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In a decision rendered on September 10 last year, a French Supreme Court of Appeal stated that the launching of a merchant website by a franchisor is not a breach of the territorial exclusivity agreement entered into with a franchisee, even if the website concerned would allow products to be delivered at the franchisee.

The court in this case went even further, as it considered that it was perfectly lawful for the franchisor to offer products on its website that were identical to, and at significantly lower prices than the franchisee’s products.

This decision confirms settled case law on this issue, i.e.: launching a merchant website “cannot be compared to setting up a point of sale in the protected area”.

However, the opening of such a website is not without effect. In fact, as the products that will be offered on the site will be sold at lower prices than the franchisee’s products, and will be made available to customers at the said franchisee’s store, a number of customers will obviously prefer to buy on line.

So the question comes down to this: How to find a proper balance between the franchisor and the franchisee, to preserve their joint interests, i.e.: the smooth and efficient operation and development of a network in the broad sense of the term. While a merchant site can certainly improve a network’s sales and visibility, the operation should also be carried out intelligently and in close collaboration between all members of the network.

In fact, certain franchisors have chosen to involve their franchisees in the merchant site in one way or another (although this is not a legal obligation). This is probably the best, if not the only solution, if the franchisor is to maintain peaceful relations with its franchisees. In the case mentioned above, the franchisee was entitled to receive a commission on all orders made on line and delivered at his store, subject to returning documentary evidence to the franchisor.

So what is the optimum solution? Should the franchisor launch a merchant website and increase the network’s revenue and visibility, or should he restrain from opening such a site so as to avoid detrimentally affecting his franchisees’ operations, even if that means losing a market share to a competitor who will have opened its own e-commerce site?

The natural answer seems to be obvious…

Finally, even though nature abhors a vacuum, and a merchant website can become a powerful tool to boost a network’s sales, including in-store sales (as web users are also consumers who actually go to the stores), the network head organization should advisedly take a proactive management approach.

Here are some tips on how to act in this type of situation:

– Control the reservations of domain names made by network members
– Articulate the mechanism governing the domain names that can or cannot be used by network members
– Ensure consistent management of Adword purchases by network members
– Make sure that the pilot site is properly referenced on the web, and determine whether any competitors are involved in any losses in this area
– Follow a defined trademark policy on the web
– Get ready to appropriate all customers that are sourced through the website
– Adapt your loyalty policy to the applicable legislation, with due consideration for the new medium

So, ready to launch your own site?

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