Franchise Encroachment, Part 1

Two legal experts take up both sides of this increasingly hot topic

It's something we've all seen before: A few blocks away from our neighborhood's big-name fast-food restaurant, another one exactly like it opens. The occurrence is so common that passersby probably never guess that, behind the scenes, a long-term dispute about encroachment is brewing between franchisors and franchisees.

What is encroachment? The definition is simple: Encroachment is "trespassing" on the property of another. The issue of encroachment in franchising, though, is another story. Over the past few years, the debate between franchisors and franchisees has become more complicated, focusing on franchisees' explicit or implicit rights to protected markets to sell their goods and services in.

Should franchisees always have protected areas around their locations where no intrabrand competition is allowed? Are franchisees allowed every imaginable-or unimagined as of yet-method of distribution or just the methods of distribution licensed to them? Do franchisors have a duty to compensate franchisees for any real or potential reduction in sales when they allow additional locations to open or establish different methods of selling goods or services that may compete with existing franchisees? What happens if the new location is owned by the same franchisee who opened the original location? Is that encroachment also?

For some answers-or maybe to raise some additional questions-I turned to two of the most recognized names on the legal side of this debate: David Kaufmann, senior partner of New York City-based law firm Kaufmann, Feiner, Yamin, Gildin & Robbins LLP, who works primarily with franchisors; and Robert Zarco, founding partner of Miami-based law firm Zarco & Pardo, who works with franchisees.

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