Regulations, 1996

L.N. 151 fI I9M

COMPETITION ACT, 1994

(ACT NO . XXXI OF 1994)

Categories of franchise Agreements (Block Exemptions)

Regulations, 1996

IN exercise of the powers conferred by subsection ( I) of section 8

of the Competition Act, 1994, the Minister for Economic Services, after

consullatio n wi th the Commission for Fai r T rad ing, has made lhe

foJlowing regulations: -

I . 1llese regulations may be cited as the Categories of Franchise Ci\IDorL

Agreements (Block Exemptions) Regulatio ns, 1996.

Dawn ir-regolamenli jistghujissejhu r-Regolamenti ta' 1-1996 Trtolu.

dwar E:i;enzjonijiet Generali ghaJ Kategoriji ta' Franchise Agreements,

2_ Dawn ir-regolamenti ghandhomjibdew isehliu ft-I ta' Awissu, lIidu fio-sehh u

TermifllWjoni.

1996 ujtem mu fil-31 ta' Ottubru, 1999.

These regulations shall come inlo force on the 1st August. eoa..

ondT

1996 and shall tenn inate on the 3 1st October, 1999 .

These regu lations specify the block exem ptions subject to such 5<:ope.

conditions and limitations and as applicable 10 categories o f franchise

agreements, decisions and practices in terms of subsection ( I)of section

S o f the Act.

For the purposes of these regulations, and unless the context I_po"""'"

otherwise requires: -

"Act" means the Competition Act, 1994 which regulates

competition and provides for fair trading in Malta;

"Commission" means the Commission for Fair Trading;

"contract premises" mea ns the p re mises used for the

exploitation of the franchise or, when the franchise is exploited

outside those premises, the base from which the franchiseeoperates

the means of transpon used for the exploitation of the franchise

(contract means of transpon );

" Directo r" mea ns the di rector of the O ffi ce fo r Fair

Com petition;

"franchise" means a package o f industri al or intellectual

propeny righ ts relating to trade marks, trade names, shop signs,

utility models. designs. copyrights. know-how or patents, to be

exploited for the resale of goods or the provision of services to

e nd users;

"franchise agreement" means an agreement whereby one

undertaking (the franchisor) grants to the other (the franchisee) in

exchange for direcl or indirect financial consideration , the rig ht 10

exploit a fnlllchise for the purposes of marketing specifi ed types

of goods and/or services; il shall include obligations relating to

the use of a common name or shop sign and a

(i)

uniform presentation of contract premises and/or means of

lranspon,

the commu nication by the fra nchisor to the

( ii)

franchisee of know-how,

(iii) the continuing provision by the franc hisor to the

franchisee of commercial or technical assistance during the

life of the agreement;

"franchisor's goods" means goods produced by the franchisor

or accordi ng to its instructions, and/or bearing the franchisor's name

or trade mark;

"identified" means that the know-how must be described in a

sufficientl y comprehensive manner so as 10 make it possible to

verify that it fulfills the criteria of secrecy and substantiality: the

description of the know-how can either be set out in the franch ise

agreement or in a separate document or recorded in any other

appropriate fonn;

"know-how" means a package of non-patented practical

information, resulting from experience and testing by the

franchisor. which is secret, substantial and identi fied

"master fra nchise agreement"' means an agreement whereby

one undena king , the franchisor , grants the other. the master

franchisee , in exchange for direct or indirect financial consideration.

the right 10 exploit a franchise for the purposes of concluding

franc hise agreements with third parties, the franchisees;

"secret" means that the know-how, as a body or in the precise

confi guration and assembly of ils components. is not generally

known or easily accessible; it is not limited in the narrow sense

that each individual component of the know-how should be totally

unknown or unobtainable outside the franchisor's business;

"substamiaJ" means that the know-how includes infonnat ion

which is of importance for the sale of goods or the provision of

services to end users , and in particular for tile presentation of goods

for sale, the processing of goods in connection with the provision

o f service'S, methods of deal ing with customer.>, and administration

and financial management; the know-how must be useful for th e

franchisee by being capable, at the date of concl usion of the

agreements, o f impro ving the competitive pos iti o n o f th e

franchisee, in particular by improving the franchisee's perfonnance

or helping it to en ter a new market.

S . (I) Subject to the provisions of these reg ul ations. the BloctE .. rnpo;a..

provisions of subsection (I) of section 5 o f the Act shall not apply to

franchise agreements to which two undertakings are pany, which include

one of the restrictions listed in regulation 6 of these regulations.

(2) The exemption provided for in paragraph ( I ) of this

regulat ion shall also apply to master franchise agreements to which

two undertakings are party. Where applicable, the provisions of these

regulations concerning the relationship between fra nch isor and

franchisee shall app ly mutatis mutandis to the relationship between

franchisor and master franc hisee and between master franchisee and

franchisee .

( I) Bla hsara ghad-dispoiizzjonijict ta' dawn ir-regolamenti , ~00neraIi .

id-dispozizzjonijict tas-subartikolu (I) ta' I-artikolu 5 ta' I-Att

m'ghandhomx ikunujapplikaw ghalfranchise agreements li fihom ikun

hcmm bhala partijict i:cwg imprizi, li jkunu jinkludu xi wahda mir-

restrizzjonijiet elenkati fi r-regolamenl 6 la' dawn ir-regolamcnti .

L-ei:enzjoni li hemm provduI dwarha fiI-paragrafu (I)

(2)

ta' dan ir-regolament ghandha lkun ukoll tapplikaghaJ master franchise

agreements li fihom ikun hem m bhaJa partijiet zcwg imprizi. Meta dan

iku n japplika, id-dispozizzjonijet ta' dawn ir-regolame nti dwar ir-

relazzjoni bejn franchisor u franchisee ghandhom ikunu japplikaw

mutatis mutandis ghar-relazzjoni bejnfranchisor u master franchisee u

bejn master franchisee ufranchisee.

The exemption provided for in regulation.5 of these regulations Ratricficmof

shall apply to the following restrictions of competition

CoonpeIilion.

(a) an obligation on the franchisor, in a defined market (the

contrac t territory) nm to

(i) grant the right to exploit all or part o f the franchise

to third parties,

(ii) itself explo it the franchise. or itself market the

goods or services which are the subject-matter of the franchise ,

(iii)

itself supply the franchisor's goods to third parties;

(b) an obligation on the master franchisee not to concl ude

franchise agreements with third parties outside its contract territory;

(c) an obligation on the franchisee to exploit the franc hise

only from the contract premises

(d) an obligation on the franchisee to refrain, outs ide the

contract territory, from seeking customers for the goods or the

services which are the subject-maner of the franchise;

(e)

an obligation on the franchisee not to manufacture, sell

or use in the course of the provision of services, goods competing

with the franchisor's goods which are the subject-matter of the

franchise; where the subject-matter of the franchise is the sale or

use in the course of the provision of services both of certain types

of good.~ and spare parts or accessories thereof , that obligation

may nOf be imposed in respect of these spare parts or accessories .

(I ) Regulation 5 of these regu lations s hall apply

nOlwithstanding the presence of any of the following obligations on the

franchisee, in so far as they are necessary to protect the franch isor's

industrial or inte llectual property rights or 10 maintain the common

identity and reputation of the franchised network

(a) to sell , or use in the course of the provision of services,

exclu s ive ly goods matching mi nimu m objective quality

specifications laid down by the franchisor

(b) to sell. or use in the course of the provision of services,

goods which an:: manufactured only by the franchisor or by the

third parties designed by it , where it is impracticable. owing to the

nature of the goods which are the subject-matler of the franc hise,

to apply objective quality specifications;

(c) not to engage, direc tly or indirectly, in any similar

business in the contract territory where it would compete with a

member of the franchise network. including the fra nc hisor; the

franch isee may be held to this obligation after termination of the

agreement. for a reasonable period which may not exceed one yea r.

in the contract territory where it has exploited the franchise;

(d) not to acqui re financial inte rests in a competing

undertaking. which would give the franc hisee the power to

influence lhe economic conduct of such undenaking;

(e) to sell the goods which are the subject·matter of the

franchise only to end users. and other franchisees and 10 re·sellers

wi thi n OIher channels of distribution supplied by the manufacturer

of these goods or wit h its consent

(f) to use its beSI endeavours 10 sell the goods or provide

the services that are the subjecl·mat~er of the franchise; to offer

for sale a mini mum range of goods. achieve a minimum turnover,

plan its orders in advance, keep minimum stocks and provide

customer and warranty services

(g) to pay to the franchisor a specified proponion of its

revenue for advenising and itselfcany out advertising for the nature

of which it shall obtain the franchisor's approval.

(2) R eg ulation 5 of these regulations shall apply

notwithstanding the presence of any of the fo llowing obligations on the

franchisee

(a) not to disclose to third parties the know-how provided

by the franchisor: the franchisee may be held to this obligatio n

after tennination of the agreement;

(b) to communicate to the franchisor any experience gained

in ex ploiting the franchi se and 10 gran t it, and other franchisees, a

non-exclusive licence for the know- how resulting from that

experience;

(c) to inform the franchisor of infringements of licensed

industria] Of"intellectual propeny rights, to take legal action against

infringen; or to assist the franchisor in any legal actions against

infringers;

(d) nOI to use know-how licensed by the franchisor for

purposes other than the exploitation o f the franchise; the franchisee

may be held to this obligation after tennination of the agreement;

(e) to attend or ha\'e its staffauend training counes arranged

by the franchisor;

(f) 10 app ly the com mercial methods d evised by the

franchisor, including any subsequent modification thereof, and use

the licensed industrial or intellectual property rights;

(g) to comply with the franchisor's standards for the

eq uipment and presentation of the contract premises and/or means

o f transport

(h) loallow the franchisor tocany outcheck.s of the contract

premises and/or means of transpon, including the goods sold and

Ihe services provided, and the inventory and accounts of the

franchisee;

(0 not to change the location of the contract premises

without the franchisor's consent;

(j) not 10 assign the rights and obligations undcrthe franchise

agree ment without the franchisor's consent.

(3) In the: event thaI, be<:ause of particular circumstances,

obligations referred to in paragraph (2) of this regulation fal l within the

scope of subsection (I ) of section 5 of the Act, they shall also be

exempted even if they are not accompanied by any of the obligations

exempted by regulation 5 of these regulations.

s. (1) The exemption provided for in regulation 5 of these

regulations shall apply on condition that

(a) the franc hisee is free 10 obtain the goods that are the

subject-maucr ofthe franchise from other franchisees; where such

goods are also distributed through another network of authorised

distributors, the franchisee must be free to obtain the goods from

the latter;

(b) where the franchisor obliges the franchisee 10 honour

guarantees for the franchisor's goods. that obligation shall apply

in respecl of such goods supplied by any member of the franchised

network or other distributors which give a similar guarantee

(c) the franchi see is obliged to indicate its status as an

independent undertaking: this indication shall however not interfere

with the common identity of the franchised network resulting in

particular from Ihe common name or shop s ign and uniform

appearance of the contract premises and/or means of transport.

(2) The exemption granted by reg ulation 5 o f these

regu lations shall not apply where

(a) undertakings producing goods or providing services

which are identical or are considered by users as equivalent in

view of their chamcteristics, price and intended use, enter into

franchise agreements in respect of such goods or services

(b) without prejudice to paragraph (e) of regulation 2 and

s ubparagraph (b) of paragra ph ( I) of reg ulation 3 of t hese

regulations. the franchisee is prevented from obtaining sup plies of

goods of a quality equivalent to those offered by the franchisor

(c) without prejudice to paragraph (e) of regulation 2 of these

regulations , the franchisee is obliged to sell, or use in the process

of providing services, goods manufactured by the franchisor or

third parties designated by the franchisor and the franchisor refuses,

for reasons other than protecting the franc hisor's industrial or

intellectual property rights, or maintaining the common identity

and reputation of the franchised network , to designate as authorised

manufactu rers, third parties proposed by the franchisee;

(d) the franchisee is prevented from continuing to use the

licensed know-how after tenni nation of the agreement where the

know-how has become generally known or easily accessible, other

than by breach of an obligation by the franchisee;

(e) the franchisee is restricted by the franchisor, directly or

indirectly , in the detennination of sale prices for the goods or

services which are the subject-matter of the franchise, without

prejudice to the possibility for the franchisor of recommending

sale prices;

the franchisor prohibits the franchisee from challenging

(t)

the validity of Ihe industrial or intellectual property rights which

fonn pan of the franchise. without prejudice to the possibility for

the franchisor of tenninating the agreement in such a case;

(g) franchisees are obliged not 10 supply within the defined

contracl market the goods or services which are the SUbject-matter

of the franc hise to end users because of their place of residence.

(I) L-eienzjoni li hemm provdut dwarha fir-regolament 5

ta' dawn ir-regolamenti ghandha Ikun tapplika kemm-i1 dama

(a) il1ronchisee jkun liberu li jikseb I-Qggelti li jkunu fil -

qofol tal1ronchise minn fronchiset's ohm; meta dawk ]-Qggeni

jkunu wkoll distribwiti pennezz ta' network iehor ta' distributuri

awtorizzati, il{ranchisee ghandu jkun li beru)j jikseb I-Qggeni minn

dawk id-distributuri

(b) mCla I{ rallchisor jobbJiga lill{rallchi,vee jonoragaranziji

ghali-Qggetti lal -fronchisor, dak l-Qbbligu ghandu jkun japplika

ghar-rigward ta' dawk I-oggetti fomuti minn xi membru lal-

f ranchised network Jew distributuri ohra li jaghtu garanzija simiJi;

(c) iJ-frollchisee hu obbligat jindika I-istatus taghha bhala

impriia indipendenti; din I-indikazzjoni m'ghnndhiex madankollu

tindahal mal-identita komuni tal{ranchised network li jirrizulta

b'mod partikolari mill-isem komuni jew sinjal fuq il-faccata ta'

hanul u dc hTa uniformi tal-fond rejn isehh kuntrau u/je w mezz ta'

traspon.

(2) L-eienzjoni moghtija bir-regolament 5 ta' dawn ir-

regolamenti m'ghandhiex tkun tapplika meta

(a) imprizi li jipproducu oggett; jew jipprovdu servizzi li

jkunu idcntiCi jew li jitqiesu mill-utent; bhala ckwivalcnti mi nhabba

fiI-karatteri sliCi. prczz u uzu ippjanat taghhom,jidhlu fi f rallchise

agreements dwar l-oggctti jew scrvizzi

(b) mi nghajr pregudizzju ghall-paragrafu (c) tar-regolament

2 u ghas-subparagrafu (b) tal-paragrafu (I) tar-regolament 3 la'

dawn ir-regolamenti,franchisee ma jkunx jista' jikseb provvisti

jew oggetti ta' kwalita Ii Ikun ckwivale nti ghaJ dawk offeni mill-

jranchisQr;

(c) minghajr pregudizzju ghall-parngrafu (e) tar-regolament

2 ta' dawn ir-regolamenli, i1jranchisu ghandu l-obbligu Jijbiegh,

jew li juia fil -proecss tal-ghOl:i ta' scrvizzi, oggetti manifanurati

mill -fran chisor jew minn teni mahsubin mill-franchisar u 1-

Jranchisor jirrifjula, ghal ragunijiet li majkunux il-protezzjoni taI-

jeddijiel industrijali Jew ta' proprjet~ intellettwali tal-jranchisor,

jew ghaz-zamma tal-identitA komuni u repulazzjoni lal-franchised

network, li jistabbilixxi bhala manifatturi awtorizzati, teni lijkunu

proposli mill-franchisee;

(d) il-franchisee ma jithall iex ikompli juza know-how

lii:enzjat wara li I-ftehim ma jibqax ischh meta know-how ikun sar

generalment maghruf Jew facilment aci:cssibbli, li ma jkunx bi

ksur ta' xi obbligu mill-franchisee;

(e) il-franchisee hu ristrett mill-franchisor, direltamentjew

indircttament, filii jistabbilixxi I-prezzijiet tal-bcjgh ghall-oggctti

Jew scrvizzi li jkunu fil.qofol lal-Jrunchise. minghajr pregudizzju

ghall-possibilit~ Ii Ijranchisor jirr.tkkomanda iI-prezzijiet lal-

bejgh;

il-franchisor jipprojbixxi lilI -franchisee millijikkontesta

(I)

l-validilll tal-jeddijiet industrijali Jew la' proprjeta intellettwali li

jkunu parti mil11ranchise , minghajr pregudizzju ghall-possibi litA

li I-franchisor itemm il-ftehim fdak il-kai:;

(g) franchisees huma obbligati li ma jfomux fil-kuntest tas-

suq kontrattwali definil l-oggetti Jew is-scrvizzi Ii jkunu fil -qofol

tal-franchise lil utenti finali minhabba fil -lokalitA fejn ikunu

joqoghdu,

9_ II-Kummissjon i qeghda b'dsn tinghat8 s-sctgha Ii lirtira 1-

I! _ K~mm; .. jon;

bcneficeju ta' dawn ir-regolamenti ghar-rigward la' kai. partikolari, fuq r;.l.O'lInln

lalba tad-direttur, mela dak iI-ftehim Ii j kun Sic e:ientat b'dawn ir- be ... r,ujo ,

regolamenli madankol1 u ma jkunxjikkontribwixxi biexjintlahaq i-ghan

li titteijeb il-produzzjonijew id-distribuzzjoni ta ' oggetti jew biexjingieb

'il quddiem il-progress lekniku Jew ekonomiku u li ma jhallix lil1-

konsumaturi sehem gust mill-beneficcju Ii jgib mieghu, u b' mod

patikolari mela

(a) I-access ghas-suq Jew ghall-kompetizzjoni fih tkun

lassew ristrena bl-cffett kumulattiv la' parallel networks ta' kuU

ftehim simili stabbilit minn manifattu ri Jew distributori li jkunu

qeghdin jikkompetu

l-oggetti jew is-servizzi li jkunu fil-qofolla.l-Jranchise

(b)

ma jkollhornx, fparti sostanzjali las-suq kontranwali definit .

kompetizzjoni effcuiva minn oggeui jew sc:rvizzi li huma identiCi

jew li jilqiesu mill-uleoli bhala li huma elc.wivalenti minhabba fil-

karalteristiCi, prezzijiet u ui u ippjanal tagl'lhom;

Cc) il-panijiet. jew wahda minnhom ma jhallux III ulen ti

finali, minhabba fil-Iok rejn ikunu joqoghdu, jiksbu , direnamenl

jew pcrmezz la' intcrmoojarji, l-oggettijew is-serviui lijkunu 1-

qofoilal-/ranchjse fiI-kuntest tas-suq kontraUwali definil;

(d) franchisus iwcllqu pranilc.a miftehma lijkollha x'taqsam

mal-prezzijicl la' l-oggetti jew tas-servizzi li j kunu l-qo fol tal-

franchise

Cc) il-frallchisor j uta l-jedd lieghu 1i jivverifika I-fond u 1-

mezzi la' traspon rejn isehl'! kunlnJ.lI ,jew jinifjuta il-qbillieghu

ma' talbie! li jsiru mill1ronchisu biex jibdel il-fond fejn isehh

kuntratt jew jassenja l-jeddijiet u l-obbligi tieghu taht il1ronchist'

ogrumt'nt, ghal ragunijiet li ma jkunux li jipprolegi l-jeddijiet

indusuijali jew ta' proprjetA inlelleltwali ud1ronchisor. filwaqlli

jiomm I-idemilll u reputazzjoni komuni lal-fronchisM nt'tworkjew

li jivverifika li I·fronchiut' ikun tenut bl-obbligi lieghu skond il-

ftehim.

The Commission is hereby being granted the power 10 C'.omrniosioRmly

withdraw the benefit of these regulations in relation to a panicularcase, -wi-. ......... r.t

on a request by the Director, where such agreement exempted by these

regulations nevertheless does not contribute towards the objective of

improving production or distribution of goods or promoting technical

or economic progress and which does not allow consumers a fair share

of the resultant benefit. and in panicular where

(a) access 10 the market or competition therein is

significantly restricted by the cumulative effect of parallel networks

of similar agreements established by competing manufacturers or

distributors;

(b) the goods or services which are the subject-maller of

the franchise do not face. in a substantial pan of the defined contract

market, effective competition from goods or services which are

identical or considered by users as equivalent in view of their

characteristics, price and intended use;

(c) the panics, or one of them, prevent end users, because

of their place of residence. from obtaining, directly or through

intennediaries, the goods or services which are the subject-matter

of the franchise within the defined contract market;

(d) frnnc hisees engage in concerted practices relati ng to sale

prices o f the goods or services which are the subject-matter of the

franchi se;

(e) the franchisor uses its right to check the conlraCl premises

and means of transport , or refuses its agreement to requests by the

franchisee to move the contract premises or assign its rights and

obligations under the franchise agreeme nt, for reasons other than

protecting the frnnchisor's industrial or intellectual property rights,

maintaining the common identity and repulation of the franchised

network or verifying that the franc hisee abides by its obligatio ns

under the agreement.

"''''i.JI>M bylM ~pa""."" of I~ _

Ippubblikll mid·Dipo<li .... nl ll· 1. lnrorrnwjoni _ "util';'

_ K<UIi/jlt