Instructions:

1. Mention the parties involved in the case, duly identified as plaintiffs or defendants, etc.

2. What is the main controversy that arises in the case. (The controversy It is always that question that the court asks itself to which it must respond to solve the problem at hand).

3. It needs a summary of the facts that led to the case reaching court. (Those particularities that gave rise to the conflict between the parties).

4. A summary of the legal reasoning that the court used to resolve the controversy.

5. Indicate what the verdict was, that is, what was the final disposition made by the court supreme on the case.

6. What effect does that verdict or sentence have? The summary should be short, no more than three pages. It is essential that the numerical order is observed in the summary and that it is done in separately. A paragraph or paragraphs that encompass all the points will not be allowed. previously listed. These assignments must be submitted in accordance with the Unit being studied and through Blackboard within the indicated time. Remember that these assignments will be graded and the sum total of all cases They carry a final grade that will be added to your final grade for the course.

1. MONOPOLIESVALIDITY AND EFFECT OF CONCESSIONSFRANCHISES

EXCLUSIVE.

Commercial franchising is a system for expanding a business whose contracts are characterized by granting independent entrepreneurs the privilege of distributing products of certain brands or providing services under certain names. Such privilege is exploited by the franchisee, usually in a specific and exclusive geographical area, through financial compensation provided by the franchisee and according to the method or system prescribed by the franchisor. On the other hand, the franchisor undertakes in many cases to provide certain knowledge and business strategies, assistance, supervision, regarding uniformity between the system's businesses and other services to the franchisee.

2. CONTRACTSIN GENERALINTERPRETATIONOBJECTCONTRACTS OF

FRANCHISE.

In Puerto Rico, Franchise Contracts are devoid of regulations and this system of doing business has not been studied; It is, therefore, an atypical contract, although socially typical. However, in accordance with the principle of contractual freedom established in Art. 1207 of the Civil Code, 31 L.P.R.A. 3372, the existence of this type of contract has been recognized and it has been stated that there is nothing in our laws that prohibits this type of contract.

3. ID.ID.ID.ID.ID.

Franchise contracts are accepted in our legal system and are governed by our contractual law. In conjunction with the prevailing doctrine, federal law, commercial law, as well as the jurisprudence of the Supreme Court, it is highlighted that the relationship between franchisor and franchisee is that of independent businessmen.

4. ID.ID.ID.GENERAL RULES OF INTERPRETATIONTERMS OF THE

CONTRACTS AND STIPULATIONS THEREINCLAUSES OF THE CONTRACT.

Non-Competition Clauses, those incorporated into a contract with the purpose of restricting one of the parties from engaging in a business or activity through which it can compete with the other, are found particularly in three types of contracts: employment, sale of businesses and franchises.

5. ID.ID.ID.ID.ID.ID.

In Puerto Rico, as a general rule, non-compete agreements are valid based on the principle of freedom of contract. The rule of reasonableness has been applied to Non-Competition Clauses in the labor field. The legality of this type of clause was accepted as long as it was reasonable in light of the criteria discussed in the opinion.

6. MONOPOLIESMONOPOLIES AND OTHER COMBINATIONS IN RESTRICTION OF THE

TRADESTATUTORY PRECEPTS.

Art. 2 of the Law on Monopolies and Restraint of Trade, 10 L.P.R.A. sec. 258, indicates that any contract, combination in the form of a trust or in any other form, or conspiracy to unreasonably restrict business or commerce in the Commonwealth of Puerto Rico or in any sector thereof, are declared illegal and any person who does such contracts or engages in such combinations will incur a misdemeanor.

7. ID.ID.PROHIBITED COMBINATIONSIN GENERAL.

Not every non-compete agreement that complements a business or an agreement between potential competitors is, in and of itself, illegal and detrimental to competition. To evaluate this type of agreement, the Supreme Court adopts the per se rule and the reasonableness rule as methods of analysis.

8. CONTRACTSIN GENERALINTERPRETATIONOBJECTCONTRACTS OF

FRANCHISE.

Franchise Contracts frequently include Non-Competition Clauses to limit or prohibit competition, both during the term of the contract and after it. This is because it has been considered a protection mechanism for the franchise system with the objective of preventing those who were franchisees from developing similar businesses in the same geographical area and using the same skills, confidential information and contacts that they acquired through the franchisor. , subsequently becoming the system's competition. However, its analysis by legislatures and courts has been limited.

9. ID.ID.ID.ID.ID.

The relationship existing in a Franchise Agreement between the franchisor and franchisee is not that of employer-employee, but rather between businessmen, so the interests that affect the

reasonableness of this type of restriction are different.

10. ID.ID.ID.ID.ID.

In a franchise agreement, restrictions on time, geographic area and activities must be reasonable as necessary to protect the legitimate interests of the franchisor. Likewise, they must not cause unreasonable difficulties to the franchisee, nor may they violate the public interest. Otherwise, these will be considered contrary to contractual good faith and public order.

11. ID.ID.ID.ID.ID.

In a franchise agreement, the Non-Competition Clause must be reasonable in terms of temporal, territorial and material restrictions. Except in those cases in which the franchisor can demonstrate an interest that requires greater territorial protection - assessing as a whole the reasonableness of the temporal, spatial and material restrictions - or in those cases in which an exclusive area for the franchise is not specified. During the term of the contract, the territorial scope of the clause must be limited to the operating space of the franchise in controversy. Regarding the matter, the restricted activities must be limited to those that put the franchisor at a competitive disadvantage, the franchisee continuing to use the franchisor's own method or information, among other aspects, thus harming the latter's legitimate interests.

12. ID.ID.ID.ID.ID.

The franchise contract is an atypical contract that is governed by the will of the contracting parties, as long as this is not contrary to the laws, morality or public order, and which rests on the good faith relationships of both. Likewise, Non-Competition Clauses, in this case in a franchise contract, are permitted and valid as long as they are reasonable when assessing the temporal, spatial and material restrictions with the particularities of the business, the interests of both parties and the public interest. .

Petition for Certiorari to request the revocation of a Judgment of Guillermo Arbona Lago, Andrs E. Salas Soler and Nydia M. Cotto Vives, Js. of the Court of Appeals, which revoked the interdict issued by the Court of First Instance by determining that it restricted the right to work of the respondent, as well as that the two-year period in the Non-Competence Clause, and without any compensation, was in contravention of the jurisprudential standard established by the Supreme Court in Arthur Young & Co. v. Vega III, 136:157 (1994). The requested order is issued and, for different reasons, the appealed sentence is confirmed. However, it is pointed out that the ruling is limited to the validity of the Non-Competition Clause and does not modify the transactional agreement, through which the respondent agreed to eliminate the colors that identify with Martn's BBQ, cover the upper part of the business sign and return the "menu board" belonging to the petitioning company.

Hugo Rodrguez Daz, of the Rodrguez & Rodrguez Law Firm, Arnaldo I. Fernandini Snchez and Yalees Llavona Delgado, of Rivera-Aspinall, Garriga & Fernandini, P.S.C., lawyers for the petitioning party; Csar H. Soto Cintrn, attorney for the respondent.

ASSOCIATE JUDGE MRS. PABN CHARNECO ISSUED THE OPINION OF THE COURT

Today we examine a novel controversy in our legal system, the validity of a Non-Competition Clause in a Franchise Agreement. We resolve that non-competition agreements in a Franchise Agreement are valid, as long as the temporal, spatial and material restrictions are reasonable to protect the legitimate interests of the franchisor and they do not cause unreasonable difficulties to the franchisee, nor do they violate the public interest. .

I

Franquicias Martn's BBQ, Inc., hereinafter, the petitioner or franchising company, was established by a group of family members in 1997 under the name of "Franquicias BBQ Inc."1 (1) This franchise had its origin in the restaurant founded by Mr. Martin. Rosado in the Municipality of Bayamn in 1962 and was modeled by his children by opening several restaurants with the same name: Martn's BBQ. All franchise restaurants offer consumers rotisserie-style roasted chicken prepared according to the recipe and methods established by the franchise, as well as various add-ons. Mr. Luis Garca de Gracia, hereinafter the defendant or franchisee, worked as Manager in one of the franchised restaurants located in the Municipality of Naranjito. Thus, on January 21, 2003, Martn's BBQ Franchise. Inc. and the defendant signed a Franchise Purchase and Sale Agreement, hereinafter Franchise Agreement, to operate a restaurant on Highway No. 152 of the Municipality of Naranjito for a period of five (5) years. In summary, the Franchise Agreement granted the defendant the power to operate the aforementioned restaurant for a period of five (5) years, renewable for three (3) additional terms of five (5) years, as long as the franchisee complied with all agreed conditions.

On the one hand, the franchisor granted the franchisee permission to use the "Martn's BBQ" brand; He was obliged to provide the franchisee with the Operations Manual, the Recipe Manual and the required training. Likewise, it was obligated not to operate or grant the right to operate another franchised restaurant within the area designated in the Franchise Agreement: two (2) linear miles. On the other hand, the franchisee agreed to pay an entrance fee, as well as a weekly royalty equivalent to five percent (5%) of the restaurant's sales; use the franchise brand in an authorized manner; not disclose and protect the information obtained; contribute to the Advertising Fund of the applicant company through an advertising fee, as well as invest in local advertising, and not compete with the restaurants in the system. Regarding this last point, the Franchise Agreement contains a Non-Competition Clause (Clause No. XVI) that provides2:(2)

NON-COMPETITION CLAUSE

A. The Franchisor provides the Franchisee with confidential information and training developed for the exclusive use of the system's restaurants, therefore, the franchisee may not engage, either directly or indirectly, by itself or through other persons, companies, corporations or entities, own, maintain, advise, participate in, or have any interest in businesses or restaurants dedicated to promoting or selling prepared food products equal or similar to those of the System.

B. This non-compete clause will be valid for two (2) years, from the moment this contract is terminated or expires for any reason.

C. This non-compete clause will apply to a 10 mile radius of any franchise restaurant.

D. The Franchisor may require officers, directors, shareholders, members, partners and managers with access to confidential information and training to sign an agreement similar to the one contained in this non-compete clause.

At the end of 2007, the respondent informed the petitioner company that it would not renew the Franchise Agreement. However, upon ending the contractual relationship, the respondent continued to operate a restaurant in the same location and, as alleged by the petitioning company:

...with the decoration, colors and distinctive 'menu board' of Martn's BBQ. The receipts in his cash register still said 'Martn's BBQ', and as for the outside sign, the defendant changed the name to 'Wachi's BBQ', but the logo was almost identical to that of Martn's BBQ.3 ( 3)

Given the above, on April 2, 2008, the petitioner company filed a Demand for preliminary and permanent injunction requesting, inter alia, compliance with the Non-Competition Clause. He indicated before the Court of First Instance that he was not requesting the closure of the respondent's restaurant, nor that he discontinue the sale of rice, all types of meat and other products, but rather that the sale of the four (4) characteristic products of the franchise, namely roast chicken, cassava, yellows and sweet potatoes.

By Resolution of June 30, 2008, the Court of First Instance reasoned that although the Franchise Agreement was broad and prohibited the sale of similar products, it could not prevent the sale of products beyond those that characterized the franchise. Thus, it granted a precautionary measure restricting the sale of the four (4) products in the restaurant and endorsed the parties' agreement for the defendant to eliminate the distinctive colors and designs of Martn's BBQ.4 (4)

After being denied a Reconsideration filed by the defendant before the trial court, on November 20, 2008 he went before the Court of Appeals alleging that the Incompetence Clause was unreasonable and excessive. On March 18, 2009, the Court of Appeals issued a ruling revoking the interdict issued by the Court of First Instance by determining that it restricted the defendant's right to work, as well as that the two (2) year period in which Incompetence Clause and without any consideration contravened the jurisprudential norm established by this Court in Arthur Young & Co. v. Vega III, 136 D.P.R. 157 (1994). Timely, the petitioner company filed a Request for Reconsideration which was denied by the appeals court.

Dissatisfied, the petitioning company comes before us through a writ of certiorari pointing out the following errors:

Does signing a franchise agreement create an employer-employee or independent contractor relationship?

The AT was wrong to apply the criteria of an employer-employee contract to a non-compete clause in a franchise contract.

The AT committed an error by issuing a statement that is not based on the determinations of facts made by the CFI, replacing them with conclusions incompatible with said determinations of facts.

After reviewing the appeal, we gave the defendant time to show why we should not issue the appeal. With the benefit of the defendant's appearance, we proceed to resolve.

II

A. Franchise Agreements

[1] Businesses under a franchise system originated in the United States and represent a significant component of the American economy - and the global economy - since this method of doing business is adaptable to a wide variety of products and services. As a basic notion of the concept, the commercial franchise constitutes a system to expand a business whose contracts, as we have pointed out, "are characterized by the granting to independent entrepreneurs of the privilege of distributing products of certain brands or of providing services under certain names."5 (5) Tastee Freez v. Negdo. Employment Security, 108 D.P.R. 495, 501 (1979). Such privilege is exploited by the franchisee, usually within a specific and exclusive geographical area, by virtue of financial compensation provided by the franchisee and according to the method or system prescribed by the franchisor. On the other hand, the franchisor undertakes in many cases to provide certain knowledge and business strategies, assistance, supervision regarding uniformity between the system's businesses and other services to the franchisee. G. Glickman, Franchising, New York, Ed. M. Bender, 2006, Vol. 2-2, 2-7.

Prior to World War II, this business system was already widely known, particularly in the distribution sector of products such as automobiles, petroleum products and soft drinks. Subsequently, the exploitation of commercial and service franchises began - with chains of ice cream parlors and fast food restaurants - whose development intensified between the decades of 1950 and 1970. D. Gurnik and S. View, Case History of American Business Franchising, 24 Okla. City U.L. Rev. 37(1999).

Part of the great acceptance that the franchise system has had is due to the fact that it is, in principle, beneficial for both contracting parties, as well as for consumers, among others.6 (6) M.A. Domnguez Garca, The Franchise Contract, in A.B. Berkovitz Rodrguez-Cano, Commercial Contracts, Navarra, Ed. Aranzadi, 2001, pp. 296-97. On the one hand, the franchisor increases its capital through the fees and payments made by the franchisee, also counting on the latter's impetus. On the other hand, the franchisee benefits, inter alia, by being able to operate a business with some independence under a recognized name or brand and with the assistance and training of the franchisor; allowing small merchants the opportunity to have their own business. Likewise, it has been understood that it is advantageous for the buyer since it encourages the creation of brands that they guarantee the quality and uniformity of the products sold or services provided in conjunction with said brand. In addition, it helps reduce the consumer's search cost. Thus, "[t]he purpose of the contract is, in part, to maintain uniform standards in the operation of establishments that bear a common name to ensure that the public obtains the same quality of products and services in all establishments of said firm. " J.A. Cuevas Segarra and A. Romn Garca, Los Contratos Especiales, Publicaciones J.T.S., 1998, p. 89.

However, its rapid development, in response to the enactment of antitrust laws and its potential abusive use, led different states in the United States to regulate franchising in the early 1970s, particularly with respect to the disclosure of information, registration , as well as the relationship between the franchisor and the franchisee.

Thus, in 1978 the Federal Trade Commission (FTC) promulgated the Disclosure Requirements and Prohibitions Relating to Franchises and Business Opportunities, 16 CFR secs. 436 et seq., as amended, also known as "F.T.C. Rule", which requires the franchisor to disclose certain information before the sale of a franchise.7 (7)

From the legislative analysis we can deduce that it has been considered that a convenient way to protect the franchisee from the abuses experienced in the past - against uninformed franchisees and without experience in the business - is through the transmission of the necessary information to the franchisee to analyze the business before to commit.8 (8) Therefore, there are authors who consider that such demands have promoted the development of educated and less vulnerable franchisees compared to the franchisees of the 1970s. W.L. Killion, The Modern Myth of the Vulnerable Franchisee, 28 (No. 1) Franchise L. J. 23, 29 (Summer 2008); E.A. Braun, Franchise Policy Issues, 14 Sw.U.L. Rev. 155, 224-25 (1984); D.P. Horwitz and W.M. Volpi, Regulation of the Franchise Relationship, 54 St. John's L. Rev. 217, 245-49 (1980). Contra, P.I. Blumberg and K.A. Strasser, The Law of Corporate Groups, New York, Ed. Aspen, 1998, p. 54.

The federal regulations described above do not occupy the field and do not include any requirements regarding the termination or renewal of this type of contract outside of the petroleum and automotive industries.9 (9) T.M. Pitegoff and W.M. Garner, Law of Franchise Relationships, in R.M. Barkoff and A.C. Selden, Fundamentals of Franchising, Chicago, American Bar Association (3rd ed. 2008) p. 186. Therefore, the substantive aspects, as well as the application of widely used non-compete clauses, are primarily a matter of state contract law. P.J. Klarfeld, Introduction to the Second Edition of Anticompetitive Covenants in Franchise Agreements, Chicago, American Bar Association (2nd ed. 2003) p. XV. However, it should be noted that trademark law and antitrust regulations, among others, often also come into play in these types of relationships.

[2] In Puerto Rico, Franchise Contracts are devoid of regulations10 (10) and we have not had the opportunity to study in detail this system of doing business in our jurisprudence; It is, therefore, an atypical contract, although socially typical. However, in Tastee Freez vs. Negdo. Employment Security, supra, p. 501, guided by the principle of contractual freedom by which "[t]he contracting parties may establish the agreements, clauses and conditions that they deem appropriate, as long as they are not contrary to the laws, morality or public order", article 1207 of the Civil Code of Puerto Rico, 31 L.P.R.A. second. 3372, we recognized the existence of this type of contract and noted that "[n]othing in our laws prohibits this type of contract."

However, for a complete analysis we must also take into account other applicable contractual principles such as the principle of pacta sunt servanda and contractual good faith, as well as the rules of hermeneutics applicable to contracts.

[3] These principles are of great importance in the context of franchising since, as an atypical contract, "franchises are unique systems in which separate units are combined into highly integrated companies and held together by contract." PI. Blumberg and K.A. Strasser, supra, p. 54-55.

In summary, we conclude that franchise contracts are accepted in our legal system and are governed by our contractual legislation. Likewise, in conjunction with the predominant doctrine, federal law, commercial law, as well as our jurisprudence, we highlight that the relationship between franchisor and franchisee is that of independent entrepreneurs. Try Freez against Negdo. Employment Security, supra. See also M.A. Domnguez Garca, supra, pp. 303-04.

B. Non-compete clauses in the franchise agreement

[4] Non-Competition Clauses, those clauses incorporated into a contract with the purpose of restricting one of the parties from carrying out a business or activity through which it can compete with the other, are found particularly in three (3) types of contracts. : employment, sale of businesses and franchises. LICENSED IN LETTERS. Bagdon and M.M. Kellerman, When Will Courts Issue Injunctions to Enforce Restrictive Covenants in the Franchise Agreement?, 28 (No.3) Franchise L.J. 141 (Winter 2009).

[5] In Puerto Rico, as a general rule, non-compete agreements are valid based on the principle of freedom of contract. In Arthur Young & Co. v. Vega III, supra, we accept the applicability of the rule of reasonableness to Non-Competition Clauses in the workplace. Furthermore, we accept the legality of this type of clauses, as long as it is reasonable in light of the following criteria:

First, the employer must have a legitimate interest in such an agreement, that is, if it did not receive the protection of a non-compete clause, its business would be substantially affected. The magnitude of this interest will be measured, among other things, based on the employee's position within the company. That is, the existence of the employer's interest will be directly related to and depend on whether the worker, due to the position he or she assumes in the company, is capable of effectively competing with his or her employer in the future.

Secondly, the scope of the prohibition must correspond to the interest of the employer, in terms of the object, term and place of the restriction or affected clients. The object of the prohibition must be limited to activities analogous to those carried out by the employer; You do not need to limit yourself to the specific functions of the employee. The non-compete period shall not exceed twelve months, with the understanding that any additional time is excessive and unnecessary to adequately protect the employer.

Finally, regarding the scope of the prohibition, the contract must specify the limits

geographic areas or affected customers. Regarding the geographical area to which the restriction applies, it must be limited to what is strictly necessary to avoid real competition between the employer and the employee. When the prohibition against competition refers to customers, it should refer only to those that the employee personally served for a reasonable period of time before resigning, and who, when doing so, or in a period immediately preceding the resignation, were still customers. of the employer. These elements will be evaluated keeping in mind the nature of the industry involved and the possible public interest involved.

Third, the employer must offer consideration in exchange for the employee's signing of the non-compete agreement. This consideration may consist, for example, of obtaining a promotion, additional benefits at work or enjoying substantial changes of a similar nature in the conditions of employment. It would even be sufficient compensation for a candidate to obtain the desired job in the company. However, mere permanence in employment will not be accepted as a reason for the non-competition agreement.

Fourth, non-competition agreements, like all contracts, must have the essential elements for their validity: consent, object and cause. Article 1213 of the Civil Code, 31 LPRA sec. 3391. However, in these types of contracts we will be especially strict in ensuring that the employee freely and voluntarily signed the non-compete agreement. We will not allow any coercion or undue pressure from the employer. Nothing has been alleged in the present case that allows us to infer that there was any such coercion or undue pressure. This consideration, however, is unnecessary in light of what we resolve below on the validity of the contract.

Finally, it is essential that non-competition agreements be in writing. Arthur Young & Co. v. Vega III, supra, pp. 175-76.

In the aforementioned case we also reject the possibility "of modifying the will of the parties to adjust it to reasonable standards" for which we determined that "any agreement not to compete that does not comply with the previous conditions is void." 11 (11) Arthur Young & Co. v. Vega III, p. 177. In this we conclude that although the clause was valid in terms of the prohibited functions, the clientele affected and the consideration made, it was excessive in terms of the term of the prohibition. Consequently, we declare it ineffective and void for contravening public order and contractual good faith.

[6] Likewise, this Forum has had the opportunity to analyze non-competition agreements in commercial relations. In G.G. & Supp. Corp. v. S. & F. Systs., Inc., 153 D.P.R. 861, 874 (2001), we clarify to the judge the analysis to follow for this type of restrictions in accordance with Article 2 of Law No. 77 of June 25, 1964, as amended, known as the Law of Monopolies and Restriction of Trade , 10 L.P.R.A. sec. 258. Such provision indicates that: Any contract, combination in the form of a trust or otherwise, or conspiracy to unreasonably restrict business or commerce in the Commonwealth of Puerto Rico or in any sector thereof, is hereby declared illegal and any person who makes such contracts or engages in such combinations will incur a misdemeanor. Id.

[7] Given this provision, we express that "not every non-competition agreement that complements a business or an agreement between potential competitors is in itself and, without further ado, illegal and detrimental to competition." Thus, to evaluate this type of agreement we adopted the rule per se12 (12) and the rule of reasonableness as methods of analysis, but not without giving due warnings regarding both. Particularly regarding the rule of reasonableness, a method of analysis applicable to the facts of the case, we point out that it:

...requires an extensive and considered analysis of all the circumstances of the specific case. Some elements to consider when using this method of analysis are, among others: (a) studying the particular facts of the business to which the restriction is being applied, including a definition of the products that currently compete or could compete in the future; (b) the composition and behavior of the market; (c) the condition of the business or market before and after the restriction; (d) the nature of the restriction; (e) the actual or probable effect of the restriction.13 (13) G.G. & Supp. Corp. v. S. & F. Systs., Inc., supra, p. 871. See, P. Muoz Rosario, Non-Competence Clause: Validity or Unreasonable Restriction? A Comparative Study between the Legal System of Puerto Rico and that of Spain, 47 Rev. D.P. 23 (2007). However, for the first time this Court studies Non-Competition Clauses, also called Non-Reestablishment Clauses in the field of Franchise Contracts.

[8] Franchise Agreements frequently include Non-Competition Clauses to limit or prohibit competition, both during the term of the agreement and after it. This is because it has been considered a protection mechanism for the franchise system with the objective of preventing those who were franchisees from developing similar businesses within the same geographic area and using the same skills, confidential information and contacts that they acquired through the franchise. franchisor, subsequently becoming the system's competition.14 (14) T.P. Pearce et al., The Enforcement of Post-Termination Remedies in the Franchise contract, 24 Okla. City U.L. Rev. 81, 92 (1999). However, their analysis by legislatures and courts has been limited.15 (15) It is clear from our study that, in general, these Non-Competition Clauses are considered lawful both by the different states of the United States16 (16) and by the Member States of the European Community.17 (17) This, as long as the terms of the clause are reasonable. However, no pattern or uniformity can be observed in the treatment of this type of clauses among different jurisdictions, even civil jurisdictions.18 (18)

Since Non-Competition Clauses are common in both employment contracts and business sale contracts and given the atypicality of the Franchise Contract, state jurisprudence in the United States has been divided regarding the analysis to follow in this type of clauses. in Franchise Contracts. Some compare it with business sale contracts19 (19) and others with clauses in employment contracts - in which the rule of reasonableness applies more strictly by understanding that the employer has greater bargaining power and protection of the employer. individual's right to work.20 (20) G. Glickman, supra, p. 3A-35. This divergence occurs because the Franchise Agreement has elements of both. American Bar Association, The Franchise and Dealership Termination Handbook, Chicago, 2004, p. 220. Such a procedure has been criticized by several authors who recognize that, although both contexts provide a beginning in the analysis of this type of controversy, the situations and interests involved differ substantially.21 (21) See, Klarfeld, op. cit., p. XVI; R.W. Emerson, Franchising Covenants Against Competition, 80 Iowa L. Rev. 1049, 1051-52 (1995).

[9] As we mentioned before, the relationship existing in a Franchise Agreement between the franchisor and franchisee is not one of employer-employee, but rather one between business owners, so the interests that affect the reasonableness of this type of restriction are different. The franchisee is not fully comparable to an employee when signing a Franchise Agreement that contains a Non-Competition Clause. Therefore, as Domnguez Garca expresses: The practical frequency of the economic subordination of the franchisee, as the weakest part of the relationship, in need of protection in the aspects of incidence of the disparity of bargaining power between the parties must be presumed, in my opinion. judgment, with a relative character in no case absolute. The establishment of cogent legal control on the basis of an abstract notion of weaker party [...] postponing the principle of self-determination of the parties [...] for the sake of a certain category of natural or legal persons, in This business case does not seem like the most precise solution to the problem. It is undoubtedly more in line with strict material justice to refer it to casuistic judicial control." Domnguez Garca, op. cit., p. 307.

However, we do not ignore the differences between the relationship of the parties in a Franchise Agreement and other commercial relationships. Therefore, after analyzing the benefits and disadvantages of the use of this type of clauses in Franchise Contracts and in consideration of the aforementioned contractual principles, we accept the legality of Non-Competition Clauses in Franchise Contracts, as long as , these are reasonable.

[10] Restrictions on time, geographic area and activities must be reasonable as necessary to protect the legitimate interests of the franchisor. Likewise, they must not cause unreasonable difficulties to the franchisee, nor may they violate the public interest. Otherwise, these will be considered contrary to contractual good faith and public order. Regarding the interests of the franchisor, he may have a variety of interests to protect. For illustrative purposes, some of these may be: the method or system of doing business, confidential and proprietary information, business secrets, intellectual property, and its relationship with existing clients.22 (22)

However, it is not enough to argue any of these interests, but it must be shown that the interest is important enough to reasonably impose a restriction on the franchisee. The courts must be attentive to the expressed interest since it is against the legitimate interest of the franchisor that the reasonableness of the limits imposed on the franchisee is measured. Likewise, it cannot be lost sight of that not only the franchisor has invested time, effort and money in creating a "successful" method of business, but also the franchisees, who in many cases have invested all their resources and have assumed the risk. For these purposes, an unreasonable non-competition agreement can extremely affect them.

[11] Furthermore, the Non-Compete Clause must be reasonable in terms of temporal, territorial and material restrictions. The jurisprudence of the states of the United States varies greatly regarding the period of time that can be considered reasonable for the restriction of competition.23 (23) Likewise, it fluctuates regarding the territorial scope of the clause. While some states limit it to the area of exclusivity of the franchise in question, others have allowed restrictions based on the business locations of other franchisees.

It is a common practice for franchisors to cover with these clauses a space greater than the area of exclusivity granted to the franchisee under the assumption of protecting other franchisees. R.W. Emerson, supra, p. 1060. In this regard, this Court refuses to establish specific parameters for these aspects given that what may be considered a reasonable term in one case may not be so in another when considering these three (3) elements with the particularities of the business and the interests from both sides. While we adopt this position, in consideration of contractual good faith and fairness, we embrace an approach of reciprocity regarding territorial boundaries. We conclude that, except in those cases in which the franchisor can demonstrate an interest that requires greater territorial protection - assessing as a whole the reasonableness of the temporal, spatial and material restrictions - or in those cases in which an exclusive area is not specified For the franchise during the term of the contract, the territorial scope of the clause must be limited to the operating space of the franchise in controversy.24 (24)

Regarding the matter, the restricted activities must be limited to those that put the franchisor at a competitive disadvantage, the franchisee continuing to use the franchisor's own method or information, among other aspects, thus harming the latter's legitimate interests.

III

We have before us a controversy over the validity of a Non-Competition Clause after the Franchise Agreement has terminated; about which there is no dispute regarding the validity of the consent, object and cause.

[12] As we stated previously, the Franchise Contract is an atypical contract that is governed by the will of the contracting parties, as long as this is not contrary to the laws, morality, or public order, and that rests on the good faith relations of both. Likewise, Non-Competition Clauses, in this case in a Franchise Contract, are permitted and valid, as long as they are reasonable when assessing the temporal, spatial and material restrictions with the particularities of the business, the interests of both parties and the public interest.

We then proceed to analyze whether the Non-Competition Clause signed in the Franchise Agreement in controversy is reasonable or not in light of the parties' approaches and the analysis criteria outlined above.

The franchisor argues that the Non-Competition Clause is the only remedy it has to protect the franchise system and "avoid the use of secret recipes, methods of food preparation and secrets that Martn's BBQ has provided to the franchisee."25 (25)

Otherwise, he argues, the respondent would be allowed to "compete directly with the grantor, in the same premises that he made known with the name, products, recipes and secrets of the grantor."26 (26) Likewise, he expresses that if the Non-Competition Clause is not put into effect, the following damages would occur: "a) danger of confusion to the public; b) threatens the franchise system itself; c) wrong message to other concessionaires that the agreement can be violated; d) threat to the business model."27 (27)

We consider that in the instant case, in the case of a recently created franchise, the allegation that through the Non-Competition Clause seeks to protect the franchise system, as well as the franchisor's recipes and ways of doing business, is particularly meritorious. In turn, the respondent gained experience and clientele using the name, methods and recipes of the franchisor and subsequently continued the operation of a business in the same location and practically under the same format. Under these circumstances, we conclude that the franchisor proved a legitimate interest that deserves protection.

Regarding restrictions in time, space and matter, the Non-Competition Clause limits competition for a term of two (2) years, within a ten (10) mile radius of any franchise restaurant and with respect to the promotion or sale of prepared food products equal or similar to those of the system.

The petitioning company argues that jurisprudence from states in the United States has validated Non-Competition Clauses with longer time periods and distances. Likewise, it is his contention that the paraded test established the products that were intended to be protected: roast chicken, cassava, yellows and sweet potatoes; and that the restriction was minimal as the franchisee was not prohibited from continuing his business and selling a wide variety of products.28 (28)

The respondent, for his part, states that the petitioner company has not proven the reasonableness and necessity of a term of two (2) years to protect its interests, which is excessive in light of Arthur Young & Co. V. Vega III, supra. Likewise, he argues that the short geographic extension of Puerto Rico and the existence of fifty (50) restaurants under the franchise on the Island have the effect of preventing the operation of a business in our jurisdiction.29 (29) Regarding the reasonableness of the matter expressed that the restrictions of the Non-Competition Clause suffer from vagueness and breadth.

We conclude that the two (2) year term and the restriction on the sale of products the same or similar to those of the franchise system are reasonable in the instant case. The Franchise Agreement in controversy did not prevent the operation of a restaurant by the respondent in the same property and during the period of two (2) years subject to, inter alia, that he cease the use of confidential methods, procedures and techniques associated with the system; remove the distinctive and structural features that identified it with the franchise and return the materials provided without keeping any copies.30 (30) Therefore, the restrictions provided in time and matter protected the legitimate interest of the franchisor and did not present unreasonable difficulties for the franchisor. franchisee.

However, when examining the spatial prohibition of the Non-Competition Clause, in light of the principle of reciprocity and in conjunction with the temporal and material restrictions analyzed above, we determined that it was excessive in the specific and particular context of the facts of this case. This is because while the area of operation of the respondent's franchise was just two (2) linear miles, the Non-Competition Clause limited the franchisee to not compete within a ten (10) mile extension of any franchise restaurant. Nor did the petitioning company present compelling reasons why it required a greater territorial scope. Furthermore, considerations of public interest and the geographical restrictions of Puerto Rico lead us to the same conclusion.

Therefore, given the refusal of this Court to modify the will of the parties as expressed in a Non-Competence Clause that does not meet all the conditions of reasonableness, we conclude that the Non-Competence Clause in the Franchise Agreement in question It is not reasonable and, therefore, not valid. Therefore, this is contrary to contractual faith and public order.

For the reasons stated above, we issue the requested order, and, for different reasons, we confirm the appealed Judgment.

However, we point out that our opinion is limited to the validity of the Non-Competition Clause and does not modify the transactional agreement by which the respondent agreed to eliminate the colors that identify with Martn's BBQ; cover the upper part of the business sign and return the menu board belonging to the petitioning company.

A judgment will be issued in accordance.

Footnotes:

1 (1) The franchise was established in 1997 under the name "Franquicias BBQ Inc." On July 15, 2004, the "Martn's BBQ, Inc." franchise was registered. to which all rights and actions of Franquicias BBQ Inc. were transferred.

2 (2) Appendix V of the Petition for Certiorari, pp. 63-64.

3 (3) Petition for Certiorari, p. 5.

4 (4) Through a judicial settlement, the respondent agreed to eliminate the colors that identify with Martn's BBQ; cover the upper part of the business sign and return the menu board belonging to the petitioning company. Likewise, the trial court ordered the petitioner company to provide two thousand dollars ($2,000) as bail.

5 (5) It is not until recent decades that the term "franchise" is applied to private contracts. D. Gurnik and S. View, Case History of American Business Franchising, 24 Okla. City U.L. Rev. 37, 37-39(1999).

It should be noted that "[t]here is currently no concept of a franchise agreement that is valid for any legal system or unanimously accepted." J.I. Ruiz Peris, The Franchise Contract and the New Rules for the Defense of Competition, Madrid, Ed. Civitas, 1991, p.

16. Different jurisdictions have faced certain difficulties in defining the concept, which is why the definitions adopted vary between states and laws depending on the regulatory purpose sought. PI. Blumberg and K.A. Strasser, The Law of Corporate Groups, New York, Ed. Aspen, 1998, pp. 55-56; G. Glickman, Franchising, New York, Ed. M. Bender, 2006, Vol. I pp. 2-6. For example, civil rights authors have tried to frame the Franchise Contract as a brand concession and license agreement and subsequently as an autonomous contract. See, Ruiz Peris, op. cit., pp. 19-20. In any case, the Supreme Court of Spain has recognized that the franchise contract is "an atypical contract, in this case commercial..." Ruling of the Supreme Court of Spain of September 27, 1996. See, J.R. Cano Rico, Practical Manual of Commercial Contracting, Madrid, Ed. Tecnos, 2002, T. I, page. 764; M.A. Domnguez Garca, The Franchise Contract, in A.B. Berkovitz Rodrguez-Cano, Commercial Contracts, Navarra, Ed. Aranzadi, 2001, p. 298.

6 (6) See, W.L. Killion, The Modern Myth of the Vulnerable Franchisee, 28(No. 1) Franchise L. J. 23, 29 (Summer 2008)("[D]ata tells [...] that the continued health of franchising is important to the franchisor, franchisee, potential owner business, supplier, franchise employee, investor, individual consumer, and the economy as a whole.")

7 (7) Additionally, federal law provides regulations for franchising in specific industries, such as oil and automobiles. See, Automobile Dealer's Franchise Act, 15 U.S.C. sec. 1221 et seq.; Petroleum Marketing Practices Act, 15 U.S.C. sec. 2801 et seq.

8 (8) The Federal Trade Commission has studied the possibility of regulating other aspects of Franchise Agreements that apply to all industries, including the use of post-contractual non-compete clauses. However, he has preferred to limit it on a case-by-case basis. See, Statement of Basis and Purpose, Disclosure Requirements and Prohibitions Concerning Franchising, 72 Fed. Reg. 15,447 (March 30, 2007). ("[T]he Commission cannot categorically conclude that prospective franchisees who voluntarily enter into franchise agreements, after receiving full disclosure, nontheless cannot reasonably avoid harm resulting from a franchisor enforcing the terms of its franchise agreement.")

Likewise, other jurisdictions model their regulations on Franchise Contracts following the experience and development in the United States. See, R.W. Emerson, Franchise Contracts and Territoriality: A French Comparison, 3 Entrepren. Bus. L.J. 315, 339 (2009) (French law, Law No. 89-1008 of December 31, 1989, as amended, protects franchisors through the provision of information prior to the formation of the franchise contract.); B. Schwartz and L. Zylberman, Franchise Symposium Materials: International Franchise Regulation, 8 Asper Rev. Int'l Bus. & Trade L. 317 (2008); M.A. Domnguez Garca, supra, p. 310. See on the Spanish legal system, Royal Decree 201/2010, of February 26, which regulates the exercise of commercial activity under a franchise regime and the communication of data to the registry of franchisors, Official State Gazette No. 63 of March 13, 2010, pp. 25037-46.

9 (9) "The FTC does not intend to preempt the franchise practices laws of any state or local government, except to the extent of any inconsistency with part 436. A law is not inconsistent with part 436 if it affords prospective franchisees equal or greater protection, such as registration of disclosure documents or more extensive disclosures." Disclosure Requirements and Prohibitions Concerning Franchising, 16 C.F.R. sec. 436.10(b).

10 (10) Law No. 75 of June 24, 1964, as amended, 10 L.P.R.A. sec. 278 et seq., is limited to regulating the termination or non-renewal of a distribution contract without just cause, and is applicable to those persons who fall under the imprecise definition of distributor.

11 (11) Regarding the Franchise Contract, we are also persuaded by the following observation: "Courts that refuse to reform an unreasonable covenant recognize such a covenant's in terrorem potential. The refusal to rectify is based on a policy of preventing franchisor aggrandizement. If courts held otherwise, franchisors could fashion overbroad covenants with the confidence that most franchisees would respect their contractual obligations--no matter how burdensome--and that, if one or two franchisees ever violated the covenants, the judiciary would still modify and then enforce these covenants." R.W. Emerson, Franchising Covenants Against Competition, 80 Iowa L. Rev. 1049, 1057 (1995).

12 (12) "The Rule per se condemns the challenged trade restraint without examining its purpose or making an extensive analysis of its effect on the market and harm to competition. [...] For procedural purposes of the per se rule, the party that allegedly violated the antitrust law must defeat the presumption of unreasonableness and illegality." G.G. & Supp. Corp. v. S. & F. Systs., Inc., 153 D.P.R. 861, 870-71 (2001). In G.G. & Supp. Corp. v. S. & F. Systs., Inc., supra, pp. 873, 876, we point out that in view of the delicate economy of Puerto Rico, as a general rule, a case regarding a trade restriction should not be resolved in accordance with Article 2 of Law No. 77 of June 25, 1964, according to amended, 10 L.P.R.A. sec. 258 et seq., under the per se rule procedure.

13 (13) The impact of a competition agreement is measured under Law No. 77, supra, and in reference to the competition and not the competitor. G.G. & Supp. Corp. v. S. & F. Systs., Inc., supra.

14 (14) The effectiveness of Non-Compete Clauses to protect a franchise system has been questioned by various authors, who propose various alternatives. RE. Johnson and R.G. Greenstein, Achieving "Victory Through Prearrangements": Supplementing Covenants Not to Compete, 22 Franchise L.J. 21 (Summer 2002); R.W. Emerson, Franchising Covenants Against Competition, supra, pp. 1098-99.

15 (15) Some states have adopted laws regarding Non-Competition Clauses in Franchise Agreements. For example, North Dakota, Indiana, Louisiana and Minnesota. See, P.J. Klarfeld, Covenants Against Competition in Franchise Agreements, Chicago, American Bar Association (2nd ed. 2003).

16 (16) Other states prohibit Non-Competition Clauses in general, but since they do not except those contained in the Franchise Contracts, said prohibition may be applicable to them. Id. See also, G. Glickman, Franchising, New York, Ed. M. Bender, 2006, Vol. I, p. 9-63.

17 (17) Commission Regulation (EC) No. 2790/1999 of 22 December 1999 on the application of Article 81(3) of the EC Treaty to certain categories of vertical agreements and concerted practices is applicable. directly to franchise agreements that affect the community market.

18 (18) Likewise, "many nations essentially take the same approach found in American antitrust law and common law, while some severely restrict franchise covenants against post-termination competition or even prohibit them outright." R.W. Emerson, Franchising Covenants Against Competition, supra, pp. 1096-97.

19 (19) H&R Block Tax Services, Inc. v. Circle A. Enterprises, Inc., 693 N.W.2d 548 (2005); Boulanger v. Dunkin' Donuts, Inc., 815 N.E. 2d 572 (2004); Jiffy Lube Int'l, Inc. v. Weiss Bros., 834 F. Supp. 683 (1993).

20 (20) In general, Non-Competition Clauses in the workplace have received a more vigorous analysis than those in business sale contracts due to the particular interests involved. See, M.A. Gauthier, The SJC and Dunkin' Donuts: Squeezing the Filling out of the Small Franchisee, 41 New Eng. L. Rev. 757 (2007) (Argues that non-compete agreements in Franchise Contracts should be examined under the employer model -used when considering "large multi-million dollar corporation versus small, local, inexperienced, first-time business owners." Such assumptions differ significantly from the facts of the case at hand. See also, Piercing Pagoda, Inc. v. Hoffner, 351 A.2d 207 (1976); Gandolfo's Deli Boys, LLC v. Holfman, 490 F. Supp. 2d 1353 (2007); Carvel Corp. v. Eisenberg, 692 F. Supp. 182 (1988).

21 (21) "Some key differences are:

1. The franchise agreement contemplates the association of the franchisee with the franchised system's goodwill, while such an association tends to be, at most, an incidental effect of the employment relationship.

2. Essential trademarks or service marks, as well as the use of trade secrets, are much more likely to be entrusted to franchisees than to employees.

3. Unlike most employees, franchisees may lose their substantial capital investments upon termination.

4. The competitive activities that an ex-franchisee undertakes often directly affect the economic interests of present franchisees; an exemployee's former coworkers usually have fewer such concerns arising from the ex-employee's post-termination competition.

5. Franchises involve long-term contracts in which the franchisor retains considerable control over the franchisee's operations. However, the ordinary sale of a business presents a "clean break," with the seller departing the scene and the buyer taking over the business completely.

6. Unlike sellers of a business, franchisees typically are not compensated for the value of their business when the franchise relationship is terminated." R.W. Emerson, Franchising Covenants Against Competition, supra, pgs. 1052-53 (1995).

See also, Budget Rent-A-Car Corp. of Am. v. Fein, 342 F.2d 509 (1965) ("Although both parties as well as the Trial Judge have attempted to put this case in one category or the other, realistically, [the restrictive covenant] does not fit in either, and we decline to believe that Georgia would decide this case by simply slipping it into one or the other. However, it is proper to look at both kinds of cases for the presence or absence in this fact situation of the kind of factors which have been held to tip. the balance one way or the other.")

22 (22) There are studies that reveal that even when it is announced that a franchised restaurant is owned and operated by a third party, just over a third of the clientele will understand that it is not operated by the franchisor. R.W. Emerson, Franchisors' Liability When Franchisees Are Apparent Agents: An Empirical and Policy Analysis of "Common Knowledge" About Franchising, 20 Hofstra L. Rev. 609, 656 (1992) "[R]egardless of whether customers understand that ownership and operations are now totally separate from the former franchisor, the former franchisor's concern remains - how to prevent franchisee misappropriation of trade secrets and other confidential information"). R.W. Emerson, Franchising Covenants Against Competition, supra, esc. 105.

23 (23) The temporary restrictions admitted by the courts vary, ranging from six (6) months to three (3) years. R.W. Emerson, Franchising Covenants Against Competition, supra, p. 1054; G. Glickman, supra, p. 3A-37. Article 5(b) of Commission Regulation (EC) No. 2790/1999, supra, limits Non-Competence Clauses to one year after expiration of the contract.

24 (24) R.W. Emerson, Franchising Covenants Against Competition, supra, p. 1088. Furthermore, the limited territorial extension of the Island makes us think that in this way more reasonable effects are achieved.

25 (25) Petition for Certiorari, p. eleven.

26 (26) Id., p. 17.

27 (27) Id., p. twenty.

28 (28) From the Franchise Agreement it appears that the franchisee is not restricted from continuing to operate a business, but must avoid, among other things, suggesting a connection with the franchisor through different means. Appendix V of the Petition for Certiorari, pp. 66-67.

29 (29) Allegation in Compliance with Order, p. 14.

30 (30) Appendix V of the Petition for Certiorari, p. 6