European Union: Europe - ECJ Hands Down Preliminary Ruling On Post-Term Non-Compete Obligation In Franchise Agreement

On 7 February 2013, the Court of Justice of the European Union ("ECJ") handed down its ruling in response to a preliminary reference from a Spanish court that had questioned the meaning of the phrase "premises and land from which the buyer has operated during the contract period" in Article 5(b) of the 1999 Vertical Agreements Block Exemption Regulation (the "1999 VABER") in the context of a franchise agreement.

Article 5 of the 1999 VABER identified a number of obligations that, while not hardcore restrictions of competition, would fall outside the scope of the block exemption even where the market share threshold set by the Regulation was not exceeded. More particularly, Article 5(b) provided that the block exemption would not apply to any direct or indirect obligation preventing the buyer, after termination of the agreement, from manufacturing, purchasing or distributing goods or services, unless the obligation (i) related to goods or services that competed with the contract goods or services; (ii) was limited to the premises and land from which the buyer had operated during the contract period; and (iii) was indispensable for protecting substantial and necessary know-how transferred by the supplier to the buyer. In addition, the obligation was required to be limited in duration to a period of one year after termination of the agreement.

In the proceedings at issue, La Retoucherie de Manuela, SL (the franchisor) and La Retoucherie de Burgos, SC (the franchisee) had entered into a five-year franchise agreement in 2004 concerning the provision of clothing repairs and alterations services. Clause III.2 of the franchise agreement contained a non-compete obligation pursuant to which the franchisee agreed not to directly or indirectly develop identical or similar activities to the activity covered by the contract in competition with that activity. The non-compete clause was stated to be valid for the duration of the contract and to be motivated by the need to protect know-how and expertise and maintain the identity, image and reputation of the franchise network. Clause III.2 extended the validity of the non-compete clause for one year after termination of the contract, in order to protect know-how and expertise. If the franchisee failed to comply with the provisions of the non-compete clause, the franchisee was required to pay the franchisor € 90,151.82 by way of penalty. Finally, Clause VII.B of the franchise agreement allowed the franchisee to terminate the agreement if the franchisor filed an application for voluntary bankruptcy, was declared bankrupt or was otherwise dissolved.

On 29 April 2009, the franchisee unilaterally terminated the franchise contract arguing that the reduction of the franchisor's equity to less than half of its share capital was a legal cause for termination and that the franchisor had breached the technical assistance and commercial obligations contained in the franchise agreement.

The franchisor brought an action before the Spanish court claiming compensation for the damage allegedly caused by the early termination of the contract and payment of € 90,151.82 for breach of the non-compete clause. Both claims were rejected and the franchisor appealed. In reply, the franchisee claimed that the non-compete clause was invalid as being contrary to the Spanish Competition Law 15/2007, unless exempted by the 1999 VABER. The appeal court decided to stay the proceedings and refer a question to the ECJ for a preliminary ruling. It asked whether the phrase "premises and land from which the buyer has operated during the contract period" contained in Article 5(b) of the 1999 VABER meant only the place or physical space from which the franchisee operated while the agreement was in effect or whether it extended to the entire territory assigned in the franchise contract.

In its ruling, the ECJ considered that the words "premises" and "land" should be given their common sense meaning in the context of Article 5(b). Accordingly, "premises" referred to a part of a building and "land" should be understood as referring to a parcel of land. "Territory" should be understood in the sense that it refers to a geographical area. The words "premises" and "land" could not be interpreted as referring to a designated territory. The ECJ rejected the suggestion that the use of the word "and" in the phrase "premises and land" was ambiguous and could be interpreted as extending the meaning of the phrase to a territory. In this respect, it was relevant to the ECJ's assessment that a clear distinction was made between premises and territory elsewhere in the 1999 VABER, including in Article 4(b), which referred to restrictions on the "territory" into which the buyer or seller may sell the contract goods or services. In the ECJ's view, it was intended that, for post-term non-compete clauses to benefit from the block exemption, they must have a limited geographic scope, i.e., be restricted to the premises and land from which the contract goods or services were sold.

Accordingly, pursuant to Article 5(b) of the 1999 VABER, a non-compete clause prohibiting the buyer, after the expiry of the contract, from selling the contract goods or services away from the site and land from which it has operated during the contract period does not benefit from block exemption. It is for the national court to examine whether the restriction would amount to a breach of Article 101(1) TFEU outside the scope of the block exemption.

The findings of the ECJ summarised above on post-term non-compete obligations are also of relevance for agreements subject to the 2010 Vertical Agreements Block Exemption Regulation, whose Article 5(3) contains the equivalent provision to Article 5(b) of the 1999 VABER.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.