Franchisor vs Franchisee: Competition & Franchise Encroachment

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There are many ways for a franchisor to encroach on or compete against a business franchise, depending on the Protected Area, Franchise Territory & Distribution Channels granted to a franchisee in franchise contracts.  From a franchisee’s perspective, franchise encroachment can be any franchisor action with a negatively impact on sales.  If you own a franchise or plan on owning a franchise, a franchise lawyer in Texas can explain the franchisor encroachment and competition issues that are specific to your business franchise contracts.

What is Franchise Encroachment?

The simple definition of franchise encroachment is the cannibalization of franchisee sales or potential sales opportunities.  The most obvious form of franchise encroachment happens when a franchisor establishes a new business franchise unit near an existing unit.  This can be encroachment even if the existing franchisee has a right of first refusal to own a franchise built nearby, because the franchisee’s per-unit revenue can still suffer.

Franchise encroachment also occurs where a franchisor offers its products in alternative, non-franchised, and non-traditional distribution channels, including department stores, convenience stores, grocery stores, or kiosks.  If you plan to own a franchise, engaging a franchise lawyer in Texas to review your franchise contracts can help you understand and limit these kinds of risks.  Far more ubiquitous is a franchisor’s right to market products by mail and online, a.k.a., virtual encroachment.

Direct Competition: Franchisor vs Franchisee

A more invidious encroachment risk for owning a franchise is the possibility that a franchisor could purchase and operate another brand in competition with the franchise business.  Alternatively, a franchisor could simply start another brand in competition with the franchise business.  This kind of “sister brand” franchise encroachment can be difficult to protect against, as it might circumvent the terms in your franchise contracts.

Owning a franchise can be a profitable and rewarding enterprise.  However, if you plan to own a franchise, you must fully understand the risks of franchise encroachment that are specific to your business franchise contracts.  Our Texas law firm regularly advises individuals and businesses seeking to own a franchise business in Texas, and a Texas franchise law attorney with our firm would be happy to consult with you about your franchise law matters.

Contact a Franchise Lawyer in Texas, Free Call.



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