Is your franchise territory really protected in China? Empirical research over court judgements from 1997 to 2023

This study employs empirical methods to explore a critical yet contentious issue within franchising systems: franchise territory protection. A protected franchise territory refers to a specific area where the franchisor is obligated to restrict new outlet openings and limit intra-brand competition, thereby ensuring exclusive representation for the franchisee. Due to the absence of statutory obligations for franchisors to protect territories, coupled with the significant variations in franchising contracts regarding the stipulation and extent of such obligations, China has witnessed a rise in territorial encroachment disputes, attracting considerable social attention. This study investigates the judicial protection of franchise territories, identifies related problems, and proposes improvement suggestions. Cases heard in Chinese courts from 1997 to 2023 were analyzed. The results suggest that a comprehensive and enforceable contract detailing the franchise territory protection is appealing but not realistic. While courts strive to protect franchise territories, they lack an appropriate legal basis to do so when the franchise agreement itself omits such provisions. In light of this, this study proposes to craft a general obligation of territory protection for franchisors within franchise-specific regulations. Furthermore, it recommends that the Supreme People’s Court promote the application of the doctrines of good faith and fairness in typical cases as an interim measure prior to legislative reform.