MEXICO Law and Practice Contributed by: Gustavo A. Alcocer, Luis Astorga, Isabella Montero Torres and Fernanda Martínez Zolezzi, OLIVARES
and franchisee-specific investment, generally fit within this efficiency analysis, provided the restriction is not intended to exclude competitors. 6.2 Exclusive Territories and Competing Businesses Exclusive Territories Exclusive territories may be included in franchise agreements, provided that they do not result in an unlawful restriction of competition. Article 56, Section I, of the LFCE expressly identifies, among the circum - stances that may constitute a relative monopolistic practice (provided that the other applicable elements are satisfied), “the fixing, imposition or establishment of the exclusive commercialisation or distribution of goods or services, by reason of the person, geo - graphic location or for specified periods, including the division, distribution or allocation of customers or suppliers”. Accordingly, granting an exclusive territory to a fran - chisee is not prohibited as a matter of contract and would generally only be subject to challenge if the franchisor had substantial market power and the ter - ritorial exclusivity had the purpose or effect of improp - erly displacing competitors or foreclosing the market. This would be an uncommon scenario in typical fran - chise networks, which generally compete with other brands operating in the same industry. It should also be noted that the LFPPI and its Regu - lations require the franchise disclosure document to expressly include “the territorial area in which the fran - chise will operate”. Therefore, whether the territory is exclusive or non-exclusive is, in practice, an element that the law contemplates being documented from the pre-contractual stage. Non-Compete During the Franchise Term A restriction preventing a franchisee from operating a competing business during the term of the franchise may generally be justified as a vertical contractual restriction intended to protect the franchisor’s busi - ness model, know-how, trade marks and other legiti - mate interests. Nevertheless, if imposed by an Eco - nomic Agent with substantial market power, and if its scope or effects satisfy the requirements of Articles
54 and 56 of the LFCE, it could be scrutinised as a potential relative monopolistic practice. Post-Termination Non-Compete A one-year post-termination non-compete restriction is not automatically prohibited under Mexican anti - trust law. Its enforceability and competition-law risk would depend, among other factors, on its geographic and product scope, the activities covered, the par - ties’ market position and whether the restriction is reasonably connected to the protection of legitimate franchise interests. Mexican antitrust authorities have recognised, in the context of M&A transactions, that non-compete clauses may be permissible when appropriately lim - ited in terms of the persons, products, geographic area and duration covered, and when closely related and necessary to protect the transaction. Although that precedent concerns mergers rather than fran - chise agreements, it provides a useful indication of the authority’s approach to assessing the proportionality of non-compete restrictions. Accordingly, a one-year restriction should not be viewed as automatically permissible merely because of its duration; its overall scope and potential competi - tive effects should also be considered. 6.3 Requiring Franchisees to Purchase Specific Goods and Services Article 56 of the LFCE identifies as potential relative monopolistic practices both “a sale or transaction conditioned on the purchase, acquisition, sale or pro - vision of another good or service, normally different or distinguishable” and “a sale, purchase or transaction subject to the condition of not using, acquiring, selling, marketing or providing goods or services produced, processed, distributed or marketed by a third party”. Nevertheless, a franchisor may require franchisees to purchase specified goods or services from the fran - chisor or designated suppliers, particularly where the requirement is reasonably related to maintaining uni - formity, quality, safety, brand standards or other legiti - mate characteristics of the franchise system.
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