Trade mark registration for franchisors
The right benefit from the relevant intellectual property (IP) forms an essential element in the agreement between franchisor and franchisee. Consequently, franchisors should consult not only with franchise consultants and lawyers who specialise in franchise contracts, but also with lawyers who specialise in intellectual property and trade mark law. For more information on trade mark registration see here.
The following text explains the crucial legal elements that need to be in place to protect a franchisor. It starts by briefly outlining the role of the franchise contract, and goes on to explain how trade mark registration can considerably reduce legal costs in the event of an unscrupulous ex-franchisee continuing to trade under the franchise name.
A franchise contract
The UK court sees a franchise contract as sitting between an “employment contract” and a “contract for services”. An employment contract is usually designed to govern everything between the parties, e.g. what the employee is expected to do, where and how they work, and sometimes what they are expected to wear, etc. A services contract is a standard contract in which one might, for example, employ a decorator or an event organiser in order to undertake a particular task or one-off job. Although, you would expect the contractor to undertake the task to a set standard, you would usually leave it to the contractor to determine how s/he does the job.
Although a franchise contractual agreement is not a contract for services or employment, it is designed to govern the relationship between the franchisor and the franchisee, and is a mixture of the two. The franchise agreement exhibits aspects of both types of contracts. The franchise agreement is likely to consider in detail, a number of factors, these could include; the way the franchise does business, the appearance of a shop or business premises, the style of promotional material, the use of signage, etc.
When an employment contract ends, the contractual relationship ends, and the employer cannot continue to organise or influence the employee. This may not apply if the employee has accepted that certain provisions will outlast the employee contract, and these provisions must have been given particular legal consideration in the employment contract. Such considerations usually involve a payment or other compensation, in addition to wages or salary. However, in law, such T&Cs are highly circumscribed and are subject to a court’s jurisdiction. Therefore, they have to be “reasonable”. Any clause in the agreement thought to be unreasonable, even if all parties have accepted it, is unenforceable by a law court. As a result, when the agreement between the franchisor and franchisee ends, the franchisee will be free to compete in the same market place as the franchisor.
Contractual restrictions in the franchise agreement, could include those in relation to ‘fair restraint of trade’ and might well exist even after the contract has ended. The contract could end in a number of ways, including; for example, a repudiation of the contract, a breach of the contract, issues around reputational damage, the contract might have been time-bound, death, or agreement by both parties, etc.
The vital role of IP in franchisor protection
Once the franchise agreement has ended, a franchisor needs to be able to prevent any unscrupulous ex-franchisee to unfairly compete against him/ her and possibly against other franchisees. When continuing to trade, an unscrupulous franchisee will usually continue to use some or all of the franchisor’s trade marks and/or other IP. This happens more frequently than you might expect! Naturally such trading circumstances are likely to reduce the income for the franchisor, and may well damage the brand reputation of the franchise business. Effective and comprehensive trade mark and other IP registration is vital to protect the franchisor in such circumstances.
If a franchisor were to be faced with this situation, he/she can apply to a court to seek to prevent the ex-franchisee from continuing to trade However, a crucial remedy for a franchisor is to ask the court to prevent the continued use of his/her registered trade mark or unregistered brand name. If the trade mark is registered, it is likely that a ‘stop-order’ or injunction to stop the unscrupulous ex-franchise continuing his/her use of the franchisor’s trade mark and/ or other IP, can be obtained. However, if the brand name is not registered as a trade mark, the franchisor has to rely on the tort of passing off. Passing off requires the franchisor to prove ownership. The cost of this latter option is many times more than simply being able to show the court the trade mark registration that proves ownership, usage, and length of registration.
The starting point for an entrepreneur setting up a franchise, is usually to record a description of the business format model that they have developed. This will, naturally, involve the drawing up of new documentation for, e.g. franchise operations manuals or training material, employment contracts, terms and conditions of sale, etc. and other legal documents, etc. These are subject to, and protected by, copyright law. Having drawn up these documents, the franchisor would be able to prove the date of their creation, and this may assist is any action against a competitor who may be alleged to have infringed the franchisor’s copyright. For more information on copyright, see here.
Patents protect the technical and functional aspects of products and processes. All patents must be registered in each country where the protection is required and need to be renewed annually. If a franchise business is dependent on a computer program or any other type of equipment or machinery, that technology may be patentable. Patents can be obtained for a range of invention types, and can provide a monopoly for that invention for up to 20 years. For more information on patents, see here.
Brand Protect’s experience in the franchise sector
The following are examples that give a flavour of the varied work that has been undertaken by Brand Protect on behalf of franchisors. It includes:
- Protecting franchisors from franchisees that try to leave the network and attempt to take the franchisor’s clients with them. In these cases, we have been able to obtain immediate interim injunctions against them together with damages and costs.
- Prosecuting a franchisee who purchased the required goods not from the franchisor, but from a counterfeit supplier. Such actions can damage the service offer and the customer’s experience. This, obviously, diminishes the brand value of the franchise and should be addressed speedily (before the franchisor’s reputation is damaged further).
- Protecting the franchisor or licensee from competitors who use advertisements to unfairly “ride on the coat tails” of the franchisor. Such advertising may tarnish the brand of the franchisor. Again this cannot be tolerated and needs to be dealt with quickly, efficiently and as cost effectively as possible.
How can BRAND PROTECT help you?
At Brand Protect, we often advise franchisors. There is no charge for a consultation and brief trade mark search, prior to any trade mark filing procedure. If the franchisor wishes to proceed with the application to register the business’s trade marks, Brand Protect will do this for a fixed fee.
The Brand Protect team are qualified and experienced in undertaking all contentious and non-contentious procedures arising from trade mark law. Please call Brand Protect on 01869 369701 to find out how they can help you.