TERRITORIAL DISPUTES OVER INTERNET MAY ARISE AT FRANCHISES

Many retail franchise companies may soon find themselves in conflict with their franchisees over the enticing opportunities of the internet.

The potential for conflict stems from the “exclusive territory” provisions in many older franchise agreements, including a number due to come up for renewal in Southern California over the next few years. These provisions may not permit franchisors to engage in electronic commerce, with the result that, just as many of them face limits on growth in a faltering economy, they also risk trouble with their franchisees if they try unilaterally to expand into electronic commerce.

The solution, however, is not for franchisors to try to block franchisees from engaging in e-commerce altogether – for example by requiring them to sign one-sided agreements benefiting only the franchisors when existing agreements come up for renewal, or perhaps before.

Instead, franchisors should to ensure that they share the opportunities of e-commerce with their franchisees, putting the promise of the internet within the reach of both parties.

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