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Everything you need to know about Franchising

Franchising- Protecting your Trademark and Other Intellectual Assets

  • Franchising is a partnership-based distribution system that allows new entrepreneurs to use an established business concept for a fee. The term franchise describes a cooperative distribution system between an existing company franchisor. And one or more company founders – the franchisees. The franchisor grants its cooperation partners, based on a franchise agreement, the right to use the business concept he/she has developed. The franchisor determines the period in which the franchise system is operated by way of a licence. The franchisee may use the established brand name, design, business process and business idea to sell goods or distribute services for this period. 

 They will begin by:

  • Opening a commercial establishment with a point of sale or,
  • Opening an additional division to their current businesses or
  • Transforming or converting their current businesses to the brands and operations of the more popular franchise system they acquire.
  • Being able to franchise the business means, among other criteria, training any third party franchisee. That meets the requirements of the franchisee profile so that the replicated business can develop correctly. Furthermore, for the full and efficient development of franchised businesses, this training must be permanently accompanied by franchisor advice. In order to prevent damage to a franchisee’s reputation, technical assistance is necessary for a successful business.

Legalities to be considered before franchising

  • A franchise agreement and a recognized brand must come from the franchisor for your franchisee to be able to operate his business in that region. Franchise agreements usually have a set duration. 
  • Two other aspects are just as fundamental:
    • The use of the mark in the corporate name or the company name of the franchisee
    • any social media platforms, and an internet domain name.
  • By authorizing the use of its mark in the names or company names of its franchisees. The franchisor increases its supervisory burden and runs the risk of diluting its trademark. The franchise contract should contain a clause obliging the franchise to change its name on termination of the franchise and not use the IP of the franchisor.
  • The franchisee should agree not to use a brand name after the franchise ends. The franchisor must take control of the domain name and social media platform once they have been transferred. For its part, the franchisor should of course seek to register all the domain names under its own company.

Protect other Intellectual Assets

  • To protect its other intellectual property, the franchisor should also list them in the franchise agreement. These include the appearance of the product or service and the establishment, know-how, copyright (such as employee manual, recipes, processes), trade secrets (secret recipes), etc. The contract must clearly specify the terms and duration of the use of these elements.
  • Other specific provisions should also be provided for. For example making the franchisees to whom privileged information (giving a competitive advantage to the franchise system), sign confidentiality and non-disclosure agreements. Whether or not the parties plan to purchase the franchise, it is essential to sign such agreements in the initial negotiations.
  • Finally, some secrets are so vital that revealing them could result in the loss of the business. As a result, franchisees and other business partners must take measures to ensure compliance.

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Reina D'costa

Dual qualified, experienced, practical and proactive solicitor. Founder of Bizlaw UK, a new model legal service consultancy.