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As some of the franchise business sectors are mature, competition hasintensified and the issue of encroachment has come to the forefront. Encroachment is defined most often in terms of geographic competition whichis traditional. Traditional encroachment is the franchisor’s placement of a newcompany-owned or franchised unit too close to an existing one. As someindustry analyst would have said it, traditional encroachment has emerged tobe one of the most vexing, emotional and yet least understood franchisingproblem today. Whether encroachment has a negative impact on any individual franchisee is anempirical matter that depends on how customers react to this new option aswell as how the franchisor chooses to organize the distribution channel. Wecannot draw general conclusions on the effect of “encroachment” decisionsbased on a priori reasoning - the net effect on franchisees always depends onthe specific circumstances and methods involved. Whatever strategy is used,however, conflict between franchisees and their franchisor will emerge ifeither party feels constrained by the other, or finds that it is being unfairlytreated by the other. In general, whether the negative impact on sale or thepositive business generation effect dominates in any particular instance ofencroachment ultimately must be addressed on a case-by-case basis byfranchisors and their franchisees. Call for regulatory intervention must betempered by the recognition that encroachment is not as simple an issue assome proponents of legislative remedies suggest. There is currently no general doctrine to be applied to the disputes ofencroachment while actions regarding encroachment may be frequentlybrought in civil court from now on. Thus, when the franchise contractexpressly reserves to the franchisor the right to open outlets in closeproximity to franchisee’s units, the courts might well be unsympathetic to franchisees’ encroachment claims. Further, when the contract expressly deniesterritorial protection to the franchisee by stating that the franchise is limitedto the outlet’s address, but does not expressly reserve for the franchisor theright to open additional outlets nearby, courts again might well be generallyunsympathetic to claims of encroachment. Finally, when the contract fails toestablish the parties’ rights in unequivocal language, the facts of the case andthe franchisor’s representations and policies become more central.
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franchise, franchise agreement, Fair Franchise Practices Act, encroachment, business territory, territorial right, fiduciary duty, distribution channel
