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Is offering a protected territory classed as a restrictive practice?
Under previous competition legislation - the infamous Restrictive Trade Practices Act - the grant of an exclusive territory did amount to a restriction that would have been taken into account when evaluating whether the agreement breached the Restrictive Trade Practices Act. Under new legislation, based on European competition laws, this is not the case. There is nothing to stop a franchisor from granting exclusive territories, but their exclusivity is not absolute. In other words, franchisors can agree that they will not compete within the allocated territory and will ensure that they don’t appoint any other franchisee in the allocated territory, but what a franchisor can’t do is to guarantee to a franchisee that no one will trade in his territory. The reason for this is that competition legislation, generally, allows territories to be allocated but prohibits absolute territorial protection. Franchisees can be prevented from actively seeking customers outside their territory (and in the territory of another franchisee), but cannot be prevented from passively responding to an enquiry from a customer outside their territory and in the territory of another franchisee.
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