Franchising and Trade Marks

Trade marks are important for all businesses looking to create brand recognition. However, for franchises, trade marks are crucial to the business model, as brand recognition creates a sense of familiarity and trust across locations. As franchising becomes increasingly common in Australia, separating franchisees from their competitors is a clear commercial priority.

Trade Mark Registration

Trade marks can take the form of a mark, sign, logo, word, picture, or packaging. Registering trade marks is an important component of intellectual property protection. Prudent intellectual property protection requires businesses to carefully select, differentiate, and monitor their trade marks. In Australia, the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 codifies the importance of trade marks in franchising. Section 5(1)(c) states that a franchise agreement is an agreement under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol:

• owned, used or licensed by the franchisor or an associate of the franchisor; or
• specified by the franchisor or an associate of the franchisor

Thus, all franchises must be able to be identified as such. This is best ensured through trade mark registration.

Trade Marks and Franchisors

Franchisors do not have to own the trade mark used by the franchise, as these may be licensed to the franchise by a third party. However, franchisors must abide by particular disclosure obligations in relation to the trade marks used by the franchise. These disclosure requirements are contained in section 8 of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014. This includes details about who owns the trade mark and any terms of use and license, whether the trade marks are registered, and whether there are any proceedings that might affect the ownership or license of the trade marks. As we spoke about in this blog, franchisors must ensure to comply with the relevant disclosure requirements to avoid potential penalties.

Trade Marks and Franchisees

Franchisees must be licensed to use the trade mark. The terms of the license agreement should be contained within the relevant franchise agreement, as franchisees are expected to use trade marks in accordance with the terms of the agreement and the direction of the franchisor. Use in accordance with the terms of the license agreement is important to ensure that trade marks are not subject to non-use challenge.

Next Steps

Both franchisors and franchisees maintain the risk of trade mark infringement claims from third parties. As franchisees generally use trade marks in accordance with the terms of the license agreement, franchisees should seek warranties from the franchisor in the case of any infringement claims. Franchisors should seek to avoid this eventuation through early registration, thorough monitoring, and prompt opposition of trade marks.

If you require advice surrounding franchising or intellectual property disputes, or have any questions regarding intellectual property protection and registration, speak with one of our experienced business lawyers by calling us at (02) 4929 7002, emailing us or completing an enquiry form.