Our Franchise Attorneys Can Help With The Real And Momentous Danger That Is Franchisor Encroachment
Franchisees and dealers are frequently confronted with the real and momentous danger arising from supplier and franchisor encroachment. Franchise encroachment usually stems from the opening of new and competing franchises or distributors near the geographic territory of an existing franchise or dealership. Similarly, franchisors, suppliers or manufacturers’ newly-adopted marketing plans, whereby they distribute products and services directly to retail customers, present a threat to franchisees and dealers as they are cut out from the existing distribution and profit chain.
Dealers and Franchisees are highly vulnerable to such territorial and sales encroachment given that the language in most franchise and distribution agreements explicitly permits it. From a historical perspective, at the time franchising initially began, franchisors, suppliers and manufacturers ordinarily, as a matter of course, granted franchisees and dealers some type of territorial exclusivity. Under market conditions at that time, such protection was expected and demanded by franchisees and dealers. Similarly, franchisees and dealers were protected from direct competition from their franchisors, suppliers and manufacturers through new distribution channels.
As franchising matured as a distribution method, and as legal and economic power shifted precipitously toward franchisors and suppliers, the language in distribution and franchise agreements safeguarding franchisee or dealers’ territories and customers was intentionally abandoned by franchisors and suppliers when they drafted franchise or distribution agreements. As the pendulum of power continued to swing further away from franchisees and dealers, franchise and distribution agreements began to include explicit language permitting franchisors and suppliers to affirmatively encroach on existing franchise territories and customers. Today, it is often the case that few locations or channels of distribution are wholly safe from customer and territorial encroachment.
Several state and federal statutes, whether general or industry specific, provide rights to franchisees and dealers whose businesses are threatened with cannibalization by their franchisors and suppliers. In addition, in some cases, there are other seemingly unrelated clauses in franchise and distribution agreements, such as right-of-first-refusal provisions, that can be used to combat encroachment. There is also case law that, when utilized by experienced franchisee lawyers, can be interpreted to require that the franchisor or supplier act in a reasonable manner, despite unfavorable language regarding territories and customers in a franchise or distribution agreement.
Further, some supplier and franchise agreements make the continuation of an exclusive territory or distribution channel contingent on the franchisee or dealer either meeting a performance standard or not defaulting on their agreement obligations. In this regard, many franchisees and dealers are not aware that even a cured default can result in the loss of customer and territorial exclusivity.
Success Of Goldstein Law Firm In Combating Franchisor Territorial And Customer Encroachment
Jeff Goldstein and the lawyers at the Goldstein Law Firm have over thirty years of experience and expertise in successfully representing only franchisees and dealers in wrongful supplier and franchisor territorial and customer encroachment cases. In some cases, Attorney Goldstein and the other franchisee lawyers at Goldstein Law have been able to amicably negotiate a resolution of territorial and product encroachment. In other cases, the Firm has been successful in obtaining emergency injunctive relief barring a franchisor or competing franchisee from stealing sales, business and profits from existing franchisees and dealers.
Meaningful participation by an experienced franchise lawyer will also prevent encroachment from becoming the new status quo, which many courts will be loath to disrupt. Even where supplier and franchise agreements appear on their face to provide few rights to franchisees and dealers regarding protected territories and customers, the talented and experienced franchise lawyers at the Goldstein Law Firm have been able to obtain favorable outcomes for their franchisee and dealer clients that have been injured by encroachment.
What To Do If You Suspect Your Territory Or Customers Have Been Wrongfully Taken By Your Franchisor, Supplier Or Competitor
As with wrongful terminations and wrongful franchise defaults, timing is crucial for franchisees and dealers in successfully defending against wrongful territorial or customer encroachment by franchisors, suppliers and manufacturers. Once a franchisor or supplier establishes a new channel of distribution or site in direct competition with your location or business, the legal clock begins to tick. Under traditional legal equitable principles, your failure to immediately seek judicial relief or otherwise legally express your objection to encroachment could doom any claims you might have in the future.
To effectively oppose a supplier, manufacturer, or franchisor encroachment you should contact Jeff Goldstein at the Goldstein Law Firm at 202-293-3947. Don’t let your franchisor or supplier’s improper conduct limiting your territorial or customer exclusivity cause you to lose your franchise or dealer business.
