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Franchises rely heavily on their intellectual property rights (IP Rights). In a franchise agreement, there will always be a clause relating to the IP Rights of the franchisor, and the franchisee’s terms of use of this intellectual property (IP), such as the extent to which it is licensed in the franchise agreement. The IP usually refers to the trademarks of the franchise, which is essentially the brand of the business, such as its logo, business name, tag line, colour scheme, and any other distinctive identifier of the franchise.

Brand Protection

Franchises, by their very nature, maximise use of their IP. In general, the way in which the IP is used is controlled by the franchisor.

The system of franchising allows goods or services to receive maximum exposure in an efficient manner by creating a network of outlets that follow a tried and tested system to deliver the goods or services in the most efficient and profitable way possible.

This appeals to franchisees looking to invest in an established brand with valuable goodwill. The financial viability of a tested brand is stronger than that of a newly emerging entrant into the franchise market.

Trademarks are important to franchises, as they indicate (to the consumer) the origin of the good or service. Once the customer knows the brand, it will associate the brand with the user experience. If this user experience was good, the customer may start to regularly visit the franchise, regardless of the outlet.

Due Diligence

Prior to entering into a franchise agreement with the franchisor, the franchisee should commence the due diligence process to ascertain what IP the franchisor actually owns. This process will clarify which trademarks are registered and unregistered. Remember, some IP is not registered in any case, including copyright and trade secrets. Sometimes a combination of registered and unregistered trademarks can help to protect the brand and goodwill.

The IP regime and system of registration in emerging markets can vary greatly. Thanks to a number of international treaties, different systems of IP have been aligned to make registration over certain transnational regions more accessible.

A good example would be the Office of Harmonisation in the Internal Market, which allows trademark registration for the entire European Union. There is also the World Intellectual Property Organisation, which covers the US, China, Japan, and the EU.

To protect the brand and goodwill, the franchisor should have international protection of its trademarks before entering into any franchise relationships in other countries.

There is always the risk that a copycat trademark will have been made in an emerging economy, which is why it is so important to register your valuable trademarks before this happens.

Interesting fact: In Baghdad, Iraq, there is a McDonalds knock off called Madonal!

If this happens, the franchisor will either have to try buying the trademark from the owner, or looking into launching a new brand. Unfortunately, changing the branding of the franchise can destroy the goodwill and reputation of the brand.

Conclusion

For more information see part two of how to protect the brand and goodwill of your franchise business. If you would like to speak to an IP lawyer, or a franchise lawyer, please get in touch by calling LegalVision on 1300 544 755.

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