Encroachment

The definition is simple: Encroachment is "trespassing"

on the property of another.
In franchise business, encroachment happens
when a franchisor establishes a new business
franchise unit near an existing unit.
 Most Significant Encroachment Issues

• Placing a competing unit

• virtual encroachment/The Internet and e-commerce

• Franchisor dual-distribution programs/development of

alternative distribution channels

• Franchisors' placement of units in nontraditional or

seasonal locations (such as universities, military bases,
workplaces and expositions).

• Sister brand encroachment – a franchisor acquires a

competing brand, and the franchisor’s marketing and
trade secrets are shared with franchisees from the other
brand.
 Encroachment Solution

• Contractual Concerns

• Right of first refusal

• Franchisor should share in the diminution of profits of the existing

franchisee

• E-commerce encroachment: should be clearly explained in

agreement
 Litigating the Encroachment Claim

If the franchisor opens a new location within the

Defined territory set out in the franchise agreement The
franchisee’s litigation counsel will likely:

 Prevent the opening of the location (if it has not already

been opened) or

 Enjoin the continued operation of the location (if it has

been opened)

 Make a claim for damages equal to the economic losses

which it has suffered as a result of the franchisor’s breach
of the franchise agreement.
 The Franchisor’s evidence to disprove encroachment

1. That the franchisor was within its contractual and legal rights to
open the outlet or alternative method of distribution;

2. That the franchisee’s business is not located in the same trading area
as the allegedly encroaching location;

3. That the franchisee’s alleged business losses are unrelated to the

establishment of the allegedly encroaching location;

4. That the franchisee itself had sought to obtain the very location
which it now contends should never have been established; and

5. That the franchisee’s business is profitable, and has not been harmed
by the franchisor’s actions.