Franchise and intellectual property law

Intellectual property rights ("IP rights") are an important element of any franchise formula Intellectual property is the collective name for a large number of different rights regarding intellectual creations. In the case of franchise formulas, trademark law, trade name law and copyright law in particular play an important role. The protection of domain names and trade secrets is also of great importance in franchise formulas.

These IP rights and related rights can be valuable assets for both the franchisor and the franchisee. For example, the uniform use of the rights will result in public awareness and recognition of the franchise formula. The granting of IP rights by franchisors to franchisees represents one of the most important elements of the franchise agreement.

Proper protection of and agreements on IP rights will protect the success of the franchise formula.

 

Protection

Since each IP right has its own protection regime, it is important to be clear about which steps need to be taken to protect which creation. Some rights arise automatically, whereas others must first be registered. With respect to all rights certain conditions must be met in order for them to be eligible for protection.

 

Trademark right

The trademark right serves to distinguish goods or services. A trademark has many forms, such as the name of a franchise formula, a product name or a logo. A trademark right gives the trademark owner a monopoly on the use of the sign and entitles him to prohibit its use by another party.

In principle, a trademark right may be obtained only through its registration in the appropriate registers. There are three types of trademark rights, each with their own application procedures. First of all, there is the Benelux trademark right, which offers protection for the territory of the Benelux. Next there is the Union trademark. A Union trademark offers protection in all Member States of the European Union. Lastly, there is the international trademark right. The international trademark right as it were consists of a bundle of national trademark rights. A trademark registration is valid for a period of ten years and may subsequently be renewed for another ten-year period.

Only a sign that is distinctive is eligible for trademark protection. This means that the consumer is able to distinguish the undertaking, the goods or the services under the trademark from another undertaking. If the consumer can view the trademark as a general description, it will fail to be distinctive. The distinctive character of a trademark is for that matter not a given. A trademark that was still regarded as a fantasy name only a few years ago, may nowadays have turned into a descriptive indication. Think, for example, of the word "aspirin".

When a trademark is registered, the class of goods and services for which the trademark will be used and for which protection must therefore be obtained will have to be selected. The Nice Classification system contains forty-five classes from which to choose.

It should be borne in mind that others may object to an application for a trademark registration. If your trademark is identical or very similar to a trademark previously registered for the same or similar goods or services, there is a risk that your trademark right will not be granted. It is recommended to consult the trademark registers (or have these consulted) before submitting a trademark application.

 

Trade name

The trade name is the name under which a company takes part in business transactions. This trade name may be the same name as the one for which you have caused a trademark to be registered. A trade name will offer protection against the use of identical or similar trade names in the same sector or catchment area, if such use is likely to cause confusion. Whether there is confusion in a specific case depends on the nature of the undertakings, the place of establishment and the catchment area.

The right to a trade name arises by operation of law from the moment it is used. The trade name is used if the public can view it, for example by its being used in a letterhead, in advertising, on a website, etc. Therefore, registration in the trade register is not necessary for the protection of your trade name, but it may be useful. A trade name is protected as long as it is demonstrably being used and offers protection for the geographical area in which the trade name is used.  

By contrast with obtaining a trademark right, a trade name does not need to have a distinctive character in order to be protected. However, the trade name may not be misleading or be in conflict with an older trade name or trademark right of another party. It is wise to investigate, or instruct others to do so, whether your intended trade name already exists as a trade name or trademark before you start using it.

 

Copyright

Copyright protects all original works that bear the creator's personal stamp. Copyright entitles the creator to make the work public, the right to reproduce the work and provides certain personality rights, such as the right to object to mutilation or distortion of its work.

The bar for copyright protection has not been set high. In short, the work must be sufficiently elaborated, have its own original character and be the result of free and creative choices. Thus, it may not have been derived from the work of another. Many works are eligible for copyright protection. Examples are photographs, logos, texts, corporate identities, packaging and software. In certain cases, even the franchise formula may be granted protection as a concept, subject to the condition, however, that the concept is sufficiently elaborated and is visible, which is not easily assumed.

Copyright arises by operation of law through the creation of a work. This means that no registration is required for protection. The principal rule is that the creator of the work is the copyright owner, unless agreements to the contrary have been made. Be aware, therefore, that in the absence of agreements, you are not always the copyright owner. Consider, for example, the website creator who is the copyright owner with respect to the website and the designer who is the copyright owner with respect to the logo.

The copyright expires 70 years after the creator’s death. After those 70 years the work in principle passes into the public domain.

 

Domain name

A domain name is a unique location on the Internet and is as a rule used for a website. A domain name consists of two parts, separated by a dot. The first part is the name, the second part is the extension. A domain name enables a website to be found easily.

A domain name is created through registration. After registration there is a right to use the domain name for a period of one year, with the possibility of renewal. The domain name authorities work on a first-come, first-served basis. If someone else has already registered your desired domain name, it is not possible to register the same domain name as well, for each domain name is a unique internet address and can only occur once.

However, the fact that a domain name has been registered by the relevant domain name authority does not mean that the name does not infringe on the IP rights of third parties. In many cases, already existing trade names and/or brand names are used for a domain name. Always make sure when choosing and registering a domain name, that the domain name does not infringe on, for example, existing trade names and trademark rights.

 

Trade secrets

A trade secret often concerns know-how or business information which is very valuable, precisely because it is of a confidential nature. Examples in the case of franchise formulas are customer databases, work processes, technical knowledge, strategies and recipes. The protection of trade secrets represents an addition to the IP rights.

The protection of trade secrets does not require an application or registration, but arises automatically. However, the trade secret must meet three conditions in order to qualify for the protection offered by the law. First of all, the trade secret actually must be secret, meaning that the information is not generally known or easily accessible. Second, the information must have commercial value due to its being secret. In the third place the holder of the information must have taken reasonable measures to keep it secret.

If the three conditions have been met, action can be taken against infringements of the trade secret, such as unlawfully obtaining, using or disclosing the trade secret.

 

Agreements between franchisor and franchisees

In most cases, the franchisor will ensure being the owner of the IP rights belonging to its formula. As the holder of the rights, he has a monopoly on the use of these rights. In the franchise agreement it may be agreed that the franchisees will also be entitled to use the IP rights by way of a licence. In order for the valuable IP rights to be properly protected, it is important that clear arrangements are made by the franchisors with their franchisees with regard to the franchise formulas.

In principle, the franchisor and the franchisee are free to make any agreements they like on the use of the IP rights. Agreements are often made on the scope, the territorial scope and the duration of the use, the fees payable for the right of use, the exclusivity of the use, the possibility of sub-licensing and the use of the IP rights once these have expired. Extra attention should be paid to the question as to whether a franchisee may incorporate all or part of the IP rights in its trade name or register them independently, for example as a trademark or domain name.