A Franchisorís Guide to Protecting Intellectual Property

31/03/2018 08:00 | Start a business

How franchisors can protect their intellectual property

Franchising your business offers you the chance to use your franchiseeís capital to grow your business much more rapidly than if you chose to take a more traditional expansion route. One disadvantage, however, is that for your franchise to be a success you must disclose the secrets of your business and grant access to use your intellectual property (IP) with your franchisees.

Strong branding is essential for developing a successful franchise model, but itís equally as important that your IP is protected. You can achieve this by including restrictions within the franchise agreement to mitigate the risk of your knowledge and IP being exploiting resulting in loss of your competitive edge.

As a franchisor, you must carefully consider a variety of legal implications that are part and parcel of franchising your business. Protecting your IP is just one of these.

How franchising and intellectual property work?

In its simplest form, a franchise is the granting of intellectual property rights for the franchisee to benefit from offering goods and services under the franchisorís brand. In return for this licence, the franchisee will pay a franchise fee and ongoing royalty payments which are generally calculated as a percentage of gross sales.

Your IP will be considered valuable by your franchisees because of the time and effort you will have invested in developing a robust business model and reputable brand.

Types of intellectual property

From a franchising perspective, your IP tends to relate to your brand. As well as trademark and copyright; patents and design rights are also essential to consider as they allow franchisees to own and operate their franchise businesses effectively.

  • Patent - Protect the technical and functional features of products and processes. All patents must be registered in each country where the protection is needed and must be renewed annually.
  • Trademark - Trademarks protect signs or symbols that differentiate the goods and services of one trader from another. Unlike other forms of IP, trademarks can last for centuries. Registered trademarks are the most widespread form of IP and, when protected, can be one of the most critical assets of any business.
  • Copyright - Copyright protects material, such as art, music, literature, and films. For a franchisor, the operations manuals and training materials will need to be covered by copyright.
  • Design rights - Design rights protect the appearance of products. Franchise logos, websites, colour schemes and fonts can all be subject to registered design rights.

A franchise agreement will also place restrictions on the franchisee so that they canít disclose any confidential information relating to the knowledge that you share with them. This know-how may be provided in return for the franchise fee, but that doesnít make it the property of the franchisee to do with it what they wish.

How should you protect your intellectual property?

Follow these three steps to make sure that your most valuable assets are protected:

1. Identify your IP

When youíre franchising your business, it can be easy to overlook exactly what IP you have and how it should be safeguarded. But failing to identify and protect your brand and trademarks sufficiently can lead to the value of your franchise being impacted. Why would a prospective franchisee invest in a business that is unable to differentiate themselves in a competitive market? The only way to rectify this situation would be to re-brand which can be extremely costly and may even result in existing franchisees taking legal action.

You should aim to review and document your IP on a regular basis. As your franchise grows, you may have additional IP, or existing IP may change. For your franchise to remain protected, you should focus on the vital IP for your franchise including know-how, trademarks and copyrights.

Remember always to keep your franchise agreement template updated too. By ensuring that the contract has a full list of your IP that the franchisees have the right to use will avoid confusion and maintain the value and attractiveness of your business.

2. Protect your IP

Once all of your IP has been assessed, it's essential to protect it. Itís recommended that you seek professional advice regarding your branding to make sure that your brand is registerable as a trademark. When this has been confirmed you should waste no time it registering it.

As well as ensuring that your business is considered worthy of the franchise fee by potential investors, registration of your brand also acts as an insurance policy. Effectively youíre mitigating the risk of your franchisee registering your trademark in their own name. Remember also to register any taglines that accompany your brand name to protect your franchise image.

3. Control the use of your IP

If you donít take the first two steps of assessing and protecting your IP, you leave yourself exposed to your franchisees using your assets for their own purposes.

The most significant threat comes in the form of franchisees who exit your business at the end of their franchise term. If you don't ensure that they rebrand entirely if they're planning to continue trading, there is a chance that they may offer inferior products or services which will have an adverse effect on your reputation despite them not being part of your network anymore.

In cases such as this, you must be prepared to enforce against ongoing infringement of IP rights to protect the value of your franchise. You owe it to your existing franchisees to give them certainty that their investment in your business is safe.

In summary, for your franchise to continue to be of value to both you and your franchisees, you must proactively manage and adequately protect your IP. You must monitor the market to make sure that third parties are not infringing on your IP rights so that breaches are quickly identified and dealt with as soon as possible.

Remember though that breaches are more likely to happen closer to home, so franchise agreements should be clear on IP usage and franchisees leaving your network should be monitored to make sure that they donít devalue your business by continuing to trade under your brand name.

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