A franchise agreement is a contract by which a franchisor grants another entrepreneur, the franchisee, the right to use the legally protected and technically proven method of operating a business in exchange for the payment of a fee. The development of the business activity under such a contract typically consists in reselling products or providing services on the market under the name (trademark) of the franchisor.
Within the framework of such a franchise relationship, pricing takes on considerable importance. While there are different ways to regulate pricing in a franchise agreement, there are essentially three main classes:
Price maintenance: the franchisor dictates the franchisees a fixed price for the services to be provided or goods to be sold by them.
Price recommendation: the franchisor marks a price range for the franchisees for the services to be provided or the goods to be sold by them.
Price limits: the franchisor establishes price floors or ceilings for the services to be provided or the goods to be sold by the franchisees.
Spain’s highest courts have ruled repeatedly that price maintenance clauses by means of which the franchisor imposes a specific price on its franchisees as described above violates competition law and is, thus, illegal.
Price recommendations and price limits, on the other hand, are generally permissible provided that they do not, in effect, amount to the imposition of a fixed, binding price by the franchisor (i.e. are, effectively, price maintenance clauses).
Due to the relevance of pricing for the agreement as a whole, imposing illegal price maintenance clauses does not only cause the corresponding contractual clause to become null and void, but also the entire franchise agreement.
Such nullity cancels the franchise agreement, obliging both parties to undo all contractual performances and refund any payments made.