FRANCHISEE EXCLUSION FROM E-COMMERCE AND THE CASE FOR REFORMING THE EU BLOCK EXEMPTION REGULATION

ABSTRACT This article examines the growing exclusion of franchisees from e-commerce activities, which are typically managed centrally by franchisors. As a result, franchisees often lose motivation to invest and remain in the network, threatening the sustainability of the franchise model. The root cause lies in franchisors’ exploitation of a regulatory gap in the European Union’s Vertical Block Exemption Regulation (VBER). While the VBER provides a broad framework for franchise relationships, it does not adequately address territorial encroachment when franchisors sell directly to consumers online. This omission undermines franchisees’ exclusive territorial rights and weakens their business viability in the digital age. The article highlights the urgent need for clearer rules to protect franchisees from online encroachment, ensuring fairness and balance in franchising. Without such regulatory reform, franchise systems risk destabilization, with declining franchisee investment, a shift toward directly operated stores, increased agency costs, and the erosion of franchising as a driver of entrepreneurial development. Keywords: franchise system, digital marketing, EU Vertical Block Exemptions