Hamilton Pratt

The Competition Act 1998

The Act seeks to bring UK law into line with EC law, so;

a)  agreements which affect trade in a substantial part of the UK (which may, in fact, be quite small); and
b)  which contain provisions which may prevent, restrict or distort competition
are prohibited unless exempt.

Franchise agreements, which normally lay down restrictions on the franchisor (eg: not to grant a franchise in a franchisee's territory) and the franchisee (eg: the products he may sell in the franchise) are capable of coming within the prohibition.

The UK authorities issued a statutory instrument excluding Vertical Agreements (which includes franchise agreements) from the prohibition in the Act but the statutory instrument is being repealed.  However, agreements which comply with the EC Regulation on Vertical Agreements will benefit from a 'parallel exemption' from the prohibition in the UK Act.  Most franchisors will not have any difficulty with complying with the EC Regulations.

The Office of Fair Trading has also indicated that agreements where the parties have a combined market share of less than 25% are unlikely to have a significant effect on competition, and therefore are unlikely to be investigated.  The majority of franchise agreements, will fall outside the scope of the Competition Act because either they will comply with the EC block exemption or the parties will have less than 25% of the relevant market.