Fair Franchise Practices Bill: Encroachment

(UnhappyFranchisee.Com) Proposed PA House Bill 1620 (Fair Franchise Practices Bill) places obligations and penalties on franchisors who encroach upon their franchisees by introducing competing franchises or new channels of distribution that compete with their franchisees.

It states:

§ 909. Encroachment

(a) Notice.–A franchisor, prior to granting or licensing a new franchise or opening a new channel of distribution, shall provide at least 120 days’ written notice to all franchisees in proximity of the proposed new franchise or channel of distribution.

(b) Proximity.–A franchisor may not grant or license a new franchise or otherwise establish a new channel of distribution for goods or services if paragraphs (1) and (2) apply:

(1) The goods or services are similar to those:

(i) offered by a franchisee; and

(ii) identified by the same trade name, trademark, logotype, commercial system or advertising:

(A) used by a franchise; or

(B) owned or managed by an entity related to the franchisor.

(2) The new franchise or new channel of distribution is in unreasonable proximity to an outlet or business owned or licensed to the franchisee so that the effect or probable effect of operating the new franchise or new channel of distribution is to cause a reduction in gross sales of the existing franchise.

(c) Liability.–Except as set forth in subsection (d), the following apply:

(1) A franchisor that violates subsection (b) is liable to the injured franchisee for damages, including:

(i) loss of income resulting from the reduction in gross sales; and

(ii) reduction in value of the franchised business.

(2) A franchisee may obtain injunctive relief against a franchisor that violates subsection (b).

(3) A franchisee that prevails in an action under this subsection shall be awarded:

(i) costs of litigation; and

(ii) reasonable attorney fees.

(d) Exception.–Subsection (c) shall not apply if paragraphs

(1) and (2) apply:

(1) The reduction in gross sales for an existing franchise caused by the operation of the new franchise or new channel of distribution, based on a comparison to annual gross sales from the same franchise location during the 12-month period immediately preceding the initial operation of the new franchise or new channel of distribution, is determined to have been less than 10% during the first 12 months following the initial operation of the new franchise or new channel of distribution.

(2) The franchisor agrees to compensate the existing franchisee for market sales diverted by the opening of the new franchise or new channel of distribution in accordance with the following:

(i) The franchisor and franchisee must agree upon the proper amount of the compensation to be provided.

(ii) If there is no agreement under subparagraph

(i), the following apply:

(A) Each party shall appoint an independent appraiser to determine the amount of the compensation.

(B) If the independent appraisers are unable to agree on the appropriate amount of the compensation, the independent appraisers shall appoint a third appraiser to determine the level of compensation.

(C) The determination of the independent appraiser shall be final and binding.

(e) Affirmative defense.–It is an affirmative defense to an action under subsection (c) that the decline in sales of an existing franchise occurred from a reason other than the operation in unreasonable proximity to the existing franchise of the new franchise or new channel of distribution.

What do you think of the Encroachment provision of the proposed PA House Bill 1620 (Fair Franchise Practices Bill)?

Do you believe that making this provision law will be good for franchising?

Why or why not?  Please share a comment below.

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TAGS: franchise Encroachment, franchise legislation, PA House Bill 1620, PA Responsible Franchise Practices Bill, Fair Franchising Legislation, Franchise laws, Pennsylvania State Rep. Peter Daley

One thought on “Fair Franchise Practices Bill: Encroachment

  • November 16, 2013 at 4:34 pm
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    This is one of the most important sections. There is currently no relief for an existing franchisee when the company allows another franchisee to go into business within a one mile distance from your location or / locations. You can only conclude that the existing franchisee will have to compete against another franchisee and still compete against outside competitors. You can only conclude that customers will be lost and that there will be financial damages to the existing franchisee. Definately needs to be restricted. Companies do this without regard for the existing franchisees investment. Definately needs to be restricted.

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