Market restriction (Competition Act s. 77)

A franchisee meets this term when an agreement confines where the business may sell. Section 77 defines market restriction as a supplier requiring a customer, as a condition of supply, to supply a product only in a defined market, or exacting a penalty for supplying outside it. It sits in Part VIII of the Act, Matters Reviewable by Tribunal, not among the offences: on application by the Commissioner or a person granted leave under section 103.1, the Tribunal may make an order only on the findings listed in subsection 77(3), subject to subsection 77(4).

How it applies to a franchise

Under subsection 77(3), the Tribunal must find that the practice, because a major supplier engages in it or because it is widespread in relation to a product, is likely to substantially lessen competition. Under subsection 77(4), the Tribunal shall not make an order where market restriction is or will be engaged in only for a reasonable period of time to facilitate entry of a new supplier or a new product into a market, and no order applies to market restriction between entities that are affiliated. Subsections 77(5) and 77(6) treat some trademark-licence and food or drink ingredient agreements as affiliated, on the conditions set out there. The Competition Bureau’s Competitor Collaboration Guidelines say the Bureau will examine franchisor–franchisee agreements that give a franchisee an authorized sales territory under Part VIII of the Act, not the criminal conspiracy provision in section 45; agreements among franchisees to allocate markets are reviewed under subsection 45(1).

What to ask

• Does the franchise agreement confine sales to a territory, or penalize sales outside it?
• Do the conditions in subsection 77(5) or 77(6) fit this franchise system?
• How does the clause fit with franchise territory and encroachment?