Does your cooperative organization fall under the Dutch Franchise Act?
Franchisors
Legal
The Dutch Franchise Act has been in effect since January 1, 2021, but when does an organization fall under the Franchise Act? Before the Franchise Act, "labeling" an organization had few consequences because there was no franchise legislation. The Franchise Act has changed this. If the word franchise is mentioned in the agreement, an organization will fall under the Franchise Act. However, it goes much further than that. The Explanatory Memorandum states the following:
“This bill applies to all types of franchises, regardless of the label that parties themselves give to their collaboration.”
No use of the term franchise, but still a franchise formula
Thus, a formula that, for example, chooses terms like "partners" or "collaboration agreement" to avoid the term franchise, will in many cases also fall under the Franchise Act. In other words, if it looks like a duck, swims like a duck, and quacks like a duck, then it is probably a duck. But when does an organization fall under the Franchise Act?
Definition of a franchise formula in the Dutch Franchise Act
The Franchise Act includes the following definition of a franchise formula:
“Operational, commercial, and organizational formula for the production or sale of goods or the provision of services, which determines a uniform identity and appearance of franchise businesses within the chain where this formula is applied, and which at least includes:
- A trademark, model or trade name, house style, or drawing
- Know-how, being a set of non-intellectually protected practical information, derived from the franchisor's experience and research carried out by him, which information is confidential, substantial, and identified”
During the term of a written franchise agreement, concluded between parties for this purpose, the individual franchisee has the right and obligation to use the trade name and/or trademark and/or service mark of the franchisor, the know-how (*), the business and technical methods, the working method and other matters that are industrial and/or intellectual property of the franchisor, supported by ongoing commercial and technical assistance from the franchisor, against direct or indirect financial remuneration.
In summary: Does the organization have a shared trade name, are entrepreneurs trained in certain knowledge/methods, etc., and do they pay for this? Then the Franchise Act will apply.
Know-how: Confidential, substantial, and identified
In the Dutch Franchise Act, know-how in a franchise formula is qualified as confidential, substantial, and identified. But when does this apply? Does a hamburger franchise formula have know-how that is confidential, substantial, and identified? The recipes for making a hamburger are no longer a secret. Such questions arise when we follow the Franchise Act to the letter.
The judge will ultimately have to answer this question definitively. We expect that, if a similar issue is submitted to the judge, they will most likely determine that it is a franchise formula. This is because it involves the franchisor's experience and the transfer of know-how in the total concept. This is not common knowledge; otherwise, no training would be necessary upon joining the organization. The total concept is precisely where the formula's success lies. A perfect example of this is McDonald's.
Still in doubt? Seek clarity!
The Dutch Franchise Act is mandatory law. Non-compliance can lead to the nullification of your partnership agreement and other undesirable consequences. If you still have doubts about whether your organization falls under the Franchise Act due to the know-how or otherwise, fill in the form below and we will discuss whether the Franchise Act applies to you.
