Concept and legal foundations of territorial protection
The Concept Territorial protection refers to the right or contractually granted option to exclusively or preferentially economically utilize or process a specific geographic area. In legal terms, territorial protection plays a significant role, especially in trade, antitrust, distribution, and competition law. It covers both contractual agreements between companies and statutory frameworks limiting or securing economic activities in certain regions.
Territorial protection has many practical manifestations, including in selective distribution, franchise law, distribution agreements, intellectual property protection (such as trademarks and patents), and competition law. The structure and admissibility of territorial protection depend fundamentally on the relevant regulations, particularly national law and European antitrust law.
Forms and structures of territorial protection
Exclusive and non-exclusive territorial protection
- Exclusive territorial protection: The protected company is granted the sole right to distribute goods or offer services in a specific area. Third parties, including the licensor’s other contracting partners, are not allowed to be active in this territory.
- Non-exclusive territorial protection: Multiple companies are granted the right to operate in the same geographic area simultaneously.
Absolute and relative territorial protection
- Absolute territorial protection: Third-party companies are completely prohibited from operating in the protected area. The beneficiary obtains a complete monopoly.
- Relative territorial protection: Distribution in the protected area is also permitted for other companies, for example, through additional distributors of the same supplier.
Legal foundations and admissibility of territorial protection
Territorial protection under civil law
Within civil law contracts, such as license and distribution agreements, territorial protection is often regulated through appropriate clauses. Typical contractual designs include exclusive sole distribution rights, but also selective distribution systems, where territorial protection is restricted to certain distribution criteria.
Antitrust law framework
German and European antitrust law (in particular the Act against Restraints of Competition [GWB] and Art. 101 TFEU) place strict limits on territorial protection. Legally relevant antitrust aspects include:
- Competition restriction: Absolute territorial restrictions can generally be classified as impermissible restraints of competition.
- Block Exemption Regulation for Vertical Agreements (Vertical BER, Regulation (EU) No. 330/2010): European law allows certain forms of territorial protection, provided market share criteria and other requirements are met (e.g., permissibility of passive sales and restriction of active sales in allocated territories).
- Selective distribution: Here, the focus is not on geographic restriction, but rather on selecting distribution partners based on qualitative and quantitative criteria. Territorial protection provisions also play a role in this context.
Territorial protection and competition law
Provisions on territorial protection are subject to competition law scrutiny, particularly with regard to unfair hindrance or discrimination under the Act Against Unfair Competition (UWG) and Sections 19, 20 GWB (abuse of market power).
Territorial protection in specific areas of law
Trademark law and intellectual property protection
In intellectual property protection, the registration of a trademark, patent, or utility model generally grants legal territorial protection. However, this usually applies only to the respective country of protection (principle of territoriality), but may also cover several states in the case of EU-wide protection rights, such as a European Union trademark.
License agreements
Territorial protection is a common element in license agreements. Licensors grant contracting partners the right to use intellectual property (such as patents, trademarks, know-how) exclusively for certain territories. The design of these agreements must comply with antitrust and competition law requirements.
Franchise law
In franchise law, an exclusive or partly exclusive sales territory is often agreed in favor of the franchisee. The exact structure must comply with the requirements of antitrust law and, in particular, must not result in impermissible market foreclosure.
Problem areas and challenges in designing territorial protection
Risk of abuse and market foreclosure
Excessive or impermissible territorial protection can lead to restrictions of competition and hinder the access of other market participants, resulting in market closures and potentially a breach of antitrust regulations.
Enforceability and sanctions
Violations of territorial protection provisions may give rise to civil claims such as damages or injunctive relief. Violations of antitrust law are associated with substantial fines and nullity of the relevant contractual clauses.
Complexity in the international context
In cross-border distribution relationships, different national and European regulations apply. Ensuring compliance with all applicable regulations presents a particular challenge.
Conclusion: significance and function of territorial protection in law
Territorial protection is a multifaceted instrument for economically managing markets and distribution structures. Its legal admissibility is closely linked to the requirements of antitrust, competition, and intellectual property law. Careful and legally sound drafting is a prerequisite to achieve the intended protective effects and avoid legal disadvantages. Particular attention must be paid to compliance with applicable antitrust law in order to avoid impermissible restraints of competition and sanctions.
Frequently Asked Questions
Is contractually agreed territorial protection always effective?
A contractually agreed territorial protection is generally effective if the agreement between the parties has been concluded legally and does not violate any statutory prohibition or public policy (§ 134, § 138 BGB). A clear and sufficiently specific agreement is required, which delineates the protected territory clearly and precisely defines the group of obligated parties. Special attention must be paid under competition law to § 1 GWB (prohibiting restrictive agreements) and Art. 101 TFEU, which prohibit agreements between companies that restrict competition. Territorial protection agreements are, therefore, particularly permissible in selective distribution systems as long as the agreement does not restrict competition more than necessary. In case of doubt, so-called hardcore restrictions, such as complete market blockades, may be invalid. Distribution agreements should therefore be reviewed for compliance with antitrust law to ensure the effectiveness of territorial protection and avoid legal disadvantages.
What antitrust limitations exist for agreeing on territorial protection?
Antitrust law places strict limits on the contractual arrangement of territorial protection. According to the rules of the Block Exemption Regulation for Vertical Agreements (Vertical BER, Regulation (EU) No. 330/2010), certain forms of territorial protection are permitted, provided that the market share thresholds are not exceeded (both parties generally ≤ 30%). In particular, active sales protection is permissible, i.e., prohibiting actively soliciting end customers or buyers in a contract partner’s protected area. A strict ban on all commercial dealings, especially including passive sales activities (e.g., orders via the Internet), constitutes an impermissible hardcore restriction and is, according to Art. 4(b) Vertical BER, anticompetitive and thus void. Companies must therefore carefully assess which measures they stipulate contractually, since impermissible restrictions can lead to the loss of contractual protection and regulatory sanctions.
Can existing territorial protection agreements be changed or cancelled unilaterally?
A unilateral change or cancellation of an existing territorial protection agreement is generally not legally possible. Territorial protection provisions are based on the mutual consent of both parties and are an integral part of the underlying contract (usually commercial agent, authorized dealer, or franchise agreement). Changes or cancellations therefore generally require—ideally in writing—an agreement by both parties. The only exception is if the original territorial protection agreement includes a corresponding amendment or revocation clause that allows one contracting party to make a unilateral change under certain, clearly defined conditions. Without such an agreement, unilateral changes would typically be invalid. In case of dispute, the disadvantaged party is entitled to insist on the continuation of the original territorial protection provision.
Are there special features regarding territorial protection in commercial agency law?
In commercial agency law (§§ 84 et seq. HGB), so-called district protection is a typical form of territorial protection. The principal may assign the agent a specific territory (exclusive or partial) in which they are active. According to § 87(2) HGB, the agent is entitled to commission even for transactions concluded without their involvement with customers in the assigned district (so-called territorial protection commission). A contractually agreed territorial protection cannot simply be revoked through subsequent changes or withdrawal. In the event of a violation of territorial protection by the principal, the agent may be entitled to damages or commission claims. The antitrust-related limitations of territorial protection also apply to commercial agency agreements, although, unlike authorized dealers, agents are generally considered part of the principal’s business and are subject to less stringent restrictions.
What happens if the agreed territorial protection is violated?
Violations of contractually agreed territorial protection can be sanctioned in various ways: In civil law, the disadvantaged party is generally entitled to injunction and, if applicable, damages, or possibly a contractual penalty if such has been agreed. These claims must be asserted individually and enforced in court. If the relevant protection agreement contains impermissible restrictions under the statutory rules mentioned above (e.g., Vertical BER, GWB, TFEU), then the agreement is void to that extent and cannot provide any protection from the outset. Additionally, violations of antitrust law can be fined by the responsible authorities (e.g., Federal Cartel Office, European Commission). A violation may also result in the loss of block exemption privileges and lead to serious consequences for the contracting parties.
What are the requirements for the drafting of effective territorial protection in contracts?
The contractual wording of territorial protection must be transparent, clear, and sufficiently specific to avoid legal disputes. It is advisable to define the protected territory clearly, either by stating concrete cities, postal codes, regions, or GPS coordinates. The type of territorial protection (exclusive, partly exclusive, selective) should be expressly regulated and documented, as well as any rights regarding existing or future customer relationships. Vague, overly broad, or contradictory territorial protection provisions can render the entire clause invalid. In addition, to the extent possible, the permitted and prohibited activities (e.g., active vs. passive sales) and sanction mechanisms for violations should be precisely regulated.
Is there a claim to territorial protection without an express contractual agreement?
A claim to territorial protection without an explicit contractual agreement generally does not exist. Only in exceptional cases can territorial protection arise from good faith (§ 242 BGB), for example, in cases of long-standing exclusive collaboration where territorial exclusivity was an implicit assumption and withdrawal of protection would be in bad faith (e.g., in cases of existential risk). As a rule, however, an explicit contractual agreement is required to establish enforceable territorial protection claims. Statutory provisions—aside from the commercial agent’s commission protection for their district—do not provide an independent entitlement to territorial protection.
How long does a contractually agreed territorial protection provision apply?
The duration of a contractual territorial protection provision is generally determined by the contractual terms agreed upon by the parties. If no time limitation is agreed, the provision applies for the duration of the main contract (e.g., commercial agency, franchise, or authorized dealer agreement). Once the main contract ends, the territorial protection agreement also generally ends, unless a post-contractual arrangement has been made. Post-contractual continuation is only permissible exceptionally and then usually only for a limited time, for instance where there are special interests in know-how protection or in the context of non-compete obligations, which, however, must comply with § 90a HGB or antitrust law and be reasonable. Otherwise, long-term or unlimited territorial protection agreements may violate antitrust law and thus be void.
