GOODWILL COMPENSATION IN FRANCHISING AND DISTRIBUTION CONTRACT IN EUROPEAN LAW AND BASES FOR AN ANALOGOUS APPLICATION OF THE COMPENSATION RULES APPLICABLE TO COMMERCIAL AGENTS

Abstract

Vertical agreements, such as commercial agency, franchise and distribution contracts are
the legal backbone of modern distribution chains. Despite their fundamental economic
importance in modern commerce, many laws do not provide a specific statutory regime
for these contracts. This applies, particularly to franchise and distribution contract. The
current state of franchise and distribution law and the related question of goodwill
compensation after the termination of these contracts are still unexplored. In European
law, there is no common attitude regarding this issue, not even among nations of similar
cultures and legal systems, and judicial practice also proved to be inconsistent. There is
no doubt that during franchising and distribution operation goodwill belongs to
franchisor/supplier as the bearer of the system. However, having in mind that franchisee
and distributor are an active party in the system who try to improve it, expand the
clientele in the contracted area, and thus the business reputation of the overall system,
doubts arise about the issue whether they are entitled to compensation for the increased
goodwill, after the termination of the contract. This article reviews the treatment of
goodwill upon the termination of franchise and distribution contracts in key European
jurisdictions, as well as justification of the analogous application to these contracts of
indemnity rules relating to a commercial agent.