Beyond the Contract: Protecting Rights in Intellectual Property

September 25th, 2009

A franchisor’s intellectual property rights can be some of its most valuable assets. Indeed, and for service-based franchise systems in particular, the franchisor’s intellectual property can be the vast majority, if not sum total, of the value of the franchise. Therefore, it is critical for franchisors to protect the value of their intellectual property, not only through careful drafting in their franchise agreements, but through ongoing proactive protective measures as well.

For most franchise systems, the key intellectual property rights involved include: the franchisor’s trademarks and/or service marks; the franchisor’s trade dress and trade secrets; and the franchisor’s confidential and copyrighted information. These items will be provided or disclosed directly to franchisees, whether through training programs, operations manuals, a franchisee intranet, advertising templates, or other electronic means. The franchise agreement then will limit the franchisee to use of the franchisor’s intellectual property in strict conformity with the franchisor’s standards and specifications, and will limit disclosure of confidential and proprietary information on a need-to-know basis.

However, these contractual protections will not be able to fully serve the franchisor’s interests unless the franchisor also is making efforts to ensure that it has and maintains a protectable interest in its intellectual property. What follows is a brief outline of some steps franchisors should take to protect their intellectual property rights.

Trademarks and Service Marks

                Trademarks and service marks are words, designs, symbols and logos that are used to identify the source or origin of products and services. A trademark or service mark is the franchisor’s “brand name” that identifies the goods or services provided by franchisees with the franchisor.  As indicators of source and origin, trademarks and service marks should be used descriptively – as adjectives – rather than as nouns or verbs. For example, if a franchisor’s trademark was “SuperBuilders^TM”, it would advertise “SuperBuilders^TM construction services,” but not, “our franchisees are SuperBuilders^TM,” or, “our franchisees are experts in SuperBuilding.”

                Trademarks and service marks should always be used consistently, and franchisees should not be permitted to use altered versions of the franchisor’s marks. The franchisor should issue written specifications for spelling, capitalization, font, layout and color. If the mark includes a design, all franchisees should be required to use the same, unmodified design. Registered marks should always include the “®” symbol, and unregistered marks should include the “^TM” or “^SM” symbol, as appropriate.

                In addition, trademark owners can lose rights in their marks through challenging or unauthorized use of the marks or confusingly similar marks by unrelated third parties. The doctrines of dilution, genericism and abandonment all relate to the loss of trademark rights due to the owners’ failure to police others’ use of its marks. Additionally, trademark rights can be challenged or affected by the use or registration of confusingly similar trademarks.

                To avoid these issues, franchisors should monitor franchisees’ use of their trademarks and service marks, and also monitor third-party uses of and attempts to register similar trademarks. This can be done through a regular review of the U.S. Patent and Trademark Office’s Official Gazette, which publishes marks proposed for registration; through Internet and domain name searches for potential conflicts; and through a review of relevant industry and trade publications. If potentially harmful uses are discovered, the franchisor should be prepared to take action to protect its rights.

Copyrights

                Copyrights arise automatically in the author of creative works. Authoriship may reside with an independent agency or freelance artist or writer unless the work is specifically developed as a “work made for hire” or is specifically assigned to the franchisor. While registration of a work is not required for copyright protection, registration with the Copyright Office of the Library of Congress does provide certain benefits. Principally, registration is a pre-requisite to filing a complaint alleging infringement. Registration also constitutes prima facie evidence of validity, and entitles the owner who prevails in litigation to statutory damages.

                Regardless of whether a copyrighted work is registered, the franchisor should include notice of its claim of ownership on the work itself. This may be done with the simple notation “©2009 ABC, Inc.”

                Copyright protection is only available for works that are disclosed to the public, and registration of a copyrighted work necessarily makes the work available for public review. Thus, registration of the copyright in a franchisor’s operations manual or other confidential information should be done with care to ensure that the confidential materials are not publicly disclosed. Nonetheless, registration of a franchisor’s operations manual with the confidential information redacted can serve the franchisor well in the event a franchisee leaves the system and attempts to copy the franchisor’s system and materials.

                By taking proactive measures to preserve their rights in their intellectual property, franchisors can protect the value of their system and the investments of their franchisees. A great brand name and catchy ad campaign can become worthless, and even damaging, for franchisors who do not protect their intellectual property from unauthorized and infringing uses.

By: Jeffrey S. Fabian