It is without doubt that franchise agreements facilitate entry of new firms and/or products and have efficiency enhancing benefits. Franchising is good for economic development and for ensuring that historically disadvantaged individuals and SMEs are able to participate in the mainstream economy. It appears that most jurisdictions do not differentiate between franchising agreements and other distribution channels in their application of their competition law and policy. This is a similar approach in South Africa where franchising is seen as an economic activity over which the Act applies.

Franchising agreements are as such not necessarily anticompetitive. They are used to establish a distribution network and this creates opportunities and benefits to both parties. The franchisor exploits expertise in other markets without substantial capital investment in setting up a retail network. The franchisee, on the other hand, also gets access to trading methods, which have been tried and tested. Therefore, any agreement that is necessary to support the essential features of the franchise relationship should not raise competition concerns, for example, the protection of the know-how, protection of network reputation, or selective distribution clauses which are normally introduced for efficiency reasons.

Despite the potential infringements highlighted above, the structure of franchising has a potential of creating collusion among competitors (franchisees) on price and market allocation and may also substantially lessen competition and cause harm to consumers. There may therefore be anti-competitive practices that are a result of franchising agreements, which the competition authorities should be concerned about.

It is anticipated that this notice has clarified matters on franchise agreements so that parties are able to ensure that their agreements are in line with the Act to avoid possible prosecutions, alternatively, to apply for exemption from some of the provisions of the Act.