5 Things Franchisors Should Know About Intellectual Property

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Table of Contents

• 1. What Kind of Intellectual Property Does Your Business Own?
• 2. What Intellectual Property Are You Licensing?
• 3. How Can the Franchisee Protect Your Intellectual Property?
• 4. Does Your Franchise Agreement Have a Confidentiality Agreement?
• 5. What are the Franchise’s Quality Standards?
• Key Takeaways

If you are a franchisor or are thinking about setting up your franchising enterprise, you have undoubtedly heard about intellectual property. Just in case you need a refresher, intellectual property is the term used to describe various kinds of intangible assets which may include trade marks, copyrights, patents, designs, and trade secrets.

Franchising is considered one of the most effective ways of exploiting your business’ goodwill and reputation through monetising your intellectual property. A franchise agreement usually involves the franchisor licensing their IP to the franchisee for a fee and under certain conditions.

If you are a franchisor or are thinking about franchising your business model, here are five intellectual property issues to think about and consider for your franchise agreement. 

1. What Kind of Intellectual Property Does Your Business Own?

Most successful businesses would have a combination of trade marks, copyrights and trade secrets. More tech or research-driven businesses may also have designs and patents as well. Once you have identified what type of IP you have, make sure that you clearly set out your ownership of your IP in your franchise agreement. Carefully consider what IP you would like to licence to your franchisees and the attached conditions. Most franchise agreements would provide franchisees a non-exclusive, non-transferable license to use the franchisor’s IP. This means that while your franchisees may use your trade mark, they will not be able to amend it or use it for purposes other than in relation to their franchise business.

2. What Intellectual Property Are You Licensing?

Carefully consider which of your IP you would like to license to your franchisees and the conditions attached to these licenses. Most franchise agreements would provide franchisees a non-exclusive, non-transferable license to use the franchisor’s IP. This means that while your franchisees may use your trade mark, they will not be able to amend it or use it for purposes other than in relation to their franchise business.

3. How Can the Franchisee Protect Your Intellectual Property?

In addition to including essential licence terms, it would also be useful to provide franchisees with additional guidance on how they assist in protecting and enforcing your intellectual property. For example, information on what constitutes trade mark infringement and what they should do if they feel that someone is infringing your trade mark will better equip them to assist you in protecting your intellectual property rights.

4. Does Your Franchise Agreement Have a Confidentiality Agreement?

Make sure you establish a clear nondisclosure and confidentiality clause in your franchise agreements. Ensure that it addresses not only your intellectual property but also general business information including systems and processes, client databases and financial information and know how.

5. What are the Franchise’s Quality Standards?

Franchisors should take steps to monitor the franchisee’s adherence to the quality standards carefully. This is important in ensuring that the entire franchise system consistently adheres to the quality standards expected by the business’s loyal customers and clients. An operations manual to ensure quality control, compliance with requirements and standards should supplement a franchise agreement.

Key Takeaways

It is a franchisee’s responsibility to perform due diligence on the franchise model before entering into any agreement with the franchisor. Consider, however, that as most of the benefits you will acquire from the business comes from your intellectual property, it’s a worthwhile investment to understand what you can about your rights. If you have any questions, let our Intellectual Property lawyers know on 1300 544 755.