Trademarks and property rights in franchise systems
One of the things that a franchisor has to offer a prospective franchisee is their brand. A strong brand name means built-in potential customers for the franchisee and their franchise establishment. Each franchisor must stipulate how its trademarks and proprietary information will be used within the confidential operations manual during the term of the franchise. In my opinion, it is far better to be upfront about this issue and address it in the franchise agreement before signing or exchanging any money for the franchise business. It is for this reason that I developed a clause to include in our franchise agreement, which was a little different than most other franchisors. A copy of that clause is shown below;
3.11.1 Property Rights
The Franchisee acknowledges the exclusive right, title and interest of the Franchisor in and to the Marks. The Franchisee agrees that the Service Marks, the Confidential Operations Manual and the System are the sole and exclusive property of the Franchisor. Nothing in this Agreement or any other agreement will grant Franchisee or others any right, title or interest in the Service Marks, the Confidential Operations Manual or the System as they exist or are developed. Franchisee’s license to use the Service Marks is non-exclusive. Franchisor, in its sole discretion, may operate under the Service Marks and may license others to use the Service Marks on such terms and conditions as Franchisor deems appropriate. The franchisor may use reasonable efforts to protect the rights of the franchisee to use the service marks. In those states and nations where applicable, Franchisee agrees to execute, upon request, all documents necessary to register Franchisee as a registered user of the Service Marks.
Franchisee will immediately notify Franchisor of any infringement or contestation of its use of the Service Marks. The franchisor will have the sole discretion to take or not take action, as it deems appropriate. If the Franchisor assumes the defense or prosecution of any litigation involving the Franchisee or any litigation involving the Service Marks, the Franchisee agrees to execute any and all documents and do all acts and things that, in the opinion of the attorney of the Franchisor, are necessary or advisable to carry out. defense or prosecution. This can be done on behalf of the franchisor or on behalf of the franchisee, as the franchisor chooses. The franchisee will modify or discontinue the use of any franchise name or service mark, or use one or more substitute names or marks, if the franchisor so indicates in writing at any time.
The Franchisor’s sole obligation in this case shall be to reimburse the Franchisee for its tangible costs in complying with the Franchisor’s instructions (ie, the cost of changing signs, stationery, etc.). Under no circumstances will the Franchisor be liable to the Franchisee for any other damage, cost, loss, right or detriment related to any modification, interruption or substitution. All obligations or requirements imposed on the Franchisee in connection with the Service Marks shall apply with equal force to any name or mark modified or replaced.
The Franchisee will not contest, directly or indirectly: the ownership, title, right or interest of the Franchisor in the Service Marks, the Confidential Operations Manual, the Confidential Marketing Manuals or the System; or the exclusive right of the Franchisor to register, use or grant licenses to others to use the Service Marks, the Confidential Operations Manual, the Manuals and the Confidential Marketing System. The Franchisee will not advertise or use the Service Marks without following the applicable guidelines and requirements of the Franchisor. These may include, but are not limited to, the affixing of appropriate (C) or (R) copyright and registration marks, or the TM or SM designations, as appropriate.
Any and all goodwill associated with the Service Marks, as they exist or are developed, including any goodwill that may be deemed to have arisen through the Franchisee’s activities, shall accrue directly and solely for the benefit of the Franchisee. Franchisor, except as otherwise provided by applicable law. The Franchisee designates the Franchisor as its agent and attorney in fact to amend or cancel any Registered User or Trade Name registration obtained by the Franchisee or on behalf of the Franchisee that involves or pertains to the Service Marks.
The Franchisee acknowledges and agrees at all times and in all respects that the trademarks, trade names, service marks, patents, copyrights and all goodwill (local, regional and national) of the Franchisor are sole and exclusive property of the franchisor. Franchisee also acknowledges that Franchisee is only licensed to use such rights and marks in accordance with the provisions of this Franchise Agreement and in strict accordance with the standards, specifications and procedures outlined in the Confidential Operations Manual. The Franchisee shall not take any action that impugns or impairs the exclusive right, title and interest of the Franchisor in the trademarks, trade names, service marks, patents and copyrights. Franchisee will not represent that Franchisee has any ownership rights in the Marks and Franchisee acknowledges that use of the Marks will not create any right, title or interest in the Marks in its favor, but that all use will inure to the benefit of the franchisor. Neither the Franchisee nor any officer, director, agent or employee of the Franchisee shall register or attempt to register the Marks, whether inside or outside the Marketing Area, with any government or any other authority, nor dispute or contest the validity of the Marks. , any registration or application to register any of the Marks, the rights of the Franchisor in the Marks, or the rights of the Franchisor to use the Marks or to grant licenses to others to use the Marks.
The franchisee must post and change trademark notices and registration indicia when and as directed by the franchisor. Franchisee must assist Franchisor to the extent reasonably requested to obtain or maintain any registration of any of the Marks to the extent reasonably requested, including by providing advertising samples.
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It is up to all franchisors to audit their brand and ownership information and decide how best to protect its value. It is recommended that you discuss this at length as it is money well spent with a competent, knowledgeable and experienced franchise attorney to devise better strategies to protect your franchised company and its proprietary information. Consider this in 2006.