difficult economic situation.

Resolution of an abuse of dominant position in franchises

We presented on behalf of our client the timely lawsuit claiming the payment of commissions and other damages; and we managed to prove the essential, serious and repeated contractual breaches committed and the substantial modifications unilaterally introduced by the defendant company in the operation of its franchise network.

We accredit before the courts the situation of economic dependence and the non-existence of an option or equivalent alternative for the exercise of the business activity of our client, as a result of the franchise contract signed between the parties, as well as the development of existing commercial relationships between the parties as a result of their franchise relationship.

The franchisor had committed essential, serious and repeated breaches of the franchise agreement signed between the parties, thereby frustrating the purpose of the agreement, as well as the legitimate interests and objectives of the franchisee, thereby suffering considerable damage. He had used his position of dominance over the franchisee, and the situation of economic dependence of the latter against the former, to subject her to the multiple abuses reported.

The franchisor’s conduct was considered abuse of a dominant position and contrary to mandatory legal provisions, such as articles 16.2 of the Unfair Competition Law and 6.1 of the Law for the Defense of the Competition.

These precepts consider unfair the fact that a company takes advantage of the situation of economic dependence on another client company that does not have an equivalent alternative for the exercise of its activity.

Nor should it be forgotten that article 1.2 of the Law for the Defense of Competition establishes that agreements, decisions and recommendations whose purpose, produce or may produce are null and void. the effect of preventing, restricting, or distorting competition in all or in part of the national market, unless they are covered by any of the exemptions provided for in the aforementioned legal text.

This had been considered in similar cases by reiterated jurisprudential doctrine, of which Judgment No. 112/2005 of the Provincial Court of Malaga, Melilla, of December 12, is a good example , which resolves a case very similar to the one at hand here, in which a franchise was forced to cease its activity as a result of the abuses and breaches of its franchisor.

Such exploitation is especially flagrant when the franchisee is a small company with few resources that cannot resist the abuses suffered.

Compensation for damages

In our legal action, we claim the termination of the franchise agreement breached by the franchising company, and for being the victim of the breach. The jurisprudentially required prerequisites for the admissibility of terminating a contract ex article 1124 CC (SSTS of November 27, 1992 and November 7, 1995) concurred:

  • The obligations derived from both parties to the franchise agreement were enforceable obligations, not subject to conditions or terms.
  • These obligations were reciprocal for both parties.
  • The franchisee complied exactly with all its obligations.
  • The franchisor was attributable to a rebellious will to comply with the franchise contract signed with our client, through behavior decidedly contrary to compliance with the contract in the agreed terms.
  • The contractual obligations breached by the franchising company were of an essential nature. Failure to comply violated the purpose of the contract and frustrated its purpose, as well as the legitimate interests and objectives of our client.

In that case, all the elements required by jurisprudence were present for the action for compensation for the damages caused to succeed:

  • The opposing party had maliciously abused our client’s situation of economic dependence.
  • Our client had suffered serious harm.
  • There was a causal link between the abuses and the damages suffered by our client: it was the franchisor’s abuses that had caused the damages to the franchisee.
  • The damages suffered by my client are attributable to the defendant.

For these purposes, the Supreme Court Judgments of February 23, 1998, February 20, 2001, October 15, 2001 and September 2003.

Finally, our client obtained compensation of close to 300,000 euros, received all the compensation provided for in our lawsuit, plus interest, and was able to pass on the amount of procedural costs to the opposing party.

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