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Territorial Protection in Franchising

Site/Territorial protection in franchise systems

Find out everything you need to know about the territorial protection in franchise systems.

As a franchisee you should take an even closer look at the territorial protection issue at hand. This is where some aspects are of vital importance, i.e. you should know which factors you need to consider if you want to make a claim to the territorial protection law. What are your rights in this matter and which aspects were agreed to in the contract with the franchisor?

Territorial Protection - What is it?

For a franchisee, territorial protection can play an extremely important role. The franchisor ensures the franchisee with the territorial protection to a particular area in which only the franchisee is represented. Thus no other licensee may be represented in this same area by the same franchise system. However, you should expect that you are not always granted territorial protection, because franchisors are not generally obligated to it. If you start a claim regarding territorial protection, however, it must be stated in the franchise agreement. Furthermore, the franchisee agrees to work around the entire area allocated to him in the territorial protection agreement. 

Territorial Protection: The most important aspects of the franchisee

As a franchisee, you must generally be aware of the fact that you are not entitled to the territorial protection area. You can therefore not expect from your franchisor to be assigned to an area in which other franchisees or franchisors are not allowed to open further franchises.Nevertheless, there is a possibility that you address your franchise colleagues directly. The licensees are mutually beneficial in many cases, so there is still a chance of territorial protection, even if your franchisor has not initially granted you a protected territory. In the agreement, factors such as the marketing strategy, the concept and the site conditions play major role.

The contract

A particularly important part in the framework of territorial protection is the contract concluded between the franchisee and the franchisor. A certain territory is granted to the franchisee. The contract territory is defined either by a postcode or a regional map.The franchisor may, however, restrict or extend this area. This means that it is entitled to intervene with its own shops in the contract territory. As a franchisee, you have legal ways to defend yourself against the restriction of the contractual territory, if the franchisor sets these restrictions during the contract period without your consent.

Protection against active marketing of other licensees

If you take advantage of the territorial protection claim, you are protected not only from other licensees but also from its active marketing. The national advertising may only be executed by the franchisor. It is inadmissible that advertising intervenes specifically in the contract area of a protected franchisee. The advertising should also be coordinated with the franchisor in regards to the concerns of the individual franchisees, if advertisements in print media intersect several contract areas.Furthermore, Internet advertising by the franchisor and individual franchisees of each consumer location can be considered and therefore does not constitute interference in the contract territory of the franchisee.

How territorial protection works in practice

In your assigned region is where you have exclusive rights. Other licensees and your franchisor you can not compete in this area. Franchise agreements often state that "active sales" are not permitted in the territories of other franchisees. This clause prevents other licensees from other regions to compete with you. It provides the individual franchisees with a certain security, given that it is in the agreements of all licensees of the system. 

The ban of "active sales" of other licensees

Now the question arises, what exactly is meant by the prohibition of "active sales" or "active acquisition": 1. Customers from your region may not be directly contacted by other franchisees. 2. Other franchisees are allowed to pursue any marketing activities that target this region in your area. 3. No advertising mailings shall be sent out by other franchisees and no advertisements in newspapers ads shall appear in your region. 4. The franchisee can be featured nationally in all media in which a territorial subdivision is not possible, that is, in national newspapers, on the Internet and other media. 

Site protection in franchise systems should be of great importance for you as a franchisee.

Engel & Völkers

Via Dante, 16
20121 Milan
Italia | P.Iva 07768820966
+39 02 584 99 61

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