How would you feel if more than one-third of your customers were handed over to a competing business? Territorial competition in franchising is often unusually debilitating. Why? Because competition using the same brand and selling the same services or products will usually take all the customers who live closer to their outlet than yours. At best the only way to compete against the same brand is through pricing. But that means one has to lower prices. As a result, rather than getting new customers, one may simply be trying to save existing customers.
Many franchisees believe that they are automatically provided a protected territory to make their businesses viable. Unfortunately, this is an urban myth and not so. In almost all states there are no statutory protections providing franchisees with protections from encroachment. Thus, the only protection for franchisees from having another franchise outlet using the same brand nearby is contract law.
Without statutes, contract terms govern what type of territorial protection, if any, is provided to a franchisee. Many agreements provide only a spot license, that is the franchisee is given a license to operate only at their store location with no additional territory. The opposite is an exclusive express territory, which some franchise agreements provide with geographic descriptions. Franchise agreements may also have many more details on territorial provisions. Thus, franchise agreements may provide different territorial definitions and rights to market elsewhere. Franchise agreements may contain reservations of rights to franchisors. Still, other franchise agreements may contain a right for franchisors to change territories. On top of these provisions, franchisors may develop policies and procedures for the opening of new nearby franchises. In turn these policies may provide for expert studies on the impact or cannibalization of proposed new franchise outlets on existing franchise outlets.
Our firm has handled numerous encroachment cases in many different franchise systems. These complex franchise agreement provisions need specialized and experienced franchisee lawyers. Please contact us to evaluate your rights and remedies regarding an encroachment or other territorial issue.