Franchisor Can Raise Prices During Franchise Agreement Term

International Law Office:

A cornerstone of many franchise systems is that the franchisor supplies products to the franchisee, which in turn sells the products to its customers. The franchisor acts as a supplier and the franchisee acts as a wholesaler. Thus, court cases involving suppliers and wholesalers have a bearing on franchise systems and on the agreements governing such systems.

In 2011 the Svea Court of Appeal(1) decided a dispute between a supplier and a wholesaler that is of interest to franchisors which sell products to franchisees.

The issue was that the supplier had terminated, with immediate effect, the supplier agreement with one of its wholesalers, which had exclusive rights to sell the supplier’s products within a certain territory. The reason for this termination was that the wholesaler had refused to accept the supplier’s right to raise product prices during the term of the agreement. The wholesaler counter claimed that the supplier had breached the contract due to the supplier’s premature termination of the agreement.

The dispute focused on the following clause in the agreement:
“The product prices are presented in Appendix 1 hereto and can be adjusted by the supplier with 30 days notice in the event of higher costs for the supplier due to rise in prices by the manufacturer, higher freight costs or changing foreign exchange rates. Other price adjustment shall first be discussed with the wholesaler”.

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