Does the Ella Cafe non-compete apply in any territory 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 means that after the franchise agreement expires or is terminated, the franchisee is restricted from engaging in a similar business within a specific radius of their former location or any other Ella Cafe location. This restriction applies not only in the United States but also in any other country, province, state, or geographic area where Ella Cafe has registered its marks.
Specifically, the franchisee is prohibited from owning, maintaining, or being involved with any casual, fast-casual, or quick-service coffee house that offers coffee and/or café items as a primary menu item or derives more than 25% of its revenue from such sales. This restriction applies for two years after the franchisee ceases to be an owner or after the termination or expiration of the Development Agreement. The restricted area includes the location of the former Ella Cafe, a five-mile radius around it, and a five-mile radius around any other Ella Cafe operating under the Ella Cafe system and marks.
This non-compete clause is fairly standard in franchising, designed to protect the brand and market share of Ella Cafe. However, the broad geographic scope tied to trademark registration could significantly limit a former franchisee's future business opportunities. The franchisee should be aware that the time periods relating to the obligations will be tolled during any period of noncompliance.
Prospective Ella Cafe franchisees should carefully consider the implications of this non-compete agreement, especially if they plan to remain in the coffee business after their franchise agreement ends. It would be prudent to seek legal advice to fully understand the scope and enforceability of the non-compete clause in their specific circumstances.