Franchising in Taiwan: Defining Territory Protection and Cross-Store Order Rules

When turning an existing business in Taiwan into a franchise network, it is easy for a franchisor to promise that “no other shops will open nearby” without explaining how far “nearby” extends, whether deliveries count or whether company-owned outlets face the same restrictions. Vague territorial arrangements can turn expansion into competition within the network. Before offering franchises, set out territorial rights, order allocation boundaries and procedures for making changes in enforceable schedules to the agreement, rather than relying on verbal assurances made during recruitment.

1. Decide what you are protecting before drawing the territory map

Territory protection can take different forms; the word “exclusive” alone is not enough. Franchisors should first decide which commitments they can fulfil, then explain their limits to prospective franchisees.

• No additional outlets within the territory: The franchisor undertakes not to open specified types of company-owned or franchised outlets within the agreed area, but this does not necessarily restrict online sales.
• Territorial rights for specified channels: Alongside physical outlets, the agreement sets out how deliveries, corporate orders or online shop deliveries will be allocated.
• Non-exclusive operation: The franchisor retains the right to open further outlets in the area, but must make this clear rather than promising exclusivity while using exceptions to remove the protection.

Use a clearly marked map supported by road names, street addresses or coordinates. If the territory is defined by a radius, specify the starting point and measurement method. If it follows administrative boundaries, address how future boundary changes will be handled. State explicitly whether stations, shopping centres, department stores and temporary stalls are included.

For example, if the franchisor intends to open a small outlet inside a station, it should not first promise exclusivity across the surrounding area and then claim, after signing, that the station is a special location. The map should carry a date, version number and a record of both parties’ approval. It should also explain how any discrepancy between the map and the wording of the agreement will be resolved.

2. Deal separately with deliveries and online orders

The customer’s location, the ordering channel and the outlet fulfilling the order may not all fall within the same territory. A simple ban on “operating outside the territory” is not enough to address how orders are handled in modern retail and food service businesses.

Use an order allocation table to set out the following scenarios separately:

Scenario	Points to agree in advance
A customer chooses to visit an outlet in another territory	Whether this is ordinary customer choice rather than cross-territory solicitation
The brand website receives an order for delivery	Whether allocation is based on the address, stock availability or fulfilment capacity
Delivery platform service areas overlap	Who is responsible for setting, monitoring and requesting changes to those areas
A franchisee actively markets to businesses outside its territory	Whether prior approval is required
The franchisor accepts a group order spanning several territories	How revenue, costs and after-sales responsibilities will be allocated

The key is to distinguish “actively soliciting business outside the territory” from “passively accepting a customer’s choice”, so that every cross-territory purchase does not become an allegation of breach of contract. Nor should franchisors make absolute promises they cannot fulfil about order allocation or visibility controlled by third-party platforms.

If orders need to be transferred between outlets, the agreement should specify who handles payments, refunds, promotional costs and customer complaints. Transferring customer names, telephone numbers and addresses between outlets also requires a separate review of notification requirements, purposes of use and security measures under Taiwan’s Personal Data Protection Act. Do not assume that data can be shared freely simply because the outlets belong to the same franchise network.

3. Check commitments and restrictions against Taiwan’s rules

Taiwan has neither a single dedicated franchise statute nor a general franchise qualification registration system. That does not mean territorial arrangements are free of legal risk merely because both parties agree to them.

The Taiwan Fair Trade Commission’s principles for handling cases concerning franchisors’ business conduct are important administrative guidance for franchise cases, not a standalone franchise law. The material transaction information covered includes operating arrangements or proposed plans for opening outlets belonging to the same franchise system within a franchisee’s trading area, as well as restrictions within the franchise relationship. Franchisors should explain these arrangements before the agreement is signed and must not conceal existing material plans by describing them as “internal expansion strategy”.

Concealing material information or providing it late may engage Article 25 of the Fair Trade Act if it amounts to deceptive or obviously unfair conduct sufficient to affect trading order. References to Article 24 in older materials should not simply be treated as the current article number. Equally, the administrative guidance does not mean that every information-related dispute automatically constitutes a legal violation; each case must be assessed on its facts.

The validity and performance of the agreement, and liability for breach, are governed by general legislation such as the Civil Code. Restrictions on a franchisee’s trading territory, customers or other business activities should also be assessed against the Fair Trade Act’s rules on restrictions of competition. A restriction is not necessarily lawful simply because it appears in a franchise agreement. Before launching, have a lawyer familiar with Taiwanese franchise arrangements review recruitment claims, map schedules and contractual provisions together.

4. Establish procedures for changes and disputes in advance

An outlet relocation, a shopping centre closure or the opening of new transport infrastructure may make existing territorial arrangements unsuitable. The agreement should specify when an adjustment may be proposed, what supporting information is required, how notice must be given and which changes require both parties’ written consent.

Avoid simply stating that “the franchisor may adjust territories at any time”. If protection is to depend on service capacity or operating performance, define verifiable assessment methods, opportunities to improve and a review procedure. An outlet’s entire territorial rights should not be suddenly withdrawn because it has missed a target.

Whenever a new outlet is proposed, the franchisor can carry out the following internal checks:

1. Compare the proposed location with all current territory schedules to identify any existing commitments that may be affected.
2. Check the outlet format, sales channels and delivery coverage, rather than looking only at the distance between outlets.
3. Record communications with affected franchisees and any changes agreed through negotiation.
4. If a dispute arises, first preserve order records, maps and recruitment materials, then negotiate through the agreed procedure. Do not use supply suspensions or payment deductions as a substitute for establishing the facts.

Practical takeaway: Before offering franchises, use a territory map, an order allocation table and a set of change procedures to test whether you can clearly answer: “Who can do business where, and through which channels?” Any point you cannot explain clearly is an arrangement that needs further work before signing.