Franchising

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. Besides, this training must be permanently accompanied by the advice of the franchisor for the full and efficient development of the franchised businesses, consequently, technical assistance is essential for the proper functioning of the business and so that the reputation of the franchisor is not affected negatively by a bad franchisee. 

Legalities to be considered before franchising

To begin with the franchisor needs to have an established brand and registered trademark for the geographic territory in which the franchisee can operate his business, as well as a franchise agreement . The duration of the franchise agreement, is usually well determined. 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 franchisee to change its name on termination of the franchise and not use IP of the franchisor.

About the internet domain names of franchisees, they should agree not to use, or to cease using, a name related to the brand at the end of their activities as a franchisee. At that point, the domain name and social media platforms should be transferred to the franchisor. 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. These kind of agreements should be signed between the parties during the initial negotiations, whether or not they ultimately buy into the franchise.

Finally, some secrets are so vital that revealing them could result in the loss of the business. Thus, measures must be taken so that the employees of the franchisee as well as other business partners are compliant.

Please contact us at help@bizlawuk.co.uk or WhatsApp us on 07583452230 to see how we can help you franchise your business or visit www.bizlawuk.co.uk to see how we can help with your business in the UK.

Reina D'costa

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