How Franchisors Can Protect Their Intellectual Property

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Table of Contents

• Securing Intellectual Property Rights
• Alternative Protections

A franchise is a brand. At the heart of that brand is the franchise’s intellectual property, usually a logo, image or trade mark that makes it easily identifiable and recognisable. A franchisor’s aim is for consumers to enter any of its franchised stores and receive the same experience, nationwide. Protecting your intellectual property (or ‘IP’) is then crucial to all franchises. Without the value of the brand, there is no value to sell franchises. Below, we set out how franchisors can secure their IP rights as well as alternative protections.

Securing Intellectual Property Rights

All franchisors should ensure that they protect their IP by:

• Establishing ownership of IP by registration of trade marks, patents and designs (as applicable), noting it is necessary first to register these with IP Australia. This step is critical, and franchisors should complete this registration before offering the franchise to any franchisees.
• The franchise agreement between the franchisors and each franchisee must adequately protect the franchisor’s ownership of the IP and should provide for the franchisee to license the IP for the duration of the Agreement; 
• Any other ancillary documents with franchisees, such as confidentiality and non-disclosure agreements;
• Enforcing your rights as soon as an IP infringement comes to your attention;
• Considering whether a separate limited liability company is required to own the rights to the IP as distinct from the franchise, thereby protecting the IP if the franchisor company faces a legal challenge or enters liquidation.

Alternative Protections

If a franchisor has not registered its IP with IP Australia in the form of a trade mark, design or patent, they may also receive limited protection under statute and the common law, namely:

• Section 18 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) provides that “a person must not engage in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.  Section 18 applies to both corporate and non-corporate entities and the activity must involve trade or commerce; or
• The tort of “passing off” is a common law action protecting the reputation and goodwill of a product, trade mark or business name by ensuring that “no man may pass off his goods as those of another” (see Reckitt v Colman Products Ltd v Borden Inc [1990] 1 WLR 491).  

Applicants must satisfy three elements to establish an action successfully for ‘passing off’, noting that the party bringing the action must:

1. Show goodwill and/or good reputation attached to the goods it alleges a party has passed off;
2. Show that the party attempting to pass off the goods misrepresented their connection with the goods to the public (i.e., they misrepresented their connection to the original company); and
3. Show that he/she/it has suffered as a result of the party attempting to pass off the goods.

An example of passing off was seen in the case of Peter Bodum A/S & Ors v DKSH Australia Pty Ltd [2011] FCAFC 98 where Bodum was successful in enforcing an action against a party who attempted to pass off a coffee plunger in the same style of the famous Bodum plunger. This was successful even with the imitation product being branded differently on its packaging as “Euroline” rather than “Bodum”.

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We can not understate the importance for franchisors to protect their IP. Our franchise team acts for national franchisors and assists them in preparing their franchise documents. If you have any questions about how to protect your brand and your franchise’s image, get in touch on 1300 544 755.