What franchisors should do to protect their brand and intellectual property rights

Article by Graeme Payne

Bird & Bird

In this second article relating to a franchisor's intellectual property rights, Graeme examines the practical and legal steps that franchisor's should take to protect their brand.

Regarding enforcement of intellectual property rights ("IPRs"), this article examines both the array of potential protection techniques as well as the scenario where a franchisor's franchisee infringes the franchisor's intellectual property rights. A number of the IPR enforcement strategies are however equally applicable to the scenario where an independent third party infringes the franchisor's intellectual property rights.

Contractual Provisions
In addition to formal or registered protection for IPRs such as trade marks, domain names, patents and designs a well drafted franchise agreement should provide the franchisor (at least in terms of its franchise network) with contractual protection against infringement of its IPRs by franchisees.

As a minimum, the franchise agreement should include:

1. an appropriately worded grant of rights clause defining the extent and limits of the franchisee's right to use the franchisor's IPRs;
2. confidentiality provisions obliging the franchisee to only use and disseminate the franchisor's IPRs, know how and confidential information to the extent necessary for the operation of the business; and
3. IPRs clauses regarding the franchisee's permitted uses of the franchisor's IPRs together with express provisions regarding non-infringing use of the IPRs and how infringement actions are to be dealt with.

In addition to the above in-term provisions regarding the appropriate use of IPRs and materials featuring IPRs, it is important that the franchise agreement expressly details appropriate post termination or expiration provisions regarding a terminated or expired franchisee's non-use of the franchisor's IPRs, including debranding obligations and timelines for so doing.

Operational and Organisational Methods
Closely tied in with and backed up by contractual provisions should be certain operational and organisational measures including:

1. initial and ongoing training emphasising key messages regarding the use of IPRs, know how and confidential information;
2. appropriate confidentiality, copyright and no copying notices on key operational documentation including the Manual – as well as technical/IT safeguards for such operational information that the franchisor makes available online;
3. template stationery and promotional materials provided by the franchisor to ensure that the franchisor's IPRs are used in the correct manner;
4. appropriate policies and training regarding the franchisee's use of branded email accounts and branded social media.

Legal Enforcement
With regards to enforcement for registered trade marks, if 'cease and desist' style letters fail to resolve the issue, then a franchisor can seek injunctive relief to stop the infringing use by the franchisee (or third party) together with a claim for damages or an account of profits unlawfully made by the franchisee. In determining whether injunctive relief should be granted the court will have regard to the balance of convenience between the parties' interests and to the prospect of unquantifiable and/or irreversible harm.

With unregistered trade marks, a claim can be brought under the common law for the tort of 'passing off'.

As passing off actions tend to be more complex and costly as compared with relatively simple trade mark infringement actions, well advised franchisors tend to invest in a brand protection (including searches) and registration programme at the outset.

In respect of domain name actions, proceedings can be initiated against cybersquatters and others infringing trade marks through use of a domain name. The relevant rules and procedure differ depending on the type of domain name.

Disputes in relation to UK domain names are heard by the Nominet Dispute Resolution Service. Domain name dispute resolution proceedings are generally simple and low cost. Proceedings are conducted on paper and hearings are extremely rare.

With regards to the protection of IPRs such as copyright and items such as know-how and confidential information, much like with trade marks, the franchisor's enforcement options will initially start with correspondence between the franchisor's and franchisee's legal advisers which, if unsuccessful, may result in an application for an injunction by the franchisor and depending on the nature of the franchisee's conduct, a subsequent court based trial to determine the franchisor's remedies. The key however to any effective enforcement strategy is to ensure that the IPRs are correctly protected in the first place.

Graeme Payne, Partner
Direct: +44 (0)20 7982 6474
Tel: +44 (0)20 7415 6000
graeme.payne@twobirds.com