No question of franchise in laundry cartel

The Dutch competition authority (‘NMa’) has imposed a fine of Euro 18 million on four laundries for their involvement in illegal cartel arrangements. The illegal arrangements concerned market division arrangements in the course of which the Netherlands was divided into different regions. The arrangements were part of a wider cooperation between the laundries. The cooperation was qualified by the laundries as ‘soft franchise’. 

Structure

The laundries started their cooperation in the seventies under the name ‘Rentex’. They all included the name ‘Rentex’ in their business name as well. The laundries set up a jointly controlled subsidiary called Rentex Nederland B.V. This jointly controlled subsidiary had the function of franchisor. All laundries held equal shares in Rentex Nederland B.V. and at the same time concluded franchise agreements with it. As a result of the chosen structure, the laundries were at the same time shareholder of the franchisor as well as franchisee. In addition, the laundries had far-reaching influence on the policy of Rentex Nederland B.V. New franchisees could for example only join after permission of the shareholders of Rentex Nederland B.V. In the franchise agreement is also included that decisions of the meeting of shareholders are applicable to the relationship of franchisor and franchisees as well as the franchisees amongst themselves.

Arrangements

The NMa distinguishes several aspects of the cooperation between the Rentex laundries. The cooperation concerns, amongst others, joint purchase and innovation. Key element of the decision of the NMa are the arrangements regarding the division of the Netherlands into different districts. These arrangements are adjusted during the cooperation into a less restrictive form, they remained however in force.

Horizontal vs. vertical

For the assessment of the NMa the difference between vertical and horizontal agreements plays an important role. Horizontal agreements are agreements between (potential) competitors. In this context market sharing concerns a serious infringement of competition law. Vertical agreements are agreements entered into between undertakings active at different levels of the production or distribution chain. In this context it is under certain circumstances allowed that a franchisor grants an exclusive district to each franchisee.

Assessment of the NMa

The NMa considered the cooperation of the Rentex laundries as a horizontal agreement because of the far reaching influence of the laundries, in their role of shareholders of Rentex Nederland B.V. The franchise agreements are also inextricably linked to the cooperation between the laundries in their role as shareholders of Rentex Nederland B.V.

Taking into account the aforementioned, the NMa is of the opinion that the agreements can not be regarded as vertical franchise agreements. According to the NMa a ‘normal’, vertical, franchise agreement is concluded between an undertaking that developed a particular business method, the franchisor, and other undertakings that receive the right to use this business method, the franchisees. The Rentex concept does not meet this definition, in the opinion of the NMa.

The definition of the NMa of franchise is not very clear and raises several questions. It is for example unclear to what extend shareholders, who are franchisees as well, may influence the policy of the franchisor. It is therefore recommended to create a certain extend of independence of the franchisor in case the shareholders of the franchisor are franchisee as well.