Franchise Agreement is critical to protect both franchisee and franchisor from encroachment issues.
The internet is an essential and critical tool in every marketing plan. Since all brands utilize some form of internet marketing today, such marketing is normally considered by franchise agreements. Courts rarely interfere with business practices that result from contractual agreements.
In his New Jersey Law Journal article, Internet-Based Franchise Encroachment Runs Rampant, Jonathan Bick observes:
Carvel Corp. v. Noonan, 818 N.E.2d 1100 (N.Y. 2004), is illustrative. Several franchisees had successfully sued Carvel Corporation in federal court after asserting claims arising from Carvel selling its ice cream directly to supermarkets. On appeal, the Second U.S. Circuit Court of Appeals certified to the New York Court of Appeals the question of whether the franchisees had a valid claim for tortious interference with prospective economic relations. The state court found that the relationship between franchisors and franchisees is a complex one. While cooperative, the relationship does not preclude all competition and the extent to which competition is allowed should be determined by the contracts between the parties, not by courts.
The New York Court of Appeals thus concluded that only contract law should govern whether competition between a franchisor and a franchisee is wrongful, including the implied covenant of good faith and fair dealing. The court found that the intervention of tort law to regulate when a franchisor may or may not compete with its franchisees is neither necessary nor useful.
[Jonathan Bick, Internet-Based Franchise Encroachment Runs Rampant, Vol. 202-No. 12, New Jersey Law Journal, Dec. 20, 2010.]
A prudent franchisor should appropriately delineate within the franchise agreement how, when and where it plans on selling competitive products within the restricted territory licensed to its franchisee. The broad range and far-reaching tentacles of the internet can cause conflict if a well defined plan—including revenue sharing—is not inclusive in the agreement and disclosure document.