How Franchises Use Trademarks To Protect Their Brand?

In the fast-paced business world, Trademarks are important. But do you know how trademarks and franchises are related? Just like business, trademarks are also essential to franchising, as they represent the identity and quality of a brand as well as customer trust. In franchise agreements, trademarks allow franchisees the right to access the name, logo, or symbols of a particular brand in certain conditions. These agreements indicate the brand’s reliability through robust guidelines, including royalties and franchise fees for using the trademark, and provide provincial trademark rights. 

Trademark in Franchise help protect and implement trademarks, and on termination or completion of the agreement, they lose the trademark access right. In this blog, we will explore the franchise business and its aspects, including why trademark is important in franchising and how it contributes in business success.

Trademark in franchise is the undeniable basis of a franchise’s identity that indicates brand recognition and customer trust. trademarks explain how franchisees can utilize name, logo, and other identifiers of a brand in franchises agreements. When franchisors and franchisees are both aware of how trademarks impact these agreements, they assure brand trust, safeguard intellectual property, and define operational and financial terms.

A franchise business is a unique business concept where a company allows another party to access its brand name and business structure. the company is known as the franchisor, and another party is known as the franchisee. The franchisor receives a starting payment and continuous royalties from the franchisee, which are used for brand image, operational guidance, and an established business model. This concept enables businesses to grow without extensive capital investment and offers entrepreneurs an organized business opportunity.

A trademark is a remarkable business asset that protects the identity of your brand in a legal way, containing the name, tagline, logo, symbol, or other visual elements. Here’s why trademark is important in franchising –

• Brand Protection – Trademarks prohibit third parties from using your brand assets, such as logo, name, or tagline, ensuring your exclusive rights over the trademark.
• Exclusive Rights – It provides legal ownership and allows only authorized franchisees to function under the brand.
• Legal Support – Trademarks develops a strong legal base in case of trademark infringement or disputes.
• Business Expansion – It enhances customer trust and credibility, making it effortless to attract all possible franchisees.
• Customer Trust – Trademarks are source of building customer trust by ensuring continuity in brand image and service quality.

Trademarks and franchises are crucial aspects, for which the registration of trademarks plays a significant role.  The registration requires precise execution. Avoid the following common mistakes for a smooth process –

• Skipping a Trademark Search – If an individual applies without searching for existing or active trademarks, it can result into rejection, legal conflicts or brand disputes.
• Delaying Registration – If you delay in securing your trademark or don’t secure it early, third parties may register a similar trademark. This may make it difficult to claim ownership after.
• Choosing the Wrong Trademark Class – Trademarks belong to specific classes based on the nature of products or services and can be registered only in these classes. Selecting the improper class may restrict your trademark protection.
• Failing to Monitor & Enforce –After registering your trademark, you need to actively check for possible infringements and proceed with legal action when required.
• Not Renewing on Time – To access trademark rights properly, it requires frequent renewal. If you forget or miss the renewal deadlines, it can lead to the loss of rights and might provide the chance to competitors.

• Register in Multiple Countries 
• Use the Trademark Consistently 
• Work with Legal Experts 

Here is the detailed way in which trademarks assist franchise agreements. 

1. Granting of Trademark Rights

One of the key elements of any franchise contract is the franchisor’s granting of rights to the franchisee to utilize the trademark of the brand. The grant usually encompasses the right to utilize the trademark in a given territory or market. These rights are not rights of ownership; franchisees do not own the trademark but are licensed to utilize it as part of running their franchise.

in the franchise agreement, it defines the territory of trademark use—if it is limited to a certain service, product, or geographical region—and the specific circumstances under which the trademark may be used. For instance, a franchisee may be prohibited from using the trademark on products or services not permitted by the franchisor.

2. Brand Consistency and Control

Trademarks translate into consistency. Upon seeing a brand name or a logo, the consumers expect to receive some standard and experience of that kind. It is therefore essential for the franchisors to control their trademarks with respect to their usage. The franchise agreement usually has tough conditions that detail the manner in which the trademark must be handled, what font and colors should be used, and how to display the branding in marketing documents.

In addition, franchisors may include quality control provisions. The provisions compel franchisees to uphold standards that the trademark represents. The inability to meet these standards may lead to brand deterioration and legal disputes, and thus, it is crucial that franchisees adhere to rigorous standards of product quality and customer service.

3. Fees and Royalties Linked to Trademarks

One of the most important benefits of being a franchisee is that one can leverage an existing brand. As compensation for this privilege, the franchisees typically make recurring royalty fees to the franchisor. The fees are typically a percentage of the sales made by the franchisee and are a way for the franchisor to receive recurring revenue for ongoing use of its trademarks.

Apart from royalties, franchisees will also be required to contribute to marketing funds used to promote the trademark on the national or regional level. The contributions make sure that the brand is still worth something and still recognized by consumers, and they benefit all branches of the franchise.

4. Territorial Exclusivity and Trademark Use

The majority of franchise agreements have territorial exclusivity provisions that grant the franchisee the right to conduct business within a particular geographic area. This eliminates competition between franchisees of the same brand. The franchise agreement will designate the territory in which the franchisee can use the trademark, and in most instances, territories are exclusive in the sense that no other franchisee can operate under the same trademark in that territory

However, territorial exclusivity does not give the franchisee unlimited control of the trademark in the territory. The franchisors may still open company-owned outlets or permit other franchisees into the territory, depending on the terms of the agreement.

 

5. Trademark Protection and Enforcement

Franchise agreements usually need franchisees to assist in the enforcement and protection of the franchisor’s trademark. This may include reporting the unauthorized access of the trademark by another company with a similar logo or by a counterfeiter selling imitation versions of their products.
The franchisor retains the right of action for infringement but may insist on the franchisees helping the franchisor to defend the trademark. In doing so collectively, the brand integrity is preserved and confusion or dilution of the mark in the market space is averted.

6. Termination and Trademark Use

Upon termination of a franchise agreement, the franchisee typically forfeits the right to use the franchisor’s trademark. Because of the expiration of the agreement, default under the agreement, or by mutual agreement, franchisees must cease all use of the trademark upon termination of the agreement.
This is particularly important if the franchisee wishes to sell his company. The shift of the franchise business at times requires the new owner to sign a new franchise agreement and be permitted access to the trademark rights. In case the franchisee is unable to transfer the trademark rights, the business loses its brand name, which would significantly lower its value.

Trademarks are attractive symbols or logos of companies in a franchise agreement that bring brand image, marketing growth, and customer confidence. Franchisors and franchisees should understand the power of trademarks and confirm that their access is clearly protected, defined, and implemented in the franchise agreement protocol.

Thus, the franchisor and the franchisee can assist in the expansion and future prosperity of the business as well as the franchise, eventually benefiting from the power of an extremely visible and respected brand.