## Facts

- A franchisor operated a bridalwear distribution franchise network under the trademark and business name “Pronuptia de Paris,” supplying goods and business methods to franchisees.
- A franchisee operated Pronuptia-branded shops in Germany under successive franchise agreements and paid fees/royalties calculated by turnover.
- The agreements included (i) franchisee territorial exclusivity, (ii) exclusivity/non-compete obligations (including selling only franchisor goods in the franchise shop), (iii) controls intended to maintain a uniform network image (layout, advertising, business methods), and (iv) provisions concerning recommended resale prices.
- A dispute arose when the franchisor sought unpaid royalties for 1978–1980.
- The franchisee defended by asserting the agreements were void under Article 85(1) EEC (now Article 101(1) TFEU) and outside the block exemption in Regulation 67/67/EEC.
- Germany’s Federal Court of Justice stayed proceedings and referred questions for a preliminary ruling on whether, and to what extent, the franchise provisions restricted competition and whether Regulation 67/67 applied.

## Issues

1. Whether a distribution franchising system is, by its nature, restrictive of competition under Article 85(1) EEC.
2. Which franchise clauses are “strictly necessary” to the system’s operation and therefore fall outside Article 85(1).
3. Whether territorial exclusivity and related non-compete provisions that partition markets constitute restrictions under Article 85(1).
4. Whether recommended resale price provisions are caught by Article 85(1).
5. Whether Regulation 67/67/EEC provides a block exemption for the franchise agreements at issue.

## Decision

- The court held that a distribution franchising system is not, as such, a restriction of competition; legality depends on the agreement’s specific clauses and economic context.
- Clauses strictly necessary to protect the franchisor’s know-how, ongoing assistance, and the identity and reputation of the network do not constitute restrictions within Article 85(1).
- Clauses that have the effect of sharing or partitioning markets between the franchisor and franchisees, or among franchisees (including reinforced territorial protection), are restrictions of competition under Article 85(1) and are capable of affecting trade between Member States.
- Communication of recommended prices is not, by itself, restrictive under Article 85(1) if there is no concerted practice regarding their actual application.
- Regulation 67/67/EEC did not apply to the franchise agreements, so they did not benefit from that block exemption.

## Legal Principles

- Franchising is not per se unlawful under Article 85(1); competitive effects require clause-specific, context-sensitive analysis.
- Restraints strictly necessary to protect transferred know-how and to preserve the network’s identity and reputation (including essential brand-format controls) can fall outside Article 85(1).
- Territorial protection and reciprocal non-compete arrangements that allocate markets are “by object” restraints caught by Article 85(1).
- Recommended resale prices do not violate Article 85(1) absent coordination or pressure producing uniform pricing in practice.
- A block exemption for exclusive dealing does not automatically cover distribution franchise agreements where the contractual structure materially differs from exclusive dealership arrangements.

## Conclusion

The court distinguished permissible franchise protections tied to know-how and brand reputation from unlawful market-partitioning restraints, confirmed that non-binding price recommendations are generally acceptable without coordinated enforcement, and ruled that the exclusive-dealing block exemption in Regulation 67/67 did not extend to the franchise agreements at issue.


Pronuptia de Paris Gesellschaft mbH v. Pronuptia de Paris Irmgard Schillgallis, Case 161/84, [1986] E.C.R. 353 (C.J.E.C. 1986)