What is franchising?
Franchising is a business development or expansion strategy, whereby a business (the franchisor) licenses a person or people (the franchisees) the right to market and/or sell products of services using the franchisor’s know-how, business model, processes, trade marks, trade secrets, etc., in return for a fee and/or ongoing royalties.
Why are trade marks important when franchising?
Having and maintaining a strong brand is key to any successful franchising arrangement. The key advantage for the prospective franchisee is having access to the know-how, business model and branding of an already-established business. So, the stronger the brand, the greater the negotiating power of the potential franchisor. It is therefore vital that businesses properly protect their trade marks by undertaking the necessary searches and registering their trade marks in any territories where they intend selling their goods or offering their services or licensing others to do so, including as part of a franchising arrangement. This will ensure that the trade mark owner is able to enforce its trade mark(s) against third parties, including any franchisees who might infringe or misuse the trade mark.
In order to maintain a strong brand, minimise the risk of any dilution or misuse of its trade marks, and ensure that both parties have clarity, a franchise agreement should include clear guidelines governing the use of the licensed trade mark(s), including the manner in which the trade mark(s) should be used and the goods/services on which the mark(s) may be used.
A franchise agreement should also include, as a minimum, terms relating to quality control, the geographical scope of the franchise, the obligations of both parties (including in relation to the promotion of the brand and training), the liabilities of both parties, the terms of payment, and the duration, renewal and termination of the agreement.
Dehns has experience of working for both franchisors and franchisees, as well as drafting and reviewing franchise agreements.