As a franchise depends considerably on duplication of a successful business model, there are numerous intellectual property issues that a potential franchisor must consider before recruiting any franchisees.
The franchisor will license the intellectual property rights to the franchisee as part of the business replication process. These include, for example, the rights of the franchisee with regard to the use of the trade marks of the business, limited copyright rights in relation to the operating manual, stationery and other company literature, as well as website content and training guides and any registered designs or logos.
Surprisingly, a large number of potential franchisors do not address matters of trade marks until very late in the day. Although not a legal requirement of franchising, it is highly advisable for a franchisor to have registered the trade mark(s) required for the business. It is important to check whether anyone has already registered the same or a similar trade mark, as this will prevent you from being able to use it.
It takes approximately six months to register a trade mark, so you should plan accordingly. If you do not register your trade marks, the only legal recourse you have is in relation to the action of ‘passing off’, which can be brought against someone who is using an unregistered trade mark to confuse customers into buying from them, rather than from the business that has the right to use the trade mark. This type of legal action is notoriously difficult and expensive to pursue.
If you have a logo that you wish to protect, i.e. a visual representation rather than words or a phrase (which could be protected by a trade mark), then you should register this as a design. Once registered, the design itself, rather than the item bearing the design, is protected, which means that it cannot be used with any products other than those sanctioned by you.
In the UK, there is no need to register one’s ownership of copyright material: the existence of the work itself creates the copyright. However, it is important to protect the copyright in the materials owned by your franchisor business – perhaps most importantly the operating manual – from misuse or distribution by franchisees or former franchisees. If you commission third parties to create any of this documentation for you, make sure that they assign full copyright over to you. It can be difficult to detect copyright infringement by franchisees and to decide how to penalise offending franchisees, so the franchise agreement should contain explicit provisions to deal with such eventualities.
If you are separating your original business from the business that operates the franchise, you will need a licence agreement that grants the subsidiary (franchisor) company the right to use the intellectual property for the franchise. Franchisees will then also be granted limited rights of use for the purpose of their individual franchise businesses.
If you are thinking about setting up a franchised business or are concerned about intellectual property requirements, contact us.