31. Can a franchisor force a franchisee to purchase goods or services from a specific source?

Generally a franchisor cannot force a franchisee to acquire goods and services from a particular source.  A franchisor who tries to do this may be breaching the provisions of the Competition and Consumer Act that prohibit anti-competitive exclusive dealing.

Exclusive dealing involves one person trading with another and imposing restrictions on the other’s freedom to choose with whom, or in what, it deals. Third line forcing and full line forcing are two types of exclusive dealing.

Exclusive dealing arrangements may be protected from court action through the ACCC’s notification process where the conduct is in the public interest. In determining whether an exclusive dealing arrangement is in the public interest, the ACCC may, for example, take into account whether it promotes the consistency of the brand or results in lower costs. Further information about notifications, including how to access copies of notifications lodged with the ACCC, can be found at the ACCC's Authorisations and notifications webpage.

Third line forcing

Third line forcing involves the supply of goods or services on the condition that the purchaser acquires goods or services from a particular third party, or a refusal to supply because the purchaser will not agree to that condition. Third line forcing is prohibited regardless of its effect on competition.

If a franchisor requires a franchisee to buy stock from a third party, this may constitute third line forcing. Franchisors may impose quality standards upon franchisees, and can nominate suppliers who meet these standards. However, in most cases, franchisors cannot prevent a franchisee from acquiring goods or services from a supplier selected by the franchisee if that supplier meets the standards that the franchisor has set.

If a franchisor requires that specific equipment or software be used by a franchisee, this may also constitute third line forcing. If you believe this has happened, you can complain to the ACCC or seek legal advice.

Full line forcing

Full line forcing includes arrangements where a supplier restricts a buyers' ability to acquire goods or services from a competitor of the supplier. If a franchisor requires a franchisee to purchase stock only from the franchisor, it may be engaging in full line forcing.

Unlike third line forcing, full line forcing will only breach the Act if it substantially lessens competition.