THE EU BLOCK EXEMPTION REGULATION AND E-COMMERCE ENCROACHMENT: CONSEQUENCES FOR FRANCHISE CHANNEL GOVERNANCE

Abstract: This article explores the implications of the European Union's Vertical Block Exemption Regulation (VBER) on franchising, focusing on the issue of territorial encroachment and e-commerce. Territorial encroachment occurs when a franchisor invades the exclusive territory of a franchisee, a concern that has become more prominent with the rise of direct online commerce. Despite the VBER's comprehensive nature, it notably lacks specific provisions addressing encroachment in cases where franchisors engage in direct online sales to final consumers. This regulatory gap poses significant challenges for franchisees, potentially undermining the integrity of exclusive territorial rights and affecting their business viability. By analyzing the existing legal framework and its limitations, this article underscores the need for clearer regulations to protect franchisees from the adverse effects of online encroachment by franchisors, ensuring a balanced and fair franchise relationship in the digital age. Without such regulations, the consequences for franchise channels that are discussed in the second part of this article, could be disruptive: reduced willingness to invest from franchisees, a shift towards more directly operated stores, a significant reduction in the number of franchised stores, larger agency costs for franchisors, and diminished relevance of the franchise model, which has traditionally been regarded and protected as a form of entrepreneurial development and market efficiency. Keywords: European Block Exemptions, Franchising, E-Commerce JEL Classification: K2, L4, M2, M3