Can I Register a Trade Mark for a Franchise?
Franchising is an increasingly popular business model in Australia, with franchises employing over half a million people and annual revenue exceeding $100 billion across more than 1,300 franchises nationwide. With the intellectual property (IP) of a business forming its entire brand identity, trade marks are the foundation of franchises. Therefore, whether you are a franchisor or franchisee, it is important to understand the very foundation of your business model. To help you better understand the world of franchises, this article will take you through what a franchise is, the legal basis for franchises and whether you can register a trade mark for a franchise.
What is a Franchise?
A franchise is one way that you can structure your business. A franchise refers to the owner of their business (the franchisor) licensing specific assets of their business to third parties (the franchisee) for a fee over a specified period. Usually, the licensed elements are the business’ IP, including their trade marks.
Certainly, purchasing a franchise can make it easier for a franchisee to establish a business. Instead of building a brand from scratch, the franchisee can use the business’s pre-existing goodwill. There are also several benefits for the franchisor, primarily relating to the financial incentive of licensing the use of their brand.
Above all, trade marks are at the very core of franchising, with the key incentive of purchasing a franchise being the use of the business’ brand. Therefore, this makes the development of a franchise agreement, or the ‘contract’ between the franchise and the franchisee, critical.
For instance, some things to consider including in a franchise agreement are the:
- franchisee’s obligations with relation to performance;
- payment of licensing fees or royalty fees;
- reporting requirements; and
- franchisor’s obligations with regards to the provision of products and advertising.
Legally, the franchise agreement should also include a copy of the franchisor’s disclosure agreement. Additionally, this disclosure agreement must include:
- contact details of other franchisees;
- the franchise’s financial details;
- costs associated with establishing a franchise;
- details about franchise renewal; and
- details of any legal proceeding against the franchisor (including trade mark disputes).
This disclosure document gives the prospective franchisee accurate information about the franchise.
The Franchising Code of Conduct
The Franchising Code of Conduct is a mandatory industry code that regulates franchisor and franchisee relationships across Australia. This code has a number of key provisions, one of which details that a franchisee must be substantially associated with a trade mark or a commercial symbol. This highlights the fact that trade marks are the primary element of trade mark agreements.
The Franchising Code of Conduct also outlines a number of obligations and duties on both franchisors and franchisees, making it the most critical legislation for any party involved in a franchise in Australia. The ACCC has put together a fact sheet about the Franchising Code of Conduct, which you can read.
Certainly, one of the key benefits to having a registered trade mark is the ability to license your trade mark. For instance, the contracts for licensing your trade marks, referred to as a licensing agreement, grants the franchisee permission to use the franchisor’s trade marks for an agreed-upon fee.
When it comes to franchises, the franchise often contains the licencing agreement. For example, this will include provisions about using the trade marks, including what can be used and how long the license exists.
It is also common for a separate entity to ‘own’ a franchises trade marks. This keeps the trade marks separate from the franchisor and provides an extra layer of protection should anything happen to the franchisor. These separate entities, referred to as IP holding companies, then grant the licenses. IP holding companies have several advantages, including protecting IP assets from external issues and providing tax minimisation and administrative efficiency.
In conclusion, with franchises becoming an increasingly business model due to their many benefits, it can be useful to understand how franchises work from a trade mark perspective. For example, this includes having some basic knowledge on:
- what franchises are;
- what franchise agreements are;
- the Franchising Code of Conduct; and
- licensing agreements.
If you need help understanding franchises and how they relate to your IP, our experienced trade mark lawyers can help. Get in touch with them on 1300 657 423 or by filling out the form on this page.
Frequently Asked Questions
A franchise is a business structure that allows for the temporary purchase of a business opportunity. A franchise refers to the owner of their business (the franchisor) licensing specific assets of their business to third parties (the franchisee) for a fee over a specified period. Primarily, a franchise relates to the licensing of a business’ IP, including its trade marks.
A key benefit to having a registered trade mark is the ability to license your trade mark. While you cannot register a trade mark specifically for a franchise, a registered trade mark is the key first step in developing licencing agreements to permit franchisees to use the franchisor’s trade marks for an agreed-upon fee.