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

handle is hein.journals/intjoflw13 and id is 1 raw text is: 




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.


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