DENMARK Law and Practice Contributed by: Dan Bjerg Geary, Rasmus Otterstrøm Helleland Boisen and Laura Sloth Olesen, Bech-Bruun
6.2 Exclusive Territories and Competing Businesses Exclusive Territories The franchisor is often permitted to grant the fran - chisee the exclusive rights to operate the franchise within a specific geographical area, and exclusivity provisions are common in Danish franchise agree - ments. The agreement is covered by the Vertical Agreement Block Exemption (VBER; see also 6.5 Ver- tical Agreement Block Exemptions ) if: • each of the parties’ market share does not exceed 30% of their respective markets; • the number of distributors appointed per exclusive territory or customer group does not exceed five; and • the agreement does not contain any hardcore restrictions (eg, a restriction on passive sales). If the franchise agreement does not contain any exclu - sivity provision, the franchisor is allowed to conduct business under the franchised brand in the specific geographical area itself, or may grant others the right to do so. However, the franchisor must always observe its duty of loyalty towards the franchisee. Competing Businesses In general, case law states that non-compete obliga - tions that are necessary to ensure a common identity and reputation of the franchise network can prohibit the franchisee from establishing a similar business in an area where the franchisee may compete with a member of the franchising network. Such a non- compete obligation may last during the term of the contract and for a reasonable period after its expiry. A non-compete obligation that is limited to a maxi - mum period of one year after the termination of the franchise agreement is covered by the VBER (see again 6.5 Vertical Agreement Block Exemptions ) if two additional conditions are met. First, the non- compete obligation must be limited to the point of sale from which the franchisee operated during the term of the agreement. Second, the non-compete obligation must be indispensable to protecting the know-how that the franchisor has transferred to the franchisee.
the particular circumstances regarding the agreement. Nevertheless, Danish case law suggests that a notice period of approximately six months is considered reasonable in many situations. Further, the franchise agreement may be terminated upon material breach with immediate effect under Danish law, unless the franchise agreement grants the party in breach a cure period for such breach. 6. Restrictions on Competition in Franchise Agreements 6.1 Treatment of Competition Restrictions in Franchise Agreements Franchise agreements often include restrictions – such as exclusive territories, non-compete clauses and pur - chase obligations – to ensure uniform distribution and to protect the franchisor’s intellectual property (IP). The European Commission and the Danish Competi - tion Authority recognise that certain restrictions which are objectively necessary for the franchise system’s operation may be exempt from the prohibition against anti-competitive agreements in Article 101 (1) of the Treaty on the Functioning of the European Union (TFEU) – eg, restrictions on competitors’ access to know-how and non-compete obligations that are nec - essary to ensure a common identity and reputation of the franchise network. Competitive restraints contained in franchise agree - ments will be assessed using the principles applica - ble to the distribution system that most closely cor - responds to the particular franchise agreement – eg, a franchise agreement that results in a closed network, where the franchisees are prohibited from selling to non-franchisees, must be assessed under the princi - ples applicable to selective distribution. Note that under certain circumstances it may be pos - sible to modify a franchise agreement so that it differs from what is stated in 6.2 Exclusive Territories and Competing Businesses , 6.3 Requiring Franchisees to Purchase Specific Goods and Services and 6.4 Channel Reservation . However, this would require an individual assessment of the specific agreement and relevant market conditions to ensure that the agree - ment is reasonable and complies with applicable law.
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