International Journal Of Franchising Law
Volume 6 – Issue 5/6 – 2008

Almost half of franchising systems operating in Poland is discriminated under Polish law.

CAN A SERVICE BE RESOLD?

At first glance the question posed in the title of this document seems to belong to the category of rhetoric questions. However, in order to answer it, one should scrutinise the Regulation of the Council of Ministers of 19 November 2007 on the exemption of certain types of vertical agreements from the prohibition on agreements containing restrictions of competition (Journal of Laws of 2007 No. 230, item 1691). This Regulation took effect on 1 January 2008 and superseded the Regulation of the Council of Ministers of 13 August 2002, which expired on 31 December 2007.

It would seem that the new provisions of law should be free and clear of any inconsistencies or controversies, which accompanied the previous regulations. Controversies about the application of the provisions of the 2002 Regulation, which does not apply any more, with respect to franchising concerned the question whether or not this Regulation covers also the service franchising, if it expressly and exclusively refers to the distribution franchising. The definition of the distribution franchising, included in the Regulation, referred to the resale of goods by a franchisee, which rendered it impossible to have the service franchising covered by this definition, as the service franchisee, by does not resell the service it has bought. However, Commission Regulation (EC) No. 2790/1999 includes services in the category of vertical agreements (point 3 of the Preamble and Art. 2 section 1 and 3).

The hope that the controversial regulations will be amended were justified all the more so as, after the session held on 13 August 2002, the Council of Ministers announced the following: “An analogous Community regulation has been passed for a fixed term and expires on 31 May 2010. The Polish regulation will remain in force and effect for a period of approximately five years, i.e. until 31 December 2007. Application of this validity term results from the fact that the Polish antimonopoly authorities have little experience in the definite exemption of certain categories of agreements from the prohibition (therefore this term cannot be too long), and, on the other hand, this results from the need to ensure entrepreneurs sufficient legal certainty (therefore this term is not very short).” Moreover, many years ago, officers from the Office for the Protections of Competition and Consumers confirmed during oral consultations that they were aware of the problem caused by the fact that the service franchising was not covered by the 2002 Regulation.
 
Nevertheless, despite the fact that over five years of the term of the previous Regulation elapsed and despite criticism voiced with respect to the franchising regulations included in it, there is still no mention of the service franchising in the new Regulation. As a matter of fact, being more precise, what is meant here is the business format franchising, as distinct from the product distribution franchising, which is termed in the Regulation as the distribution franchising and is fully exempted from the prohibition on the agreements containing restrictions of competition set out in the Law on the protection of competition and consumers. In fact, this exemption should apply not only to companies operating under the distribution franchising system but also those operating under the service franchising system.

However, while reading carefully the definition of the distribution franchising included in the Regulation (paragraph 2 point 6), which refers to the distributor (franchisee) that undertakes to resell the goods bought from the supplier (franchisor), one can  easily discern – using the rules of literal interpretation – that this definition refers to the goods sensu stricte, understood as objects. On the other hand, services – though capable of being sold – cannot be the object of resale by reason of their immaterial nature. If one argued to the contrary, then it would have to be assumed that it is possible to order a haircut service, beauty care service or an educational service, and then resell the haircut, smooth skin or knowledge so received to the end customer. In other words, this definition does not cover service franchising, since – as a matter of fact – service franchisee does not buy services for the purpose of reselling them.

The issue discussed hereunder is not merely an academic dispute, as it refers to over two hundred service franchising systems operating in Poland. In the majority of cases, these systems are small and comprise no more than several outlets – they expect support from the State and not stumbling blocks in their way, all the more so as in the Polish market structure it is the distribution franchising systems that still prevail. Whereas, in the developed European markets, service franchising systems are in the majority. It would seem that the Polish government should care about supporting the development of the service sector, since the future of each developed economy lies in services, and not in trade.

Therefore, there is no reasonable cause for service franchising companies to be discriminated in the Polish legal system and deprived of the right to, for example, suggest prices to their franchisees or impose on them maximum prices, as other companies operating under the distribution franchising system may do. All the more so as in the Community competition law both these types of franchising are treated on equal basis, but the only problem here is that the Community law does not prohibit any state from discriminating its own business entities.  The only prohibition on discrimination that is in place refers to services and goods originating from other member states.

Andrzej Krawczyk   
Managing Partner
Academy of Franchising Systems' Development