The dispute and determination of the "business circle protection" clause of the commercial franchise contract.

With the continuous maturity and increase of benefits of a certain commercial franchise model, the franchisor has a demand for the scale development of the business model, and the franchisee has the commercial interest demand to join as soon as possible. If the business circle is not protected, the franchisee will develop unrestrained, which will inevitably cause vicious competition and uneven economic benefits, thus affecting the economic interests of the franchisee.
 

If there is no disorderly competition in the protection of the business circle, the economic benefits will decline, which means that the business model "copy" fails, which will lead to the consequences of no new franchisee joining, and the corresponding business resources will lose value because they cannot be reused. Can not get good and sustainable development.
 

To protect the business circle, it is necessary for the franchisor to disclose the use of business resources, the situation of the franchisee, including quantity, distribution area and other information, in order to facilitate the franchisee to avoid the existing business circle when selecting the address.
 

Item 8 of Article 22 of the Regulations on the Administration of Commercial Franchising stipulates that the franchisor shall provide the franchisee with "an assessment of the number, geographical distribution and operating conditions of the existing franchisees in China". When agreeing on the protection of the business circle, if the franchisor does not disclose the above-mentioned situation of the franchisee, it will lead to the unclear scope of the business circle, which will not only affect the location of the franchisee, but also affect whether the franchisee decided to join, resulting in the consequences of the termination of the franchise contract.

Beijing Intellectual Property Court (2021) Beijing 73 Civil Judgment No. 2954 held that in this case, before signing the contract with He Mei, the Big Windmill Company had authorized other subjects to operate the Big Windmill Education Project 2.1 kilometers away from the address of He Mei's proposed park. Although the franchise park is indeed outside the protection scope of He Mei's business circle, the big windmill company has concealed the important fact that there is already a kindergarten of the same brand only 2.1 kilometers away from the address of He Mei's proposed park, which is enough to affect the decision of He Mei whether to join its brand project and whether to sign a franchise contract, thus affecting the realization of the purpose of the contract involved. In accordance with Article 23 of the Regulations on the Administration of Commercial Franchises, He Mei has the right to request the termination of the contract involved.

The Beijing Intellectual Property Court (2023) Beijing 73 Minzong No. 3614 Civil Judgment found that the evidence in the case was sufficient to prove that a science and technology development company did not disclose the specific scope of the "regional protection and development principles" to Zhang when signing the contract involved. And other information. A science and technology development co., ltd. informed Zhang that there were no other franchisees in Siping city. this fact was an important reason for Zhang to sign the contract involved. It can be seen that a science and technology development Co., Ltd. has concealed the specific scope of business circle protection and other information, which is enough to cause Zhang to sign a franchise contract, which violates the provisions of Article 23, paragraph 3, of the regulations on the management of commercial franchising. Zhang has the right to unilaterally terminate the contract involved in the case.

The protection clause of the business circle agreed in the franchise contract, in practice, there is an unclear scope agreement or there is a dispute, especially in the case of the use of format terms, it is more likely to cause disputes. Usually, the rule of judicial practice is that if there are more than two interpretations of the format clause, an interpretation that is not conducive to the party providing the format clause should be made. Franchise contracts are generally standard terms formulated by the franchisor, if there is a dispute over whether to agree on the protection clause of the business circle, the court will find that there is a protection clause of the business circle, if there is a dispute over the scope of protection of the business circle, the court will find that the scope of protection is beneficial to the franchisee.

Beijing Xicheng District People's Court (2021) Beijing 0102 Minchu No. 15999 case, the civil judgment held that the two parties agreed in the contract that "the scope of protection given by Party A to Party B's business circle is within 2 kilometers of the street where it is located". The plaintiff (franchisee) believes that the scope of protection of the business circle is centered on its shop and within a straight line distance of 2 kilometers. The defendant (franchisor) believes that the scope of protection of the business circle refers to the same street as the plaintiff's shop and within a distance of 2 kilometers. The court believes that according to the defendant's explanation of "the same street" in this case is not in line with common sense, and according to the plaintiff's explanation, it is reasonable to radiate 2 kilometers outward from its store. The defendant allowed the outsider to open the same type of store at a distance of no more than 2km from the plaintiff's store, which violated the contract agreement between the two parties on the protection of the business circle.

The People's Court of Futian District, Shenzhen City, Guangdong Province (2018) Civil Judgment No. 36450 of the People's Republic of 0304, Guangdong Province, determined that the disputed contract was a standard contract, of which Article 1.1 of the contract was left blank and handwritten in the Shenzhen area of the franchise campus. From the meaning of the article, the meaning before and after is not completely consistent: the first half stipulates that the plaintiff (franchisee) is for non-exclusive use; The scope of use agreed in the second half is 1km around the address of the franchise store signed by the contract. The plaintiff claimed that the article was a trade district protection clause. The defendant (the franchisor) argued that the clause was a non-exclusive licence. The court held that article 1.1 of the contract should be recognized as the protection clause of the business circle. Now the defendant has set up a flagship store less than 100 meters apart on the same floor of the same shopping mall of the plaintiff's business premises, which will inevitably cause great damage to the plaintiff's business, resulting in the failure to realize the purpose of the contract and constituting a fundamental breach of contract. The plaintiff has the right to terminate the contract and claim losses accordingly.

Nanjing Railway Transportation Court (2017) Su 8602 Minchu Civil Judgment No. 573 found that the provinces, cities, districts (counties) and scope of the contract signed by both parties were left blank and handwritten. From the perspective of the meaning of this article, it is inconsistent: the first half stipulates that the plaintiff (franchisee) is the only franchise store within the scope of Gaochun, Gaochun District, Nanjing City; In the second half, it was agreed that the defendant (franchisee) should give the plaintiff reasonable protection of the business circle, with the address of the franchise store as the center and the 1500-meter business circle protection. The format contract involved in the case was provided by the defendant company, and an explanation against the defendant should be made, that is, according to the contract, during the duration of the contract between the two parties, that is, within one year, the plaintiff was the defendant's only franchise store in Nanjing. Now the defendant accepts other shops of the same type to join in Gaochun District, which violates the contract signed by the original and the defendant. The defendant constitutes a breach of contract and shall bear the liability for breach of contract according to law.

After the contract has agreed on the protection clause of the business circle, in practice, there is a situation where the franchisee has not selected the address of the franchisee, at this time, how to determine the protection clause of the business circle, and whether the franchisee can claim that the franchisor violates the protection clause of the business circle. In judicial practice, the rules are as follows: in the case of no site selection, the scope of protection of the business circle has not been determined, and the franchisor cannot be determined to violate the terms of protection of the business circle.

Beijing Dongcheng District People's Court (2018) Beijing 0101 Minchu No. 20331 Civil Judgment found that the specific basis and scope of business circle protection could not be determined on the premise that the plaintiff (franchisee) did not choose the address of the business place, therefore, the court does not accept the plaintiff's opinions that the current China Sea City has not reached the protection of the two-kilometer-diameter business circle agreed in the contract, that the plaintiff has no possibility of opening a shop at the place agreed in the contract, and that the contract between the two parties cannot be performed.

The People's Court of Nansha District, Guangzhou City, Guangdong Province (2020) Civil Judgment No. 9152 of 0115 Minchu of Guangdong Province found that Li Wenzheng (the franchisee) intended to initially select the address of the store as the Meile City Shopping Mall in Handan City, but did not finally determine the lease relationship with the shopping mall. The shopping mall was only the location of Li Wenzheng's intended franchise store. The scope of protection of the franchise store stipulated in the contract involved and the exclusive business rights and interests of the store site where Party B opens the store with a diameter of 0.5 kilometers in the center shall be understood as the determined address of the franchise store. To sum up, Li Wenzheng claimed that there was no basis for our company to violate the scope of protection of the business circle stipulated in the contract, and the court did not support it.

According to the rule of proof, the burden of proof for claiming a violation of the protection clause of the business circle is on the franchisee's side, and bears the legal consequences of the failure of proof.

Guangzhou Intellectual Property Court (2015) Yue Zhi Fa Shang Min Zhong Zi No. 289 Civil Judgment held that the appellee (franchisee), in order to prove that the appellant (franchisee) had opened another "Mingji Dessert" shop within the scope of protection stipulated in the contract, provided the industrial and commercial registration data of Ronghua Mingji Dessert Shop in Duanzhou District, a meal card of the shop and the certificate issued by Zhaoqing City Survey Team, ronghua Mingji Dessert Store in Duanzhou District is located in Kangle Road International Square, xx Zhou District, Zhaoqing City. The store uses the words "Mingji Dessert", which can be confirmed that the appellant authorized outsiders to open a "Mingji Dessert" store in the square.

The People's Court of Gongshu District, Hangzhou City, Zhejiang Province (2024) Zhejiang 0105 Civil Judgment No. 2516 held that as for the opening of a new direct store within the 1.5-kilometer protection area, the 1.5-kilometer business circle protection area agreed in the contract refers to the "riding distance" based on the Baidu map of Apple's mobile phone client. As the addresses entered in both directions are different from the name of the store and the specific house number, the displayed distance is 1.4 kilometers, the evidence of the plaintiff (franchisee) is not sufficient to prove the breach of contract of the defendant (franchisor).

The People's Court of Yuhang District, Hangzhou City, Zhejiang Province (2022) Zhejiang 0110 Civil Judgment No. 39 found that: Regarding the defendant (franchisor) has the obligation to provide business circle protection for the plaintiff, the plaintiff (franchisee) did not provide evidence to prove that it There are other stores under the defendant's banner near the store opened, which cannot prove that the defendant has not fulfilled the obligation of business circle protection.

The franchisee should pay attention when giving evidence: first, the origin position of the protection scope of the business circle should be determined; Secondly, it is proved that the franchisee's franchise is indeed within the protection scope of the business circle, and the distance position should be specific and clear and other possibilities should be excluded. Third, it is proved that other franchisees use the resources and models of the franchisee to engage in business activities, such as brand, font size, design, etc.

The failure of the franchisor to perform the obligation to protect the business circle in accordance with the contract constitutes a breach of contract, resulting in the termination of the contract, and the consequences of returning money, assuming liability for breach of contract, compensation for losses and so on.

The People's Court of Huangpu District, Guangzhou City, Guangdong Province (2020) Civil Judgment No. 14421 of 0112 Minchu held that during the trial, Hanjiu Company admitted that it had allowed a third party to open a shop in Yudu County due to negligence of its staff. The act violated the clear agreement between the two parties on the protection of the business circle and fundamentally affected Xie Mouliang's regional agency, which was sufficient to prevent Xie Mouliang's contract purpose from being realized. Therefore, Xie Mouliang's termination based on this claim, it has factual and legal basis. Xie mouliang advocated that hanjiu company should return the agency fee to him, which was supported by the court.

The Shenyang Intermediate People's Court of Liaoning Province (2022) Liao 01 Min Zhong No. 2193 Civil Judgment found that Liaoning Conscience San San Catering Management Co., Ltd., as the franchisor, violated the agreement by authorizing others to carry out franchise activities in Jinshui Street, Huanggu District, Shenyang City, about 870 meters away from Guan Tianrui's franchise store. Failure to perform the obligation to protect the business circle constituted a breach of contract. Therefore, the original court ruled to terminate the franchise contract, it is not improper to judge the defendant to return the performance bond and part of the alliance fee, and according to the nature of the franchise, the actual performance status and other factors, and in accordance with the principles of fairness and good faith, it is not improper to decide that the defendant should pay the plaintiff a penalty of 80000 yuan.

Beijing Intellectual Property Court (2020) Beijing 73 Civil Judgment No. 3235 found that Yule Beibei Company, knowing that there are other franchisees authorized to operate in the administrative area, still signed a franchise contract with Chen Wei in the area, which is a breach of contract stipulated in the contract "Party A intentionally violates the provisions of business circle protection and seriously affects the normal operation of Party B". Now Chen Wei's request to terminate the contract involved has factual and legal basis. Chen Wei claimed that the actual loss was a three-month rent of 15000 yuan, which was the consideration paid by him for using the leased house to perform the contract involved. Under the condition that the contract was terminated due to the breach of contract by Yu Le Beibei Company, the actual rent consideration paid by Chen Wei could not be deemed to be within the scope of normal performance and should be borne by him for operating costs and risks. Therefore, Chen Wei requested Yu Le Beibei Company to compensate the rent for the court's permission.