Reading time: 4 minutes

Intellectual Property (IP) is a vital asset for any business, but it is especially important if you are a franchisee. In a franchise model business, an IP licence permits you to use the franchisor’s IP. The use of this IP is what makes the franchise valuable.

IP includes a business’:

  • branding;
  • trade secrets;
  • patents; and
  • unique products or techniques.

As a prospective franchisee, you should consider IP when conducting your due diligence on the franchise. It is important to find out:

  • what IP the franchisor owns; and
  • how the IP licence arrangement will work.

This article will outline the key considerations you should have about IP licensing as a potential franchisee.

What Rights Do I Have As a Franchisee Under My IP Licence?

Generally, under a franchise IP licence, you will have a conditional licence to use the business’ IP. This means that you have no ownership rights to the franchisor’s IP. Your IP licence will be:

  • non-exclusive (meaning that the owner of the IP can grant more than one licence and use the IP themselves);
  • revocable (meaning that the franchisor can terminate the licence during the term of the licence); and
  • non-assignable (meaning that you cannot transfer your licence to someone else).

Typically, you will pay set fees to use the licensed IP under the agreed terms. Your franchise disclosure document will include these fees.

How Can I Use the IP?

Your IP licence will set out exactly how you can use the franchise’s IP. These details will also usually be set out in the operations manual you receive at the start of your franchise term. Most IP licences and operations manuals will allow you to use the IP as needed to run the business. This usually means using it to:

  • produce marketing products;
  • distribute goods or services under the franchisor’s brand; and
  • operate the franchisor’s business model.

Any new or proposed use of the IP will require separate approval from the franchisor. This could include new marketing material that features the IP:

  • in photos;
  • on flyers; or
  • on social media.

In most cases, this means that franchisees may not set up separate social media accounts for their franchise business without express permission from the franchisor.

Restrictions

The licence agreement will set out other conditions specifying how you can use the IP. These might include restrictions on:

  • where you can use the IP; and
  • when or for how long you can use the IP.

Generally, you may only use the IP within your franchise territory and during the franchise arrangement.

As a franchisee, you will also need to comply with rules intended to protect the reputation of the business. These rules may set high standards for how you use the IP.

Another important condition of the licence agreement will require that some IP, such as trade secrets, is kept confidential.

For example, if you are a KFC franchisee, you will be licensed to use KFC’s recipes with strict confidentiality requirements around how you can use the IP. Your use of the recipes will be limited to use within normal business operations at your restaurant.

Will I Have Rights to Any IP I Modify or Create Under My Licence?

Usually, the creator of IP owns the rights to that IP. However, in a franchise business, you are unlikely to own rights to any IP that you:

  • create;
  • modify;
  • adapt; or
  • improve upon.

Your IP licence agreement is likely to state that the franchisor will automatically own any changes or improvements to IP. In most cases, this means that the franchisor will be the owner of the franchise’s IP regardless of who created it.

What Happens When the Franchise Agreement Ends?

When your franchise agreement ends, all rights to use the franchise’s IP also end. This means that you will need to return all IP to the franchisor and stop using it immediately. The licence agreement should set out:

  • your termination rights; and
  • the consequences of failing to comply with your licence agreement.

Any unauthorised use of the IP after the franchise agreement ends will be considered an infringement of the franchisor’s IP.

Key Takeaways

An IP licence arrangement gives you access to the IP needed to run and grow your franchise business. IP licence arrangements between franchisors and franchisees undoubtedly favour the interests of the franchisor and there can be consequences for misusing the IP. When conducting your due diligence, make sure you understand:

  • how you are allowed to use the IP throughout the course of your franchise arrangement; and
  • what happens when your franchise agreement ends.

If you have any questions, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Jessica_Coventry
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards