What is the geographic scope of Benihana's restriction on operating or licensing other Benihana Restaurants, assuming the franchisee is in full compliance?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
he BENIHANA System. Franchisee acknowledges that Franchisee is not granted any options, rights of first refusal or development opportunities.
- 1.5 During the Franchise Term, if and only if Franchisee is in full compliance with the terms and conditions of this Agreement, and subject to BNC's rights set forth in Section 1.7 of this Agreement, BNC shall not operate or license any person or entity other than Franchisee to operate, a BENIHANA Restaurant at any location that is within the "Restaurant Area" specified in the Contract Data Sheet attached
to this Agreement.
- 1.6 Franchisee expressly acknowledges that the franchise granted under this Agreement is nonexclusive and that any geographic limitation on BNC's rights to use or license the Marks under this Agreement relates solely to the operation of a BENIHANA Restaurant at the Location.
- 1.7 Nothing in this Agreement is intended to or shall limit in any way any rights of BNC or its affiliates to: (i) own and operate, or license others the right to own and operate, competing restaurants other than a BENIHANA Restaurant at any location, regardless of the proximity to the Restaurant, including but not limited to restaurants using the trademark RA® Sushi; (ii) own and operate, or license others the right to own and operate, BENIHANA Restaurants, including another business similar to the Restaurant outside the Restaurant Area, even if such BENIHANA Restaurants compete with the Restaurant or draw customers from the Restaurant Area; (iii) engage, directly or indirectly, at wholesale, retail or otherwise, in the production, distribution, license and/or sale of any product or service under the Marks, or other marks, anywhere, regardless of the proximity to, or the competitive impact on, the Restaurant, through alternative channels of distribution (by way of example only, grocery stores, conveniences stores, internet sales, catalog sales, telemarketing or other direct marketing); (iv) license others to use the BENIHANA System and the Marks for the operation of BENIHANA Restaurants within Special Distribution Opportunities (as defined below); (v) advertise and promote the BENIHANA System within the Restaurant Area; and (vi) purchase, acquire, be acquired by, merge or affiliate with or engage in any transaction with other businesses (whether or not these businesses are competitive with the Restaurant), including competing franchise systems with units operating in the Restaurant Area, and to convert and operate, or license others the right to operate these units under the Marks and the BENIHANA System.
- 1.8 For purposes of this Agreement, "Special Distribution Opportunities" shall mean captive venue locations, generally available only in connection with third-party food service provision contracts, including, without limitation, restaurants or other retail locations at airports and other public transportation facilities, turnpikes and toll-roads, entertainment and sports complexes, hotels, casinos, convention centers, and military facilities.
**ARTICLE 2.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, Benihana's commitment not to operate or license other Benihana restaurants is limited to the "Restaurant Area" specified in the Contract Data Sheet, provided the franchisee is in full compliance with the franchise agreement. This protection is in effect only during the Franchise Term. The franchise agreement explicitly states that the franchise granted is non-exclusive, and any geographic limitations apply solely to the operation of a Benihana Restaurant at the specified Location.
Benihana retains significant rights to operate or license other restaurants, including competing brands like RA® Sushi, regardless of their proximity to the franchisee's location. Benihana can also operate or license Benihana Restaurants outside the Restaurant Area, even if they compete with or draw customers from the franchisee's Restaurant. Furthermore, Benihana is not restricted from engaging in the production, distribution, or sale of any product or service under the Benihana trademarks through alternative channels of distribution, such as grocery stores or internet sales, irrespective of the impact on the franchisee's Restaurant.
This means that while a franchisee has some limited geographic protection within their Restaurant Area, Benihana has broad rights to operate or license other restaurants and distribution channels that may compete with the franchisee. A prospective franchisee should carefully review the Contract Data Sheet to understand the exact boundaries of their Restaurant Area and consider the potential for competition from other Benihana ventures outside of this area. The franchisee should also be aware that Benihana can operate Benihana Restaurants within Special Distribution Opportunities, such as airports and entertainment complexes.
In summary, the geographic protection offered to a Benihana franchisee is relatively narrow, limited to the Restaurant Area specified in the franchise agreement, and is contingent on the franchisee's full compliance. Benihana retains extensive rights to operate or license competing businesses and alternative distribution channels, which could impact the franchisee's business. Therefore, a clear understanding of these limitations and potential competitive factors is crucial for any prospective Benihana franchisee.