Navigating the Third Line forcing Prohibition

Franchisors will be familiar with the prohibition on "third line forcing" contained in s47 of the Trade Practices Act 1974 (Cth) (TPA). Third line forcing, where in simplified terms A supplies goods or services to B on the condition that B acquires goods or services from C, is prohibited irrespective of its impact on competition.

In the franchising context, the franchise agreement would clearly be a contract for the supply of services from A to B. Supply of goods or services by A to B is permitted, even if the goods or services come to A from C, but a requirement for the franchisee B to acquire goods or services from third party supplier C (unless C is a related company of A) creates a problem. Typical situations where problems can arise include the supply of stock, and requirements in relation to point of sale technology and hardware, food/beverage service equipment and advertising/marketing services and material.