SINCE MY FRANCHISOR VIOLATED THE FA, I’M NOT GOING TO PAY ROYALTIES
Refusing to pay royalties in response to a perceived breach by a franchisor is a sure ticket to purgatory. Although it seems counterintuitive, not to mention unfair, courts have refused to permit franchisees to withhold royalties as a weapon in a franchise dispute. Further, there is no comfort in numbers, in that, even if a group of franchisees decided to “all” withhold their royalties together, the group’s conduct would most probably be violative of the antitrust laws, which prevent independent business entities (franchisees) from agreeing to a concerted economic action (refusal to pay royalties) to achieve an economic goal (a more equitable distribution of the franchise “pie”).
And wouldn't withholding franchise fees almost always amount to a breach by the franchisee? This would provide the franchisor grounds to terminate the contract and, to add insult to injury, pursue crippling liquidated damages against the franchisee.
Comment by Nishith Patel — September 15, 2007 @ 4:00 pm
In almost every case the failure to pay royalty fees has been recognized as a material breach, which, as a matter of law, would validate a termination.
Comment by Charlie — September 18, 2007 @ 2:02 pm
I believe the best course of action is to have the royalty fee placed in escrow which is released under certain conditions after dispute is solved. Attorney comment is needed.
Comment by DonBeau — October 31, 2007 @ 3:18 pm