Trademarks and Proprietary Rights in Franchise Systems

One of the things that a franchisor has to offer a potential franchisee is their brand name. A strong brand name means the built-in potential customers for the franchisee and his franchise outlet. Each franchisor must stipulate how their trademarks and proprietary information within the confidential operations manual will be used during the term of the franchise. It is far better in my opinion to be upfront with this issue into address it in the franchise agreement prior to the signing or exchanging of any monies for the franchise business. It is for this reason that I developed a clause to put into our franchise agreement, which was a little different than most other franchisors. Below is a copy of that clause;

3.11.1 Proprietary Rights

Franchisee acknowledges the exclusive right, title and interest of Franchisor in and to the Marks. Franchisee agrees that the Service Marks, Confidential Operations Manual, and System are Franchisor?s sole and exclusive property. Nothing in this Agreement or any other agreement will give Franchisee or others any right, title, or interest whatsoever in or to the Service Marks, Confidential Operations Manual, or System as it exists or as it is developed. Franchisee?s license to use the Service Marks is non-exclusive. Franchisor, in its sole discretion, may operate under the Service Marks and may grant licenses to others to use the Service Marks on any terms and conditions Franchisor deems appropriate. Franchisor may make reasonable efforts to protect Franchisee?s rights to use the Service Marks. In those states and nations where applicable, Franchisee agrees to execute on request all documents necessary to record Franchisee as a registered user of the Service Marks.

Franchisee will immediately notify Franchisor of any infringement of, or challenge to, their use of the Service Marks. Franchisor will have sole discretion to take or not to take action, as Franchisor deems appropriate. If Franchisor undertakes the defense or prosecution of any litigation involving Franchisee or any litigation involving the Service Marks, Franchisee agree to execute any and all documents and to do all acts and things, that in the opinion of Franchisor?s counsel are necessary or advisable to carry out the defense or prosecution. This may be done either in Franchisor?s name or in Franchisee?s name, as Franchisor will elect. Franchisee will modify or discontinue use of any franchise names or Service Marks, or will use one or more substitute names or marks, if Franchisor so directs in writing at any time.

Franchisor?s sole obligation in this event will be to reimburse Franchisee for their tangible costs in complying with Franchisor?s direction (i.e., cost of changing signs, stationery, etc.). Under no circumstances will Franchisor be liable to Franchisee for any other damages, costs, losses, rights, or detriments related to any modification, discontinuance, or substitution. All obligations or requirements imposed upon Franchisee relating to the Service Marks will apply with equal force to any modified or substituted names or marks.

Franchisee will not contest, directly or indirectly: Franchisor?s ownership, title, right, or interest in the Service Marks, the Confidential Operations Manual, the Confidential Marketing Manuals or the System; or Franchisor?s exclusive right to register, use, or license others to use the Service Marks, Confidential Operations Manual, the Confidential Marketing Manuals and System. Franchisee will not advertise or use the Service Marks without following Franchisor?s then current guidelines and requirements. These may include, but will not be limited to, the placement of appropriate (C) or (R) copyright and registration marks, or the designations TM or SM, where applicable.

Any and all goodwill associated with the Service Marks, as existing or as developed, including any goodwill that might be deemed to have arisen through Franchisee?s activities, will accrue directly and exclusively to the Franchisor?s benefit, except as otherwise provided by applicable law. Franchisee appoints Franchisor as their agent and attorney-in-fact to amend or cancel any Registered User or Business Name filings obtained by Franchisee or on Franchisee?s behalf that involve or pertain to the Service Marks.

Franchisee acknowledges and agrees at all times and in all respects that Franchisor?s trademarks, trade names, service marks, patents, copyrights and all goodwill (local, regional and national) are the Franchisor?s sole and exclusive property. Franchisee also acknowledges that Franchisee has only a license to use such rights and marks according to the provisions of this Franchise Agreement and in strict accordance with the standards, specifications and procedures as outlined in the Confidential Operations Manual. Franchisee will not take any action contesting or impairing the exclusive right, title and interest of the Franchisor?s in any trademarks, trade names, service marks, patents and copyrights. Franchisee will not represent that Franchisee has any ownership rights in the Marks and Franchisee acknowledges that use of the Marks will not create in its favor any right, title or interest in or to the Marks, but that all uses will inure to the benefit of the Franchisor. Neither Franchisee nor any officer, director, agent or employee of Franchisee shall in any way register or attempt to register the Marks, whether within or outside the Marketing Area, with any government or any other authority, nor dispute or impugn the validity of the Marks, any registration or application to register any of the Marks, Franchisor?s rights to the Marks, or Franchisor?s rights to use Marks or grant licenses to others to use the Marks.

Franchisee must affix and change trademark notices and indications of registration when and as instructed by Franchisor. Franchisee must assist Franchisor to the extent reasonable requested in obtaining or maintaining any registration of any of the Marks to the extent reasonably requested, including by providing advertising samples.

It behooves all franchisors to make an audit of their brand-name ended their proprietary information and decide how best to protect its value. It is advised to discuss this at length, as it is money well spent with a competent, knowledgeable and experienced franchise attorney to best strategize ways to protect your franchisee company and its proprietary information. Do consider this in 2006.

Lance Winslow, a retired entrepreneur, adventurer, modern day philosopher and perpetual tourist.