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Encroachment 'battlefield' now more peaceful. (Special Report: Franchise Encroachment).

Article Excerpt
Rare is the mature restaurant chain that has not been pulled into a court battle with an angry franchisee over encroachment.

McDonald's, Burger King, Subway, Taco Bell, Dunkin' Donuts and KFC are among the companies that have found themselves roiled in disputes over outlets opening in close proximity to those of an existing licensee.

But a funny thing has happened on the way to chains' brand dominance: Encroachment disputes on the franchised landscape virtually have vanished.

Like a war zone that years later becomes a fertile field, the encroachment battlefield has become placid, industry watchdogs and operators say.

A new generation of brands offering territorial exclusivity older brands with rewritten contracts that limit or allow encroachment, and the high cost of litigating have brought peace to what was once a bitter issue between franchisees and franchisors.

Even given those positive changes, the franchise community is not entirely happy, however. The flagging economy, overbuilt markets, financial ailments among franchisors and franchisees and mounting criticism about the nutritional value of chains' food have taken the steam out of the engines of expansion and, by extension, encroachment, operators contend.

Perhaps more important, a federal court decision in the late-1990s that reversed a major victory for franchisees has left them with little room to mount encroachment lawsuits. Nonetheless, there remains wide disagreement about the future of potential disputes over same-brand cannibalization.

From our perspective and in absolute terms, the level and incidence of encroachment has diminished," says Matthew Shay, executive vice president of the Washington, D.C.-based International Franchise Association, which represents about 800 franchisors in dozens of fields of commerce.

"Now that is not to say that there are never disputes with regard to network expansion from time to time," Shay continues. "Certainly, there are far fewer now than a decade ago, and we think it is just a matter...