TERRITORIAL EXCLUSIVITY  

Franchises, sales territories: the internet has created the potential for conflict. Older agreements never contemplated web sites. Today, when entering into any agreement giving you territorial exclusivity, the conflicts which can arise from marketing through web sites cannot be ignored.

Well publicized conflicts include the Ford Motor Company and other vehicle manufacturers and their dealers; drug store web sites and their franchisee / operator stores.

The right to conduct business in a territory obviously is not as strong as an exclusivity provision. However, a non-compete provision as long as the agreement is in good standing is similar to an exclusivity provision.

In the United States, the non-competition / exclusivity provisions have been held to be effective against a franchisor's or distributor's virtual store.

Today, it can be expected that franchisors and distributors may want to reserve the right to conduct all internet sales.

Alternately sharing arrangements may be proposed, or the franchisor/distributor may serve as a broker, having the franchisee take responsibility for the sale.

Issues to be addressed, using franchises as the example, include:

• Rights of franchisor and franchisee to establish web sites;

• domain names;

• the use and protection of the franchisors' marks, domain and trade names on the franchisee's site;

• links;

• content;

• franchisee's territorial sales jurisdiction.

Those of you having existing agreements should expect that these issues will be addressed in renewal agreements. If entering into a new agreement, it is vital that these concerns be reviewed.

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