USA – ILLINOIS Law and Practice Contributed by: Carmen D. Caruso, Bill Whitner and Gage Meyers, Carmen D. Caruso Law Firm
except for “good cause”. The statute distinguishes defaults requiring advance written notice and a cure opportunity from those permitting termination without notice; under Section 19 (b), a franchisee generally must receive 30 days’ written notice and an opportu - nity to cure a failure to comply with a lawful provision of the franchise or other agreement. In contrast, Section 19 (c) permits termination without notice or an opportunity to cure in specified circum - stances, including when the franchisee: • makes an assignment for the benefit of creditors or similar disposition of the franchise business’s assets; • voluntarily abandons the franchise business; • is convicted of a felony, or other crime, that sub - stantially impairs the goodwill associated with the franchisor’s mark; and • repeatedly fails to comply with lawful provisions of the franchise or other agreement. 6. Restrictions on Competition in Franchise Agreements 6.1 Treatment of Competition Restrictions in Franchise Agreements Franchise agreements in the United States are primar - ily governed by federal antitrust law, including Section 1 of the Sherman Act. Illinois courts generally look to federal antitrust precedent when interpreting the Illinois Antitrust Act, which expressly directs Illinois courts to use federal judicial interpretations as a guide where its language is identical or similar to federal law. See 740 ILCS 10/11; Laughlin v Evanston Hosp , 133 Ill 2d 374, 384 (1990). Most vertical restrictions commonly found in franchise agreements – exclusive territories, non-compete cov - enants, and requirements to purchase from approved suppliers – are generally evaluated under the rule of reason: a restriction is not unlawful merely because it limits competition, and courts weigh its actual or likely anti-competitive effects against legitimate pro- competitive justifications. See Leegin Creative Leather Prods , Inc v PSKS , Inc , 551 US 877, 885–91 (2007).
This approach recognises that restrictions within a franchise system can promote rather than hinder com - petition: territorial protections may encourage fran - chisees to invest by protecting them from intra-brand competition, while purchasing requirements may pro - mote consistency, quality and efficiency system-wide. See Continental TV , Inc v GTE Sylvania Inc , 433 US 36, 54–59 (1977). The principal antitrust risks often arise from horizon - tal agreements among franchisees or other market participants rather than ordinary vertical restrictions imposed by the franchisor. Agreements among com - petitors to fix prices or allocate markets are gener - ally treated as per se unlawful. See United States v Topco Assocs , Inc , 405 US 596, 608 (1972). Accord - ingly, franchisors should take particular care not to facilitate agreements among franchisees that restrain competition, even though ordinary vertical restraints remain subject to rule-of-reason analysis. 6.2 Exclusive Territories and Competing Businesses Exclusive territories are generally permissible in fran - chise agreements, but the scope of any territorial protection depends on the agreement’s terms. Illi - nois courts will not ordinarily infer an exclusive ter - ritory where the agreement expressly reserves the franchisor’s right to operate or establish additional locations. In Patel v Dunkin ’ Donuts of America , Inc , the court declined to recognise an exclusive territory where the agreement did not expressly grant one and instead reserved that right. See 146 Ill App 3d 233, 236–37, 496 NE2d 1159, 1161 (1986). Similarly, in Lib- by - Broadway Drive - In , Inc v McDonald ’ s System , Inc , the court refused to enforce an alleged oral promise of territorial exclusivity where the written agreement granted no exclusive territory. See 72 Ill App 3d 806, 808–10, 391 NE2d 1, 2–3 (1979). In-term non-compete provisions are generally enforceable when they reasonably protect the fran - chisor’s legitimate interests. In McDonald ’ s System , Inc v Sandy ’ s Inc , the court enforced a restriction on the franchisee operating a competing business dur - ing the franchise term, reasoning that it was valid for the duration of the contractual relationship. See 45 Ill App 2d 57, 64–65, 194 NE2d 1, 5–6 (1963). Because
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