Intellectual property: Key aspects of copyright and know-how in franchising

In addition to the brand, two types of the intellectual property considered valuable assets and commonly licensed in a franchise system, are copyright and know-how.

Copyright is the right, broadly speaking, given to the creator, developer or author who may own the right, not to have the work copied or reproduced without authorisation.

It is important to note that, provided that time, effort, labour and skills are expended to create a work with a new original character, copyright comes into existence automatically. The work must be reduced to some sort of material or tangible form as copyright does not exist in an idea. Depending on the type of work, copyright may remain in existence for 50 more years. Any unauthorised use of the copyright in a work will amount to the infringement thereof, attracting powerful civil and criminal remedies.

Most franchise systems have at least three types of copyright works including artistic, literary and software works. More specifically these would include:

-          The operations manual

-          Franchise website and intranet

-          The franchisor’s corporate identity manual including all logos

-          The list of approved suppliers

-          Database of customers

-          The accounting and point-of-sale system

-          The franchisor’s product catalogue and price lists

-          The details, specifications and lists of products and services

-          The marketing and promotional materials

-          The franchisor’s transactional and business system and related software

-          Product designs, labels and packaging

-          Other documentation and material pertaining to the business system including any related software programs

Many franchisors, either initially or on an ongoing basis, outsource the development of a number of the abovementioned works. A layman’s view is that, as the creation and development of the relevant work was paid for, that ownership thereof resides with the franchisor. This is unfortunately not the case. The general rule is that the author of the work is also the owner. However, if the author of the work is an employee who created and developed the work during the course of his employment, the employee remains the author, but the franchisor will be the owner of the relevant work. Only in the instance of works such as photographs, films and sound recordings does ownership pass by operation of law. Further, wherever the creation and development, or further development of any work is outsourced, the likelihood is that the third party to whom the work was outsourced is the owner of the copyright in that work or the update thereof and the franchisor simply has a license to use the relevant work or part thereof.

As a result, if the franchisor has outsourced the development of his logo, website, manual, operations manual, corporate identity manual, software and any other copyright work, and if the specific work has not been competently transferred to the franchisor in writing, ownership of the work will remain with that third party despite the work having been paid for.

This creates substantial difficulties for a franchisor should it become necessary to enforce its rights against an errant franchisee or any other third party.

The solution is to ensure that any works outsourced to third parties are transferred and assigned to the franchisor, in writing, ensuring the franchisor’s ownership of all copyright licensed in the franchise system.

The position is similar with regards to know-how, in that were a third party has developed know-how on behalf of the franchisor, it is likely that the third party remains the owner of the relevant know-how, until such time as it is transferred to the franchisor.

Know-how also includes many essential and key aspects of the intellectual property of the franchisor including confidential, technical and commercial information relating to the operation of the business system and this would include information contained in the operations manual, as well as information known to the individual who is employed by the franchisor and includes promotional, merchandising, administrative, transactional, logistical, operational, distribution, sale and business methodologies, practices, processes, formulae, recipes, trade secrets and systems. Any know-how reduced to writing or material from is also protected by copyright.

The key risk with regards to know-how is that if it is not kept confidential, the rights of the franchisor to prevent third parties from using it, becomes unenforceable. It is therefore essential that all reasonable steps be taken to protect the franchisor’s know-how and that all employees within each franchised business be obliged to sign suitable employment and confidentiality agreements, in terms of which they undertake to keep the franchisor’s know-how confidential.

In addition, where possible and as part of the management of all copyright works, it is recommended that the following short copyright notice be inserted at the foot of each page of each copyright work, for example: “© SA Franchise Warehouse 2010”.

Where possible on a larger document, publication or website, the following fuller copyright notice should be inserted:

“This .... Book/Manual/Publication .... enjoys copyright under the Berne Convention. In terms of the Copyright Act, No. 98 of 1978, no parts of this ... Book/Manual/Publication ... may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from the proprietor.”

In conclusion it is essential for the franchisor, as far as possible, to at all times ensure that it is the proprietor of all copyright and know-how used in the franchise system. To this end, the franchisor should, for example, at the very least maintain a master list or record of all copyright owned and used by the franchisor and when current works are updated or new works developed, the transfer of ownership to the franchisor should be processed immediately.  The same goes for any know-how. Any ongoing protocol, processes or systems for the management of intellectual property, including copyright, know-how and trade marks, should be in place and managed continuously to protect these valuable assets. □

By Eugene Honey, Bowman Gilfillan Attorneys

Eugene Honey is a director at Bowman Gilfillan Attorneys and heads up the Intellectual Property (“IP”) Department. He has specialized in franchising, licensing and IP matter including trade marks and copyright for more than 18 years. He advised and has been on the Exco of the Franchise Association of South Africa for many years and acts for many local and international franchisors. More recently he has, at the invitation of the DTI made representation regarding the new Consumer Protection Act and Regulations.

Bowman Gilfillan Attorneys

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