Ontario court rules dealership not a franchise for purposes of Ontario legislation

Here's an interesting article by Rebecca Hamovitch of Canadian lawyers, Cassels Brock, about a case (Butera et al. v. Mitsubishi Motors et al.) on 31 August in which the Ontario Superior Court of Justice granted a motion for summary judgment brought the defendants and dismissed the action brought by the plaintiffs. The Court held that the dealer agreement in this case did not give rise to a franchise relationship, so the Arthur Wishart Act (Franchise Disclosure), 2000 did not apply.

The long title of the Act (if that's the correct name for the statement of what it's all about in Canada) describes this piece of legislation as:

"An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors."

What an extraordinary idea! Imagine interfering with the free operation of market forces like that. It would give the European Commission palpitations.

The story is that in 2002, Butera submitted an application to acquire a Mitsubishi dealership. He included sales forecasts which he based on figures from the United States and the defendants' predictions of expanded sales in both the United States and Canada (in the case of Canada, expanded from nothing, as Mitsubishi cars were not being sold there at the time). Those predictions later formed the basis of the claim, which alleged misrepresentation, breach of collateral warranty and failure to comply with the Arthur Wishart Act.

The judge threw out the claim and allowed the defendants' counterclaim. There was no evidence that the figures of sales in the United States were not accurate, nor was there any evidence to suggest that the defendants' agents did not honestly believe their predictions of success. So there was no misrepresentation. The facts that there was an entire agreement clause in the dealer agreement, and the dealer was himself a lawyer, also appear to have been persuasive. As for the Act, because the dealer was not required to pay the manufacturer the agreement fell outside the definition of "franchise". Even if that were wrong, the Act would not be any help to the dealer because it largely codified the common law, on the basis of which the plaintiff's claims had already been thrown out.

We still use the word "franchise" rather loosely over here. There isn't the same degree of statutory protection for franchisees in the EU as there is in Canada, so there's little to be gained by trying to argue that a dealer agreement is in fact a franchise, but the likelihood is that it would be doomed to failure ... When it comes to trying to extend dealer protection in the EU, the commercial agents directive is a much more promising starting point.

France: Autorité de la Concurrence publishes sector inquiry report on car maintenance and repair

The Autorité aimed to conduct a full appraisal of the sector, and to issue recommendations to boost competition and bring down prices. The report is available from 12a21_en.pdf. I have provided a link to the English version, and look forward to the day when our Competition Commission provides its reports in French! However, the following summary is based on what the Autorité says in its annual report.

Its main proposal is a gradual and controlled opening up of the market in visible spare parts, which it says are protected by industrial design rights in France. This gives vehicle manufacturers a monopoly over more than70 per cent of sales of visible spare parts, and a duopoly with the original equipment manufacturer over the remaining 30 per cent. This means, of course, that repairers must have recourse to the manufacturer's network more often than they might like.

The Autorité observes that there is a difference between protecting visible original equipment parts and such parts destined for repairs - aftermarket parts - and it proposes removing the restriction in the aftermarket, in the gradual and controlled manner referred to earlier. It says that eleven EU Member States have already adopted this approach, "which also prevails in the United States and Germany where much lower prices can be observed". I think that means that Germany already had such a law, not that it is not to be included among the EU Member States where this approach is taken.

Its suggestion is that the principle be enacted by law and the timescale set by decree, with a transition period so that the market can be opened up gradually, one type of part at a time. This would enable players in the market to adapt their business models and for French parts makers to prepare for the new open market. And what about parts makers from other EU countries? Is this the French doing exactly as we expect them to?

Whether removing protection from visible parts is a good or a bad thing (and the UK's experience appears to be that it has forced prices down, which cannot be an altogether bad thing, and has not brought about the end of civilisation as we know it, which the car makers suggested would be the case back in 1988 when the Copyright, Designs and Patents Act made the big changes), retaining it for original equipment parts seems like no sort of sop to the manufacturers. The aftermarket is highly competitive: I can buy spares from many different sources. The original equipment market, by definition, cannot be competitive, because the intellectual property rights in the visible parts invariably belong to the vehicle manufacturer (it is often different with internal parts) and the vehicle manufacturer is not only able to control supply using its intellectual property, but as a monopsonist, it controls the market completely. Even if the IP rights were removed, it would still be the only customer.

Among other proposals, the Autorité says it wants to see original equipment manufacturers, the companies best-placed to serve the aftermarket, able to put their parts on the market freely. It also addresses the matter of repair and maintenance information, threatening where necessary 'to sanction, in a dissuasive manner, any restrictions' on access to such information on the part of independent repairers.

It also proposes to draw up clauses for warranty (including extended warranty) contracts, making them as clear and explicit as possible regarding the consumer's right to use the services of an independent repairer without losing the benefit of the warranty. This follows the furrow ploughed years ago by the OFT.

Finally, it wants to ensure that the retail prices for parts recommended by vehicle and parts manufacturers do not lead to a restriction of competition between operators - presumably it means factors, wholesalers and retailers, as well perhaps as independent repairers. Well, retail price maintenance is pretty well covered in French law, as in ours, I imagine.