Protecting your brand is essential

Franchisors should ignore it at their peril, David Schollenberger, partner and head of IT/IP at Healys solicitors, says

Starting and operating a franchise network without adequate brand protection is like unprotected sex. Well, maybe not quite as enjoyable, but it’s reckless and involves taking avoidable risks that could prove catastrophic to a franchisor’s business.

Brands and franchising

A franchise is a license for the use of a brand and system of know-how, procedures and standards related to that brand. Brands can have huge commercial value and may even account for the majority of a company’s assets. Top worldwide franchisor brands such as McDonald’s or Holiday Inn are worth billions of pounds. A brand provides a reassurance to a customer about the quality and consistency of the franchised services.

The brand for a product or service is protected by the use of a trademark. Trademark creation, management and protection are essential for a franchisee seeking to secure its assets and ensure both initial and continuing commercial success.

What are trademarks?

Trademarks are a designation by a trader to distinguish its goods and services from another trader. They can be unregistered or registered with government trademark offices in each country of the world.

In the UK, the government agency that deals with trademarks is called the Intellectual Property Office. A UK trademark is only enforceable in the UK. The UK registration lasts for 10 years and is renewable for further 10-year periods.

In the EU, a European Union Trade Mark or EUTM (formerly known as a Community Trade Mark or CTM) may be obtained through application to the EU Intellectual Property Office or EUIPO (formerly known as the Office for Harmonization in the Internal Market or OHIM) in Alicante, Spain. A EUTM is enforceable throughout the EU. The EUTM is also for a term of 10 years and renewable for further 10-year periods.

For both the UK and EU, registration is done within a class of goods or services set out in the Nice Classifications. So, for example, a name could be registered in class 44 for Turkish bath services and the same name could be registered in class 35 by another applicant for photocopying services.

Enforcing unregistered trademarks

It’s possible to bring a passing off action of an unregistered trademark, but it’s difficult to prove and can be expensive. It requires proof of a reputation or goodwill in the mark, a misrepresentation to the public and likelihood of confusion and proof of damage.

The use of the trademark by the party bringing the claim must also pre-date the use of the trademark and it’s sometimes difficult to establish how long the other party will have been using the trademark.

Advantages of registration

The registration of a brand as a trademark is voluntary, but highly advisable and gives the owner a number of advantages. It provides the trademark owner with a statutory right to use that name for that class of services.

Registration also confers the right to bring infringement actions against unregistered traders in that jurisdiction that use the trademark or something similar to it in a manner that’s likely to damage it or cause confusion in the target market.

An EUTM gives the trademark owner the right to object to infringement throughout the EU and seek a pan-EU injunction. The trademark registers are public, so the registration acts as a notice to the public of the owner’s rights in that mark.

A registered trademark is a valuable commercial asset, commercially exploitable through licensing or transfer, relatively easy to protect and enforce, a deterrent to infringement and may be renewed indefinitely.

Risks of non-registration

Not registering a trademark in a jurisdiction exposes the brand to use and registration by other parties. Even famous brands may lose out if they are too late to register their marks.

For example, when Burger King attempted to open its first franchise in Australia in 1971, it found the name Burger King was already registered by an Adelaide takeaway restaurant and was unavailable for use by Burger King Corporation. The company offered the franchisee other names in its portfolio and ended up with Hungry Jack, a trademark used for pancake mix in other countries. Franchisees in Australia now trade under the brand name and registered trademark Hungry Jack’s.

In some countries such as America, where franchise disclosure documents are required prior to the offering of franchises, not having a trademark registered is a risk that must be disclosed to prospective franchisees.

Any prospective franchisee doing due diligence on a franchisor will be wary of making a substantial investment in a franchise system that has not adequately protected its brand through trademark registration in the relevant jurisdictions. Particularly since there are usually a number of franchise alternatives for a franchisee.

A franchisor not having the trademark for the brand registered further increases the risk of challenge by third parties for passing off or trademark infringement, substantial damages and also for actions by any franchisees with which it has concluded a franchise and/or license agreement for the use of the mark.

An ounce of prevention

Why risk the brand for which you may have built up substantial goodwill and recognition because of a failure to take the necessary steps of registering the trademarks where you want to do business? Why put your franchise system at a competitive disadvantage with respect to your competitors? Why risk tying up your time and money in courts with challenges to your use of your brands?

The one-time effort and costs in getting trademarks registered and maintaining them far outweigh the risks of lack of protection. An ounce of prevention is worth a pound of cure. Don’t be like the ostrich and ignore the obvious.