Definition of territorial exclusivity in franchise agreements

Territorial exclusivity is a commonly included provision in franchise agreements that grants a franchisee exclusive rights to operate within a defined geographic zone.

This exclusivity offers a significant commercial advantage, shielding franchisees from internal competition and enabling them to develop their customer base within a protected environment. It also ensures brand consistency and alignment with the franchisor’s strategic positioning.

The effectiveness of this clause depends on precise territorial delineation and strict compliance with contractual obligations by all parties to the agreement. 

Legal framework under french law

Pursuant to Article 1240 of the French Civil Code, any act causing harm to another gives rise to liability for damages. This principle applies fully within the context of franchise relationships.

French courts regularly hold that violating a territorial exclusivity clause constitutes an act of unfair competition, particularly when it encroaches on the contractual rights of another franchisee. For example, in a decision dated 13 March 2024 (Paris Court of Appeal, No. 23/17908), the court found that distributing advertising materials within an exclusive territory amounted to a manifestly unlawful disturbance and warranted an injunction.

Additionally, EU Regulation No. 330/2010 authorises franchisors to prohibit active sales in another franchisee’s exclusive zone, while expressly permitting passive sales (responses to unsolicited customer orders).

How to identify unfair competition between franchisees

Unfair competition between franchisees can take various forms, particularly when one engages in commercial or marketing activities within another’s protected territory.

The most frequent examples include:

  • Sending promotional emails or distributing leaflets within the exclusive zone;
  • Using local SEO techniques to target customers in another franchisee’s area;
  • Launching geo-targeted advertising campaigns on social media platforms aimed at consumers outside one’s designated territory.

Importantly, unfair competition may be established even in the absence of intent; the breach of exclusivity and the resulting harm alone suffice.

Legal and commercial risks for the infringing franchisee

A franchisee who breaches a territorial exclusivity clause is exposed to substantial legal and reputational risks, including:

  • Preliminary injunctions requiring immediate cessation of the infringing activity;
  • Damages for proven financial loss suffered by the affected franchisee;
  • Termination of the franchise agreement for material breach of contract;
  • Harm to brand reputation, which may negatively impact the franchise network as a whole.

These risks underscore the critical importance of adhering to territorial boundaries established in the franchise agreement.

Preventive measures and practical recommendations

To avoid both intentional and unintentional breaches of territorial exclusivity, we recommend the following best practices:

  • Define territorial boundaries with precision in all franchise agreements;
  • Train franchisees and their teams on their legal obligations regarding territorial exclusivity;
  • Monitor local and online marketing campaigns, especially those involving digital outreach or search engine optimisation;
  • Implement early warning systems or internal mediation procedures to swiftly address potential disputes.

A proactive and preventive approach is essential to safeguarding the integrity and stability of the franchise network.

Conclusion

Territorial exclusivity is a fundamental pillar of franchise governance, intended to promote balanced market development and limit internal conflicts.

Its violation not only constitutes a contractual breach, but also a form of unfair competition with potentially serious legal and financial consequences.

Dreyfus Law Firm works with clients in the food sector, providing specialist advice on intellectual property and regulatory issues to ensure compliance with national and European laws.

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FAQ

1. What qualifies as an active sale within a protected territory?

Active sales refer to any proactive marketing or direct solicitation efforts targeting customers within another franchisee’s exclusive area.

2. Can online activities violate territorial exclusivity?

Yes. Digital marketing strategies such as geo-targeted ads or region-specific SEO can infringe on exclusivity rights if aimed at a competitor’s designated zone.

3. Can one franchisee initiate legal proceedings against another?

Yes, provided there is sufficient evidence of a contractual violation or an act of unfair competition.