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13 Int'l J. Franchising L. 3 (2015)

handle is hein.journals/intjoflw13 and id is 1 raw text is: ENCROACHMENT ISSUES AROUND THE WORLD ENCROACHMENT ISSUES AROUND THE WORLD Rocio Belda de Mergelina, Garrigues SLP, Madrid, Spain, Eric H. Karp, Witmer, Karp, Warner & Ryan, LLP, Boston, USA and Ted P. Pearce, Nexsen Pruet, PLLC, Charlotte, USA Encroachment can occur when a franchisor, through company-owned outlets or by granting other franchises, competes in the same market with an existing franchisee's business, often leading to disputes between franchisors and franchisees. Most franchise systems accord franchisees some form of protected area in which it will be secure against competition from a similar branded outlet for a period of time. In the franchise agreement, the grant of a protected territory is usually followed by the reservation of rights provision. This article analyses the law and case law in various countries around the world in relation to territorial exclusivity and reservation of rights with a particular focus on franchise specific disclosure regulations, competition law, contract law and the concept of good faith. Franchisors focused on expanding their systems in other markets must understand the relevant legal frameworks in order to grapple with the intricacies of territorial development and the consequences of encroachment. 1. What is encroachment? Long a hot button issue in franchising, encroachment can occur when a franchisor, through company-owned outlets or by granting other franchises, competes in the same market with an existing franchisee's business. A key component of a franchisor's business model is to grow its system through system expansion. From the franchisor's perspective, growth of the system should serve to benefit the franchisee because with a greater number of franchised and company-owned outlets, there will be greater brand presence of the products and * This article was originally prepared as a paper given at the 30th Annual IBA/IFA Joint Conference, Chicago, May 2014. services offered by or through the franchise system, which is intended to lead to greater demand for these products and services. At the same time, while the franchisor expects that the benefit to the franchise system will be ample justification to continue its expansion efforts, those efforts may ultimately collide with the franchisee's target market of customers. If a new outlet begins to draw business or customers away from the franchisee's existing outlet, then the franchisee will take the position that the placement of the new outlet encroaches on the franchisee's existing business.' 1 See Bus. Franchise Guide (CCH) 830. International Journal of Franchising Law Volume 13 - Issue 1 - 2015 © Claerhout Publishing Ltd. www.iflweb.com

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