Rayon protection: a nuance.
Mr DL van Dam – Franchise lawyer
Most franchise agreements include an exclusive territory for the benefit of the franchisee. The essence of that exclusivity is that neither the franchisor nor fellow franchisees may engage in competitive activities with the franchisee in question in that exclusive territory. Neither own establishments nor franchise establishments, other than those of the franchisee concerned, are therefore allowed to establish themselves in that district.
The district is usually indicated by means of a map attached to the franchise agreement on which this has been registered. Sometimes an indication in the form of postal code areas is used. In most cases, the district is therefore precisely demarcated.
Outside the district, therefore, the franchisor is in principle free to operate either its own branch or a franchise branch. After all, the district is contractually demarcated. However, that freedom is not unlimited. In practice, situations regularly arise in which a franchisor sees opportunities to open a branch just across the border of an existing district of a franchisee, for example due to the presence of a good location. Since that location is located just outside the exclusive area of the adjacent franchisee, this should not be a problem, according to the franchisor.
In principle, that is not a problem either. As related above, the franchisor is in principle contractually free to establish itself at the intended location. However, there is a nuance. The franchisor must be concerned about the fate of all its franchisees. In general, he must refrain from any measure that could, in any way whatsoever, lead to a disadvantage for those franchisees. This also applies to its location policy. If it is the case that the new branch, just outside the district, has no influence whatsoever on the turnover of the existing franchisee, for example because the border of the district is formed by a river, then there is no problem. However, if the new location has a noticeable effect on the turnover of the existing franchisee, it may under certain circumstances be unlawful to open that location. Important factors in assessing this include the extent to which the turnover of the co-franchisee is negatively affected and the manner in which the franchisor deals with the relations between the two branches, for example in its manner of advertising, as well as various other circumstances.
Under certain circumstances, territory protection may therefore extend beyond the exclusive territory as agreed in the franchise agreement. However, for the assessment of this, the concrete circumstances of the case must always be considered.
Ludwig & Van Dam attorneys is the only law firm in the Netherlands that specializes in franchise and other partnerships. She has been market leader in her field for many years. In addition to a specialized consultancy practice, in which franchise organizations are guided in their set-up and reorganisations, the office has an extensive litigation practice, in which conflict management takes place at various levels. This can vary from mediation to litigation for franchisors and franchisees, whether or not in a group context. In addition, the office supervises various chains that enter the Dutch market from abroad and also supervises Dutch chains that further develop their activities on foreign markets.
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