Social media guidelines in franchise systems

I. Introduction

The use of social media by companies has become increasingly important in recent years. Also, the vast majority of franchise systems are represented on social media. Both franchisors and franchisees accounts can be found on various platforms (such as Facebook, Instagram, Twitter, LinkedIn and Xing). In practice, the franchisor regularly gives the franchisee binding instructions through so-called social media guidelines ("SMG") as to which platforms the franchisee may be active on and which content he may publish. This newsletter provides an overview of the legal issues involved.

II.Binding SMG

The franchisor may provide binding SMG, provided that the SMG are compatible with (i) antitrust law and (ii) the law governing general terms and conditions.

1. Compatibility with antitrust law

It is generally compatible with antitrust law for the franchisor to provide binding SMG to the franchisee, provided that the following principles are observed. The provisions of the SMG do not breach antitrust law if they

• ensure the standardised appearance and image of the franchise system; or
• are necessary to protect the franchisor’s know-how.

Under antitrust law, sales intermediary must in principle be allowed to set up a website and market its goods and services via the internet. This also includes the franchisee’s right to use social media. Social media guidelines that interfere with this freedom are in principle in breach of the ban on cartels (Article 101(1) TFEU). However, there is an exception to this if the interference in question is indispensable for the functioning of the franchise system concerned (so-called Pronuptia case law of the ECJ). This covers interferences which are necessary either (i) to protect a uniform appearance and image of the franchise system or (ii) to protect the franchisor’s know-how. The latter is to ensure that the support from the franchisor only benefits the franchisee – to preserve the identity and reputation of the “system” – but not the competition. The ECJ explicitly states: “Finally, since advertising helps to define the image of the network’s name or symbol in the eyes of the public, a provision requiring the franchisee to obtain the franchisor’s approval for all advertising is also essential for the maintenance of the network’s identity , so long as that provision concerns only the nature of the advertising.”

According to this ruling, it appears possible under antitrust law to establish binding quality criteria for the protection of a uniform marketing concept (which is to be enforced across platforms and media) and for the protection of the brand of the franchise system and to declare them binding.

2. Compatibility with the law on general terms and conditions

The binding provisions of SMG are also compatible with the law on general terms and conditions, insofar as the individual provisions of the SMG withstand a review of their content, i.e. they are compatible with the prohibition of discrimination and the requirement of transparency (section 307 (1) German Civil Code).

a) No violation of the prohibition of discrimination (Section 307 (1) sentence 1 German Civil Code)

A clause in general terms and conditions is invalid if it unreasonably disadvantages the contractual partner of the user contrary to the principles of good faith. For the examination of reasonableness, the interests of the respective contracting parties must be weighed, which in turn depends on the type and subject matter as well as purpose of the contract in question.

On the one hand, the following interests of the franchisor are exemplary:

• Uniformity of the franchise system: The franchisor regularly has an interest in his franchise system appearing uniformly on the market. In particular, there is an interest in a uniform advertising and marketing concept as well as a uniform brand presence in order to strengthen its market position. The binding nature of the SMG ensures that the various social media channels and accounts of the franchisees are uniformly designed and thus the franchise system is perceived uniformly by the public. At the same time, this protects the integrity of the brand from behaviour that damages its reputation and from dilution of the brand essence.
• Maximising the potential of social media: Furthermore, the franchisor regularly has an interest in maximising the potential of social media through SMG. Specific guidelines on social media presence and behaviour on social media can ensure an optimal presence of the franchise system and its franchisees on social media and increase the overall reach of the franchise system on social media.
• Further development of the franchise system: In addition, the franchisor has an interest in the continuous development and further optimisation of its franchise system. The SMG can ensure that the franchise system continues to develop and remain competitive in the digital market, especially on social media.

In contrast, the interests of the franchisee as an independent entrepreneur are exemplary:

• Preservation of entrepreneurial independence: The entrepreneur has a particular interest in ensuring that his or her entrepreneurial independence and freedom of economic activity are not excessively and thus unreasonably curtailed. This also includes the "whether" and "how" of promotional activities. In addition, the franchisee has a legal and practical interest in ensuring that the franchisor does not restrict the possibility of effective use of the internet - in particular social media - which is granted to him by antitrust law. The franchisee also has an interest in being able to present himself authentically and individually on the internet (especially on social media).
• No additional financial burden: It is also in the strong interest of the franchisee that the further development and change of the franchise system is not associated with additional major financial burdens which are not simultaneously compensated with improved earnings opportunities.
• Application of non-discriminatory criteria: The franchisee also always has an interest in not being treated less favourably than other franchisees in the franchise system. This requires the establishment and application of uniform, objective, objectively justified, transparent and non-discriminatory criteria regarding the use of social media.

The interests mentioned by way of example are to be weighed against each other within the framework of the balancing of interests. If the interests of the franchisee do not outweigh the interests of the franchisor, the SMG are appropriate. The following are examples of possible considerations:

• No inadmissible restriction of entrepreneurial freedom: An argument against an inadmissible restriction of entrepreneurial freedom by binding SMGs is that they are regularly limited to maintaining the corporate identity of a franchise system and thus a uniform appearance of the system. The necessary restrictions have to be accepted by the franchisee as a rule (e.g. specifications of the use of the trademark, avoidance of images damaging to the reputation and the like). As long as the SMG limit themselves to the necessary requirements, the franchisee still has sufficient entrepreneurial freedom to make decisions. For example, the franchisee can continue to freely design the content of his account and make individual posts within the permissible framework.
• No unreasonable financial burden on the franchisee: It should be noted that the implementation of the binding SMG does not contain an unreasonable financial burden on the franchisee. Clear guidelines on the use of social media will regularly increase the brand's reach on social media and thus achieve higher customer interest and sales volume.
• Non-discriminatory design of the social media guidelines: The (binding) SMG must not lead to unequal treatment among the franchisees. There must also be no indirect discrimination through supposedly neutral specifications that exclude certain franchisees or make their social media work excessively difficult.

b) No violation of the transparency requirement (Section 307 (1) sentence 2 German Civil Code)

Furthermore, the transparency requirement (Section 307 (1) sentence 2 German Civil Code) must be respected. The SMG can also unreasonably disadvantage the franchisee if they are not clear or not comprehensible (Section 307 (1) sentence 2 German Civil Code). It is necessary that a franchisee who is not familiar with the law is always able to recognise provisions that are disadvantageous to him without seeking legal advice. It follows from this that the SMG must in principle be concretised and defined as far as possible. At the same time, however, the requirements for transparency must not lead to an unreasonable disadvantage for the franchisor in the sense that general clauses, vague legal terms or paraphrases become generally inadmissible.

III. Individual cases

Ultimately, it depends on a case-by-case assessment of the SMG in question. By way of example, the following specifications seem permissible:

• Specifications on social media channels: The social media guidelines can, for example, specify on which social media channels the franchisee may be active and which social media channels are reserved exclusively for the franchisor. In principle, there are no objections to this binding specification under antitrust law, provided the prohibition on unreasonable disadvantage is respected. The exclusive reservation must apply to all franchisees. Exceptions for certain franchisees may only be made as long as there is an objective justification for this. The regulation also appears to be permissible under civil law, as the interests of the franchisor to operate certain accounts itself and to determine their contents in order to ensure a uniform appearance of the franchise system and a uniform corporate identity usually outweigh this.
• Specifications for account names: The franchisor also typically specifies in its social media guidelines how the franchisees’ accounts are to be named. The name of the franchise system is usually required as a prefix to the account name. Making such a requirement compulsory appears to be possible as well, as it is usually necessary to ensure the identity and integrity of the system and to avoid unreasonably disadvantaging a franchisee’s interests.
• Specifications for the visual design of the account: Examples include specifications on the use of the brand, the choice of colours, and the use of images, samples and templates provided by the franchisor. Such requirements are usually very likely be unobjectionable under antitrust law and the law on general terms and conditions. This is because the franchisor has a legitimate interest in ensuring that its franchise system presents itself uniformly on the market. This also includes a uniform social media presence.
• Specifications for the content of the social media presence: Examples of this are provisions on refraining from the depiction of alcohol or drug consumption, the depiction of minors without the consent of their legal guardians, the depiction of an exaggeratedly luxurious or extravagant lifestyle as well as the depiction of third parties, their intellectual property or comparable content without consent. Such content-related provisions - depending on the specific design - are often more problematic than purely visual provisions, since the franchisee following the image of the independent company is restricted in the content-related design of his posts and thus in the development of his own (company) personality. However, as a rule, it is likely to be permissible to provide content that is obviously damaging to the reputation and brand, since it must be kept away from the franchise system - for the protection of all parties involved.

IV. Conclusion

In the course of the change from the classic economy to the digital age, it is usually advisable to professionalise the grown structures of the franchise system through SMG in order to maximise the potential on the increasingly important social media channels. Just as in the analogue world, where advertising and the sales outlet are professionally uniformly designed, these standards are also to be applied to the digital shop window in social media. In principle, it is therefore possible under both antitrust law and the law on general terms and conditions for the franchisor to stipulate SMG as binding within its franchise system. In light of the variety of the specific design of the SMG, however, it must always be carefully examined whether the respective provision is appropriate.

This article has also been published in ILO Newsletter Publication in February 2023