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CAPÍTULO 1

Business Networks as a Legal Explanatory Framework¹

JUAN IGNACIO RUIZ PERIS

I. INTRODUCTION

Networks seem to be a natural element of organized trade.² Business networks as an economic and sociologic concept has been developed in last decades. The attention from the legal scholarship over this subject increased in the recent years in Europe.³ In fact recent works have tended to introduce that notion in the more recent pre-legislative works in European contracts Law⁴. The goal of this paper is to ask if Business networks are a different legal framework than contract and companies and if this legal framework is appropriate to solve problems that company law and contract law are unable to solve in an efficient way.

To do that I will proceed listing the main problems that may be explained and solved in a better way using the business network as a legal concept and in particular as a legal framework trying to propose some ways of solution following the network logic. I will discuss also some important concepts included in the business network legal problematic as interest or power relationship between members.

As a global study of the numerous relevant problems included in my delimitation would be impossible in these few pages I have selected some of them classifying them in conceptual problems as the role and meaning of interdependence, direction — members problems as ius variandi, horizontal members problems as encroachment, network — third problems as consumers actions against network, and network and public interest problems, as ancillary restraint doctrine.

II. CONCEPTUAL REGULATORY PROBLEMS

a. The need of a legal regulation of business networks as a tertium genus between contract and association.

As European and state members Law have not established a legal concept of business network the question of the delimitation of the object of our study remains in the constructive discussion of legal scholarship.

Business networks are organized from the legal perspective in a contractual or organizational form or in a mixed form. In all of them there is a direction — with own legal personality or not — but not a hierarchy and the relationships between members are not market relationships⁵. Contractual business networks are built over multilateral not associative contracts as the most part of strategic alliances or bilateral contracts as franchise⁶ or master franchise⁷, called in the most of the cases networks contracts. Only Italy among the European countries has introduced the concept of network contract in its law⁸ for contracts with the goal to increase the innovative capability and the competitiveness of the parties.

Networks can also be organized as an association or organization with or without own legal personality. In these cases joint ventures with corporate form, cooperatives and second degree cooperatives, groups of economic interest, consortiums, and horizontal groups are the more important cases.

Corporation is not a good framework for a network relationship. In the case of corporate joint ventures it certainly provides the parties with a veto right but the consequence is the increased risk of inoperability of the common business enterprise. The tendency of corporate joint ventures in face of internal difficulties is usually to be blocked and finally their dissolution. In consequence corporate joint ventures are not an efficient framework for the cooperation or the coordination of the parties’ entrepreneurial efforts.

Corporate model itself presents important difficulties to be a comfortable framework to improve the cooperation and solve easily some important problems of the business cooperation which are typical in network relationships.

Gains in business networks are determined ex post in response to the activity undertaken by its members but at corporate level a fixed allocation is predetermined in consideration of the owned share capital instead of the performance realized⁹.

The business decisions of network members — whose performance determines the network activity — are autonomous and may be coordinated but at corporate level decisions are take in collegial form by majority. Also in corporate joint ventures business decisions are taken by members in an autonomous form, the corporate board of directors being only a formal structure to execute the individual business decisions of the members or just a forum of discussion.

Company members do not have to operate a business and, if they do it, they do not need any connection between them. On the contrary the members of the network are all entrepreneurs and perform linked economic activities parallel or complementary.

The inadequacy of the corporate structure is yet more evident in the case of contractual networks — that shall not be conceived in our opinion as associations — and in particular in relationship with entry and exclusion of the networks members.

In the most of contractual networks as the distribution networks or in outsourcing networks, where the network has a direction personified in one of the members — for example a franchisor or the car company —, admission or exclusion of a network member depends, unlike what happens in the corporate field, only from the decision of the network’s head according to the principle of private autonomy typical of bilateral exchange agreements.

In fact, that principle allows the head of the network to accept or reject as a member of the network — with some limitations at the case of “open networks” as cooperatives or selective distribution systems — the other members or potential members.

At least the application of the company rules to business network involves the impossibility of giving adequate solutions to specific network problems.

Other organizational structures such as cooperatives, consortiums or EIG are more adequate. All of them are designed as coordination structures but they imply the existence of a common interest of the parties and, as discussed in the next section, in networks there is a dialectic relationship between a parallel interest of the parties and a divergent interest of them without a common interest.

b. The question of the network interest

The exchange bilateral contracts are characterized by the confrontation of the legitimate interests of the parties — not only in cases win/loss but also in cases win/win —. In these cases each party defends its own legitimate private interest and shall not pay attention to the other party interests —with some increasing exceptions in the case of long term, intuitu personae, trust or fiduciary contracts —. Only in the case of collaboration agreements — typical network contracts — we recognize the existence of a parallel interest shared by the parties and the existence of a shared interest with consequences both in the interpretation and integration of the contract and in the parties’ rights and duties. In the case of companies and associations there are always a common interest and private divergent interests of the members or stakeholders which are external, irrelevant in relation with the definition of common interest. In case of confrontation between common interest and shareholder divergent interest the board of directors of the company shall always follow the first.

In EIG, consortiums, and horizontal groups there are a crescent weakening of common interest and a progressive recognition of the legitimacy of parties’ private interest. In these cases the confrontation between the common interest and the members' divergent interest do not always imply that the second shall submit to the first.

Networks find themselves between contracts and companies — also when they are expressed in a contractual or organizational form — and we recognize in them the existence of a dialectical relationship between two types of interests held by their members. The interest to create value as shared interest is individual for each member or contractual party — each member or party has the same interest in parallel with the others — as individual is the divergent interest to the allocation or sharing of created value.

Both interests are expressed in the business activity of the organization and in the business activity of the members of the organization — network expressed in an organization — or in the business activity of contractual parties — contractual network— and both are legitimate in networks¹⁰. If it is easy to recognize the shared interest as a network interest we must also recognize that the divergent interest is also a network interest — just as our prior logic rejects the possibility of a particle being at the same time in two places following the quantum physics theory —.

As in networks the amount of value obtained for each member depends of the exercise of its own business activity — and is not fixed in relative terms as in companies — the marginal oscillation between the minimal and the maximum gain possible for each member is limited without the acquisition of new quotes of the market through the efficiency and competition or in the case through an arbitrary decision of network head.

That makes that nor company regulation nor exchange contracts regulation may be recognized as an adequate framework to deal with the relationship between the two kinds of network interest. In the case of company or organization regulation this is so because these regulations impose the prevalence of common interest in opposition to private divergent interest of parties. In the case of exchange contracts regulation because this imposes the prevalence of the parties' private interests.

The harmonization of interests is in consequence an important goal for a network regulation.

An efficient network regulation requires a legal framework that legitimizes both interests — the shared interest as well as the divergent — and shall explain with detail the parties’ or members’ relationships and the cases of prevalence of the first or the second interests when both are in conflict.

c. Hierarchy and market from the legal point of view

Only some words about this central question. Business networks imply cooperation, coordination and competition between members. There is no hierarchy but limited central direction — with different degrees of extension — and the position of the members in face of the direction may vary from the complete independent coordination to the dependence.

There is an inverse proportional relationship between market relationships between members or parties on the one hand, and the extension of central direction and the dependence of the members on the other hand.

A legal business network regulation must take account of this typical network miscegenation and of the dialectic relationship between dependence versus independence and coordination versus market.

d. Characteristics of business networks

Another key issue in the field of networks is the feature whose attendance allows us to recognize the existence of a business network.

Legal scholarship has identified the interdependence and stability — of the network, not the special relationship linking the members with her — as the characteristic of business networks. Complementary activities of the members or parties may be seen also as an essential element.

In the most of the cases these networks imply a division of the functions of production and distribution or others included in the value production chain such as research and development.

It is also characteristic that its members may sustain relations of cooperation and competition between them¹¹. This statement has important consequences in relation with regarding the question of networks and public interest and in particular in relation with competition issues.

Other relevant feature is the existence of a connection with the market shared by the members or parties — brand, technology, products —.

III. DIRECTION - MEMBERS' PROBLEMS AND HORIZONTAL MEMBERS PROBLEMS

In every network there is a direction centre — network directory — that may reside in the network’s head company, may be a manufacturer — outsourcing — or a provider of services — franchising or credit cards —.

The network’s direction also may reside in the entity that structure the network — Joint ventures, cooperatives, consortium or EIG —, or in a stable committee, personified or not, representative of all or some members of the network.

a. Direction power, control and authorisation

Network’s directory has the power to issue instructions and set the general framework for the development of the activity, to monitoring the implementation of these and in general the activity of the members and to allow the members' business decisions in the cases fixed by contract or by statute.

The foundation of directive power in contractual networks lies in bilateral contracts. These contracts generally parallel, adhesive and with a wide homogeneity, limit the commercial autonomy of the member.

On the one hand they involve the setting — usually via contractual appendices — of essential elements of the member company’s business policy such as the suppliers identity, composition and level of minimum stocks, methods of business organization, tradedress, distinctive signs that identify the products or services and even the store of the member — franchising —, marketing formulas and commercial know-how, among others.

In this way the freedom of network members is limited to the framework specified by the contract, and this transfers the decisions on such questions to the network head.

The contracts also provide supervisory powers, to define a greater or lesser degree the organization of the company’s network member, to allow the head to exercise the of ius variandi — to which we will refer in the over next section —, to instruct network members and to found the network head’s power of moderation among networks members by reference to internal organizational documents of the network.

In the case of organizational or associative networks the power of direction founds in company regulations — cooperatives — or results from consensus — second-degree cooperatives, horizontal groups, consortiums, or EIG, even when statutes establish majority decision, since the members possess extremely easy ways to exercise the right of separation.

The network directory provides the network’s business strategy and controls the performance of its members based on the power under contracts or statutes that govern the relationship that links each one with the others or with the head of network.

It also coordinates the activities of its members on achieving the targets — expression of shared interest — and mediates or arbitrates competitive struggles among its members — expression of divergent interest —.

In any case, the preservation of effective competition in the market stands as a limit to power steering, as we will discuss in the last section of this paper.

b. Network’s governance

The exercise of the directive power in networks requires that is shall be done for the benefit of the network, as in the case of corporations and corporate groups, in which it should be exercised for the benefit of society or group.

Unlike the case of corporate common interest, the interest of the network includes not only the parallel interest shared by its members but also their divergent interests. The attainment of the shared interest must respect their contradictory divergent interests.

In this sense the network resembles democratic states which are characterized not only by taking majority decisions but by respecting minorities taking into account their interests.

In this sense the exercise of network directive power by the directory shall take into account of the divergent interest of the members and shall not hurt them if there is not need. Just as in antitrust logic we postulate that a directive action that hurts the divergent interest of a member shall be covered by the shared interest and justified as inevitable to obtain a network goal. This implies that it must be clear that no other less harmful alternative for the member may be found.

An efficient exercise of directive power requires appropriate network governance.

This involves the recognition of the existence of special duties of care and loyalty that affect the network directory in the exercise of directive power and the establishment of a framework for dialogue within the network, enabling efficient pursuit and not conflictual power steering.

Appropriate definition of network governance requires the identification of the duties of network head, the definition of the framework for dialogue in the network and the establishment of an internal frame of moderation and internal resolution of disputes through mediation and arbitration.

The duties of head of network includes a special duty to act in good faith that is based on the stability and duration — real or potential-of the network connection and on the intuitus personae character of network contracts — intuitus personae that includes the intuitus instrumenti that is not an opposed alternative to the former, as it is generally accepted by the legal scholarship, but an evolution of it —.

The duty of good faith may involve a special set of duties: the duties of information, the duty of confidentiality, duties of care, duty of deliberation of important decisions for the network or a duty to give a preferential option to the network members.

The duties of loyalty that affect the network head — that is to act in accordance with the interests of the network to create value and no unnecessary damage to the divergent interests of its members — are based on the collaborative nature of contractual agreements or the associative relationship in the case of networks of this nature and in any case in the existing cooperation between the parties or members of the network.

The duty of loyalty means acting in the best interests shared by network members without unduly hurting the divergent interests of its members. The act that fulfils these conditions is often described as an act in “network interest”.

Some duties are deduced from this, such as the duty of transparency regarding the interests of the network head in the enterprises providing goods or services to the network, the duty to refrain from using the network resources for business purposes, not shared with the members of the network, the prohibition to replace an efficient network member in order to appropriate their business, or the prohibition of the encroachment and tortious interference which in some legal systems as the Spanish one may be also grounded in the duty to act in good faith and fairly.

A network regulation or auto-regulation shall provide rules that ensure the respect of these duties.

A network legal framework may rule in a more detailed way — as it is done in internal documents of some networks — the limits of the ius variandi and when the opinion of either the head of network or the member shall prevail.

An internal framework of the network for a non-confrontational and efficient exercise of directive power steering also requires the dialogue with associations of members, the creation of advisory or co-makers councils and the co-development of the internal network rules of operation.

Network governance also implies the organization of an internal dispute resolution system through mediation and arbitration. These mediators or arbitrators shall help to find solutions or give solutions to the problems between the members but also between the direction or network head and the members. In order to be efficient and in accordance with the good faith principle, a truly independence of internal mediators or arbitrators from the network direction is need. This independence may be obtained by creating a wide list of eligible mediators or arbitrators and by limiting the number of interventions of each one of them. If arbitrators or mediators are always the same and are paid by the head of network it is difficult to believe that they will act independently.

c. Ius variandi

The change of the activity conditions implies in general the conformity of all the members in organizational networks, with the exception of cooperatives and second degree cooperatives, companies, and consortiums or EIG’s where the statutes introduce the majority principle.

The decision to submit some or all decisions about the change of conditions to the majority — in company directory or assembly — concerns all members.

In the case of contractual networks the change of conditions may be attributed by contract to one of the parties — the network head for example in parallel contracts' networks as franchise —. In these cases the ius variandi concerns only one of the network members, limited by abuse of right doctrine — not global accepted — an objective novatio doctrine.

All these systems of control — consensus or majority, and unilateral attribution of the ius variandi with the limits of abuse of right or objective novatio doctrine are inadequate to regulate this question in networks, as the experience teach us.

d. Encroachment, virtual encroachment and tortius interference

The relationship of network members with customers is a typical source of tensions between them and, in some cases, with the network head. Network direction shall coordinate its members without infringing competition rules¹². Encroachment and tortius interference are sometimes used by the network head to convert shared customers in own exclusive ones. In the last years internet development has also created problems in networks regarding the internal relationships between members and between members and network head, if any, in relation with customers — virtual encroachment —.

In all these cases we find conducts which are far from competition by efficiency. The network head, either alone or in connexion with other network members, undertakes interference, obstruction or predatory practices affecting other members. These conducts infringe good faith and fair dealing — contractual and market ones — as well as loyalty principles.

Interference with contractual relations, with reasonable expectations or business relations, with prospective economic advantages, and the induction refusal to deal are some groups of these kind of typical network bad practices.

Such practices deprive network members of the possibility to obtain the benefits they can reasonably expect from their investments and limit their expectations in the market.

The prohibition of encroachment may be grounded in the principles of loyalty, fair trade or good faith, depending on the different legal systems. Its acceptance varies from the British quasi negation to the German or Nordic firm defence.

A legal framework for networks must deal with these three questions: the protection of investments and reasonable expectations of network members, the recognition of directory’s coordination power, and the limits between legitimate competition and illegitimate interference.

The limits on the exercise of coordination by the network directory due to antitrust rules are, however, less relevant than it seems at first sight.

In cases involving the network head — acting in its own benefit or giving advantage to another member of the network — customer network reallocation comes from a discretionary decision of the network head and not from competition by efficiency.

Interference or encroachment are usually directed against highly efficient distributors for reasons clearly unrelated to competition policy such as preventing that a given member of the network gains too much internal weight or preventing the creation of autonomous power centres within the network that concede a greater bargaining power to its members.

A hypothetical intra-brand increased competition after the encroachment or interference does not justify the potential harm to the interests of one network member not covered by the prosecution of the shared interest when the conduct does not increase the inter-brand competition.

The exercise of coordination power to prevent encroachment or tortious interference shall not affect in any way inter-brand competition, since in these cases there is a cannibalization of customers belonging to the network and not an injection of new customers for the network.

The exercise of coordination power by network directory in cases of internal predatory practices between members also avoids the removal of members of the network and therefore the reduction of the number of competitors in the market keeping the competitive strength of the network. It has therefore a pro-competitive nature.

IV. NETWORK - THIRD PROBLEMS

Network members have business relationships with other businessmen and costumers — consumers or not —. A network may also be integrated in another — for example a credit cooperative member of a second degree cooperative integrated in a horizontal group part of a strategic alliance to have access to South American markets —.

Network members have individual relationships but these affect in many cases all network members or some of them —in the case the network head —.

Contractual and organizational regulations give not a satisfactory answer to questions like when the network relationship shall be recognized in business member/third relations, and to what extension.

This paper deals with two of these important problems: direct action and bankruptcy.

a. Direct action

One of the main problems to solve in network-thirds relationships is the possibility to act against a network member for the acts or omissions of another. In both organizational and contractual networks, separate legal personality of the consortium, horizontal group, EIG or cooperative or contractual parties and privy doctrine ensure the general refusal to this possibility. The described result can be obtained as a general remedy in some branches of Law only, such as antitrust law, in which the economic reality prevails over legal formality as a characteristic element, or by using some exceptional remedies such as the piercing the veil doctrine. The induction to law or contract infringement as an unfair competition act may also be used to reach this goal and the consumer protection rules as liability for defective products may also help.

This group of rules and court doctrines — with variable relevance in the Law of the EU member states, because they are outside of the harmonized area — are not enough to rule in an efficient form the relationships between third and network.

The doctrine of contracts connexion¹³ and the revision of privy doctrine try to solve these problems but there is no general acceptation of their conclusions.

A network legal framework explains more accurately the cases in which a direct action shall be accepted, generally against the network head but also against another network member. Discussion over liability in groups of companies may help us to understand these problems and to find solutions. Execution of network head’s instructions or diligent application of its directives shall be enough justification to admit the direct liability of the network head when the conduct of the member causes damage.

b. Bankruptcy in networks

The network members or the network head may be declared in bankruptcy. The more important effects on the network are produced in the second case. The two main questions in this field are the effects of bankruptcy without liquidation and with continuity of the activity in network contracts, being these long term contracts with successive execution needed to maintain the bankrupted company activity, and the network members possibility to finance, take participation or purchase the network head before or during the bankruptcy procedure¹⁴.

The bankruptcy of the network head produces severe consequences on the members in terms of goodwill, continuity of its own business, and leadership of the network, but these damages are not illicit and in general the members are not or very limited creditors of the network head. The bankruptcy procedure focusing on creditors tuition ignores the network members problematic and does not provide for them any special remedy or particular position in the bankruptcy procedure.

These are cases where the insolvent debtor’s business is susceptible to be restructured, in which economically linked firms are competitive in the market and the losses are caused by reasons not affecting the network members such as a corporate cost structure that does not reflect income from the typical activity, by an excessive reliance on external financing, by speculative investments, by the implementation of new production or research lines or foreign development activity undertaken by the insolvent debtor, by inadequate risk management, by internal business of the debtor bankrupt, or simply by extraordinary and extravagant personal expenses incurred by the debtor bankrupt.

As Bankruptcy Law is not a harmonized field in Europe, national legal systems present important differences. Talking from the Spanish experience it will be necessary that the bankruptcy administration and the Judge may identify in a simple and clear way which are the network companies. In some cases, such as franchising this may be relative easy but in other ones like outsourcing it may be more difficult.

Related companies present in procedure shall also be heard by the judge before he or she decides about the total or partial termination or suspension of business or about the closure of offices, facilities or production units if they are essential for the development of the economic activity on which the network depends like, for example, the research and development department in the case of networks based on software licenses or contracts for technology transfer.

Possible improvements of the settlement deal with two issues: the proposition of a convention and the order of deliberation of a proposed convention in the Assembly of creditors, if there is a plurality of proposals.

It seems appropriate to give preference in the discussion to the proposals of network members, at least when they are supported by a significant percentage of creditors, giving them the possibility to be discussed immediately after the rejection of the proposal by the debtor bankrupt.

Regarding the liquidation, it seems appropriate to recognize an independent right to network members to make comments or propose modifications to the settlement plan presented by the bankruptcy administration to the court, similar to the one held by workers.

The network members should be heard by the judge, just like workers of the bankrupt debtor’s business are, in the case of the joint sale of the company or the production units whose activities have a direct connection with the network activity.

In case of a separate auction for the rights and assets belonging to the active mass there could be a right of first refusal with respect to the bankrupt debtor’s assets which are essentials to the efficient pursuit of the activity or to maintain the competitiveness of the network.

The special interdependence of networks members justifies in these cases a priority right to take the control of the other member specially if it is the network head, before or during the procedure. For creditors this has the advantage of increasing the bankrupt solvability, and it ensures the continuity of the network activity — which in many cases it is the best way to be paid —. For the members this also implies the continuity of their own business and, if it is the case, the continuity of network leadership, in this case collective.

An efficient legal network framework should deal with these questions and include the same or similar solutions.

V. NETWORK AND PUBLIC INTEREST PROBLEMS

Networks are also relevant from the point of view of public interest. Networks often produce external benefits, from cultural to ecological, as a consequence of its interdependent activity. But we will now focus only on the interest in maintaining a workable competition for the benefit of the market and all its participants, mainly the consumers.

On this field there are many network issues in relation with networks mergers¹⁵, networks presence in the market in comparison to independent sellers or buyers, abusive practices in networks with impact on the market, and grounds of exemption (Block exemptions and ancillary restraints doctrine¹⁶).

We will discuss two of these questions, namely the abuse of dependence and the possibility to extend the application of ancillary restraints doctrine in the field of networks.

a. Abuse of dependence in networks

Business relationships in networks are different than hierarchy or market relations as a consequence of the interdependence of its members. This interdependence can be transformed in some cases in dependence understood as the absence of an equivalent alternative for one of the parties. This includes the absolute absence or the existence of a not reasonable alternative in economic terms, — for example, a producer who sells 100% of its production to a big surface and has done specific investments which cannot be amortized and who cannot place its production in the market —, or a member of a wine second degree cooperative who produces bottled wine when as a consequence of strategic alliances (network/network connexion) with a foreign importer the ownership of the successful trademarks belongs to the second degree cooperative. In these cases the cost to leave the second degree cooperative is not reasonable in economic terms.

The abuse of dependence is not ruled in a uniform way neither in European Law nor in the different laws of the member states. European Courts created the doctrine of relative abuse to deal with cases in which the abuse implies a negative effect over the competition in the market following the German and French legal conceptions. In Spain the abuse of dependence is an unfair competition conduct — art. 16.2 LCD¹⁷ — that may have antitrust relevance through article 3 LDC¹⁸ if it affects the public interest to maintain a workable competition in the market. Opposite to this line of regulation, Italy regulates the abuse of dependence in civil law as a private matter.

The abuse of dependence has an impact in the formation of the contractual agreement, as an unfair competition conduct, and it may lead to a risk for the workable competition in the market in some cases¹⁹. A legal network framework shall deal with all these three aspects and not consider them as alternatives. It shall regulate all of them knowing that the relevant level of dependence in each case may not be the same.

b. Ancillary Restraints doctrine and networks

Exemptions to the application of the prohibition of agreements and practices restrictive of competition in European Law are organized in four different ways. Ancillary restraints doctrine, block exemptions, 101.3 Treaty criteria and de minimis rule. This last one is grounded in the opportunity principle that rules the action of the administration but in fact it has an influence on the private application of competition law that is not clearly justified.

The criteria of 101.3 are grounded in an efficient competition balance recognizing competition as a means to obtain more, better and cheaper goods or services for more customers — quantitatively and geographically extended — and not as a goal in itself and its application produces the compensation of restriction of competition with these goals that are obtained through anticompetitive behaviour with the three limits it establishes. These rules are able to be applied in all kind of cases but if we observe the block exemption regulations we may conclude that in most cases they exempt, in both vertical and horizontal cases, stable business cooperation relationships that can be identified as cases of business networks.

Accessory restraints doctrine, grounded in the idea that a necessary little evil shall not deprive us of a good, has also been applied until now only to a case — distribution and services franchising — that may be described as a vertical business network.

It is quite difficult to modify a block exemption, as shows the actual negotiation about the substitution of the vertical restrictions block exemption. On the contrary, the evolution of a judicial doctrine may be easier to obtain since it suffices to convince a small group of persons among the best jurists in Europe, who act according to technical and justice considerations instead of political ones.

In the case of vertical restraints, the risk for competition is generally low, with the exception of exclusionary effects or market sharing.

We shall keep in mind that business networks — vertical and horizontal — are considered, both in national and community systems, as highly beneficial to the economy in general — efficiencies’ exponential growth — and to the modernization — today just the survival — of SMEs, which allow a reasonable benefits allocation among its members and consumers.

Distribution networks in particular have been seen as positive in general terms on both sides of the Atlantic although the European Court of Justice denies the application of the rule of reason.

The application of the ancillary restraints doctrine to horizontal business networks would be more problematic but the ground of the doctrine is general and it would be applicable also to these cases.

In order to explore this possibility, we shall determine whether the intra-brand restrictions derived from the exercise of directive power and control which are inherent in networks’ governance are justified from the perspective of their incidental nature regarding a legitimate and desirable result as the existence of enterprise networks.

In European Competition Law the concept of ancillary restraints covers any alleged restriction of competition which is directly related to conducting a major not restrictive operation, in our case the creation of a network contract, and which is objectively necessary and proportionate.

In the case of distribution networks efficient territorial organization of the network members, for example, is directly related to network efficiency and indissolubly linked to it²⁰.

Following with the example, an objective and abstract analysis of the need for the territorial organization — not necessary exclusivity — of the network suggest us its necessary character as the lack of organization determines that the operation could be performed only under more uncertain conditions.

On the requirement of proportionality, we must check whether the restriction’s material and geographical extension and duration do not exceed what is necessary to perform the operation.

Since in our case the restrictions linked to the efficient organization of the network are, in general, necessary throughout the life of the contract and sometimes after its extinction, such restrictions must be considered proportionate for the duration of the contractual relationship, without prejudice to the possibility of proving its lack of proportionality by the party alleging the infringement.

It seems that we may assume that if the exercise of directive power within the network — contractual or organizational — has not important effects on inter-brand competition, such as exclusionary effects or severe market sharing, and that the application of the doctrine of ancillary restraints to the networks would allow the efficient organization of the network.

VI. SOME FINAL WORDS

Business networks legal research seems to be one of the more challenging matters for Contractual Law in the next years. We hope that the group of researcher interested will increase and governments follow them for a more efficient regulation of business cooperation.