Nowadays, a number of enterprises use franchise schemes as a means of expanding their businesses. However, registering a franchise requires getting legal advice about the intricacies involved in this process. Therefore, familiarizing yourself with procedure for concluding franchise agreements (hereinafter referred to as FAs) is absolutely important.
Definition
FAs which are concluded between a franchise company and individual companies or entrepreneurs are different from any other commercial agreements. Let us look at their main differences:
- This is an agreement based on contractual relations
- Franchisors undertake to share their expertise & training
- Franchisees adhere to identical procedure
- Franchisors control franchisees’ licenses
- Franchisees mostly invest their funds
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IP
Licensing IP-related rights is an important part of concluding FAs. FAs are all about providing IP rights from licensors to licensees in exchange for a fee or other benefit.
There are 2 major kinds of franchise-related enterprises:
- those authorizing the usage of trademarks
- those authorising the usage of concepts, e.g. trade secrets, copyrights, trademarks, etc.
Drawing up FAs is about determining the scope of the entreprise, kinds of IP used, and ways of its use.
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Trademarks
This implies using any images registered as per respective legislation. It also involves:
- Logos.
- Names/signatures.
- Words and phrases/slogans.
- Letters.
- Numbers/sequence of numbers.
- Shapes & different configurations of the product or parts thereof.
- Drawings or graphic images used for packaging & promotional materials.
- Colors or color combinations.
- Packing.
- Any combination of the above.
To avoid any problems with a franchise, we recommend immediately registering a trademark. This will distinguish your company’s products and services from those of other companies and provide legal protection against any infringement of registered trademarks.
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Copyright-Related Matters
It implies prohibiting copying or replicating the given work without express permission of its author. It includes but not limited to works of literature, artworks, photos, logotypes, ads & computer programs.
When franchisors outsource logo design, they, and not the designer, end up becoming copyright holders thereof.
Confidential Data
It implies technical expertise & commercial data acquired by the company over the course of time. Normally, it is provided in the form of a guideline on conducting business.
Success or failure of franchising entities depend on the usefulness of the said guidelines & sensitive data contained in them. If any information of confidential nature becomes available to 3rd parties, franchised relationships can be in jeopardy. Hence, drawing up FAs requires including a confidentiality clause in them.
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Definitions
Definitions describe franchised entities & include different kinds of IP. Because FA envisage the use of IP, it is also necessary to indicate which IP will be used, which includes location & duration of its use.
Permissions
These are included in the FA if franchisors need to authorize the use of their IP rights. These permissions include:
- License granting exclusive rights/FA
- FA granting exclusive rights or agreement granting exclusive licensing rights
- Regular license
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Payment Types
As a rule, there are 3 types of payments:
- provisional payments made to obtain a license that covers expenses related to POS creation, legal support & training.
- payments made every month, every quarter or every year (including those based on a percentage of a company’s turnover) .
- payments made to promote franchises & referred to as fixed
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Liabilities
Franchisors’ liabilities include initial & current ones.
- Help with setting up a POS;
- Providing operation-related guidance;
- Giving advice on franchise-related matters
- Supplementary training
- Assistance in problem solving
- Giving advice on franchise-related matters
- Make timely payments related to hiring & training of personnel
- Promote franchises, including IP
- Allow franchisors to conduct regular check-ups
- Give franchisors unrestricted access to their accounting records.
Assignment/Transference of Rights
FAs must include a special clause prohibiting from assigning, transferring & alienating franchisees’ rights without franchisors’ express permission.
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Expiration of FA
This clause is all about terminating the FA if franchisees cannot fulfil their commitments as per prescribed guidelines, fail to honor their commitments or do not adhere to high standards of quality. Any IP-related problems may also in the FA being terminated.
Restrictions
It applies to geographical locations, operational character & time period. It is also necessary to consider franchises’ size & kind. If the court finds this clause “unfounded”, it shall be deemed null & void.
Confidentiality-Related Clause
Confidentiality clauses are meant to protect any confidential information. It will, therefore, be worthwhile to include a clause like this in agreements concluded with employees.
Conclusion
Composing FAs requires disclosing any information relating to IP. A properly written FA is absolutely vital for successfully developing and promoting your business, and protecting one’s IP rights.
FAs are exceedingly complex in nature, which is why they should be drawn up by specialists in the field of IP & franchising. Enlisting their help can save franchisors a lot of time & effort. YB Case will help you draw up a franchise agreement and provide legal advice on all franchise-related matters.
