Protecting the Brand or Controlling the Market? A Legal Analysis of Restraints on Competition in Franchise Agreements

Ensuring a balance between the franchisor’s control mechanisms aimed at protecting its brand and business model and the requirements of competition law is a significant issue in competition law. Although price recommendations, territorial allocation, restrictions on sales channels, exclusive supply obligations and non-compete obligations may serve to maintain the uniform operation of a franchise network, they may, in certain circumstances, constitute vertical restraints that limit the franchisee’s independent market conduct. Against this background, this article comparatively analyses the provisions governing franchise agreements under the Civil Code of the Republic of Azerbaijan and the rules on vertical restraints under the Competition Code of the Republic of Azerbaijan, in light of the European Union’s legal approach. The analysis finds that the principal problem in Azerbaijani law is not the absence of recognition of such restraints but the lack of sufficiently clear assessment criteria for their application to specific contractual terms and practical enforcement mechanisms. To address this problem, the article proposes that franchise agreements be assessed not only on the basis of their contractual terms, but also in light of their actual effects on competition in the market.