Territorial restrictions

Broadly speaking, territorial restrictions are often (but not always) acceptable under the competition policies of Member countries and the EC, although such provisions tend to reduce intra-brand competition when part of a franchise agreement. There are several differences, however: in the extent to which competition authorities are concerned with intra-brand competition between franchisees, and with the degree of market competition between brands and retailers carrying various brands, and also in the strictness of the territorial restrictions that are allowed.

The general acceptance of territorial restrictions is illustrated by the position of the Australian TPC, which stressed that although Coca-Cola granted each franchisee a monopoly position in each territory, the franchise agreement had pro-competitive effects as well. It is interesting to note that the TPC insisted that territorial exclusivity must be limited to a ‘reasonable’ period, generally not exceeding five years. Among the evidence cited by the Commission was the lack of complaints by competitors. As a general observation, such evidence should be interpreted with caution, since territorial restrictions could be used to decrease interbrand competition with other suppliers as well as intra-brand competition within the franchise system.

In the United States, the Supreme Court's reasoning in Continental TV v. GTE Sylvania explicitly applied not only to territorial restrictions but more generally to non-price vertical restrictions.