Does the Ella Cafe non-compete apply in any state where the franchisor has registered the marks?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
United States, its territories or commonwealths, or any other country, province, state or geographic area in which Franchisor or its Affiliates have used, sought registration of or registered the Marks or similar marks or operate or license others to operate a business under the Marks or similar marks. This restriction will apply for two years after I cease to be an Owner (or two years after termination or expiration of the Development Agreement, whichever occurs first) to any location that: (i) is, or is intended to be, located at the location of any Coffee House developed by Developer or previously operated by Developer of its Affiliate(s) under the terms of a Franchise Agreement; (ii) is within a five-mile radius of any Coffee House developed by Developer or operated by Developer or its Affiliate(s) under the terms of a Franchise Agreement; or (iii) is within a fivemile radius of any other Coffee House operating under the System and Marks that is in existence or under development at any location within the United States, its territories, or commonwealths, or any other country, province, state, or geographic area in which Franchisor or its Affiliates have used, sought registration of, or registered the Marks or similar marks, or operate or license others to operate a business under the Marks or similar marks, at the time of such expiration, termination, or transfer. The time periods relating to the restrictions set forth in this Section 6. will be tolled during any period of my noncompliance.
Source: Item 23 — RECEIPTS (FDD pages 50–181)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, the non-compete agreement extends to any geographic area where Ella Cafe or its affiliates have used, sought registration of, or registered their trademarks. This includes the United States, its territories, commonwealths, or any other country, province, state, or geographic area. This restriction is applicable for two years after an owner ceases to be an owner, or two years after the termination or expiration of the Development Agreement, whichever occurs first.
Specifically, the non-compete restricts involvement with any casual, fast-casual, or quick-service coffee house, retail Coffee House, coffee/food truck, kiosk, cart, or store inside store of any type, that offers coffee and/or assorted café items as a primary menu item or that derives more than 25% of its revenue from the sale of coffee and/or assorted café items. This restriction applies to locations that are at the former location, within a five-mile radius of the former location, or within a five-mile radius of any other Ella Cafe operating under the System and Marks.
This means that if Ella Cafe has registered its trademarks in a particular state, a franchisee or former owner is prohibited from engaging in a competing coffee business within a five-mile radius of an Ella Cafe location in that state, or at the site of a former Ella Cafe location, for a period of two years after leaving the system. The time periods relating to the restrictions will be tolled during any period of noncompliance.
For a prospective franchisee, this clause has significant implications. It limits their ability to operate a competing business in areas where Ella Cafe has established a brand presence. It is important to understand the full scope of these restrictions, including the definition of 'competing business' and the geographic areas covered, before signing the franchise agreement.