Mr. Franchisor: IS YOUR FULL ARSENAL IN PLACE? .... LOOKING AT INTELLECTUAL PROPERTY
By Eugene Honey
To protect the franchise system and the franchisor’s rights during, upon and after termination of an agreement, intellectual property rights can be utilized both independently and in the provisions of the franchise agreement. These intellectual property rights include trade marks, trade dress, copyright, know-how, trade secrets and goodwill as the primary rights licensed to the franchisee during the term of the franchise agreement.
In our most recent article we briefly dealt with the franchisor’s contractual arsenal as set out in the franchise agreement. For the purposes of this article we will focus primarily on intellectual property under the headings of trade marks, copyright and know-how. In certain instances the different types of intellectual property do overlap, providing additional protection.
Trade MarksIn terms of the Trade Marks Act, a trade mark includes any sign capable of distinguishing the products or services of a business, in relation to what it is used for, from those of its competitors. To serve that distinguishing function and to qualify for registration with the South African trade marks registry, the trade mark must be distinctive or unique in some way.
Although franchisors usually protect their core word or name and logo trade marks, the protection available covers a much broader spectrum.
In addition to the primary name or word trade marks and the logos of the franchisor, consideration should be given to protecting all aspects of the brand from corporate identity to products, labels, packaging and containers or distinctive parts or aspects thereof.
Trade marks which can be registered include a word or words, name, slogan, signature, logo, label, colours and colour combinations, packaging, containers for goods, the three dimensional shape and configuration of a product or a feature thereof, and any ornamentation, pattern or design on the product. Any combination of the aforementioned can also be registered, provided it is distinctive.
It is advisable that registered trade marks be reviewed every six months. Doing so will ensure that the franchisor and franchise system, including the brand, corporate identity and all trade marks, and the distinctive parts thereof, are adequately protected in the relevant classes of interest. In addition, protection should be enjoyed in any countries the franchisor has, or intends to have a viable commercial interest in.
The rights resulting from a trade mark registration include infringement remedies, entitling the franchisor to prevent unauthorized use of confusingly similar trade marks in relation to the same or similar products and services. In addition, as a result of the use, promotion and exposure of the trade mark and brand, the franchisor also acquires common law rights in terms of which he is entitled to prevent a third party from confusing or misleading members of the public into believing that the business, services or products of the rival trader are associated with that of the franchisor.
Registered trade mark protection is key to the franchisor’s ability to protect and enforce his rights, should any unauthorized use of any confusingly similar trade marks occur.
Copyright Copyright is yet another powerful tool and weapon in the arsenal of the franchisor.
It is critical to know that copyright comes into existence automatically, provided that time, effort, labour and skill is expended to create a work of a new original character, and that the provisions of the Copyright Act are met. Copyright protection therefore does not need to be registered. In fact, in South Africa it is not possible to register copyright other than in relation to films.
Copyright protects a whole range of works in a franchise system. Examples of items covered by copyright includes the logo, signage, fixtures and fittings, layout, design, the database, client lists, software, advertising and corporate materials and documents, the operations manual, the website, price lists, catalogues and the like.
The remedies available to a franchisor for copyright infringement include the right to force any unauthorized person to stop using the copyright or an adaptation thereof. In addition, there are also criminal penalties and remedies.
A pitfall to be avoided at all costs, is that where the development or creation of any work is outsourced, ownership of the relevant item, work or material will reside with the creator rather than the franchise, even if the franchisor commissioned and paid for the work to be done. It is strongly recommended that where the creation or development of a work is outsourced to a third party, a copyright assignment agreement should be drafted in terms of which copyright in the relevant work, item or materials is transferred and assigned to the franchisor.
A further advantage of copyright is that in terms of the international Berne Convention, copyright in South Africa is recognized and enforceable against any third party making unauthorized use thereof, in any signatory country. At present there are around 150 signatories to the Berne Convention, including most of our trading partners.
Know-howKnow-how includes any processes, systems, methodologies, expertise, formulae or recipes developed by the franchisor in the course of business, which is valuable and gives the franchisor or franchisee some sort of advantage over its competitors.
To enjoy the proper protection, it is imperative that know-how, trade secrets and confidential information be properly managed.
As a first step, all employees, of both the franchisor and franchisee should be required to sign a confidentiality agreement. In addition, important know-how should only be furnished to specific employees on a need-to-know basis. In the event that any know-how, trade secrets or confidential information is compromised, immediate steps should be taken to contain and limit any such publication or leak.
It is perhaps appropriate to, by way of example, set out certain rights the franchisor may enjoy if their full arsenal is in place at the outset and was maintained and updated on an ongoing basis. In this example, the franchisee, at the lapsing or termination of the franchise agreement, simply replaces the signs at the front of the business, but in all other respects continues to do business as before. The rights of protection available to the franchisor includes copyright, trade mark, trade dress, know-how, infringement, passing off and even unlawful competition.
By way of example:
• Architectural or design drawings, or photographs of the interior and exterior of the premises could provide copyright protection and enforce substantial changes to the premises.
• Technical drawings of fixtures, fittings and designs, in and outside the premises, could also provide protection.
• Trade mark and trade dress protection could provide protection for the colours and colour combinations, the design, look and feel and get-up.
• Client database protection could provide further protection for the business.
• Confidentiality agreements will provide protection against the unauthorized use of recipes, formulae, processes and methodologies.
In conclusion, provided they were competent in dealing with, protecting, maintaining and updating their intellectual property, the franchisor may, separately and apart from the franchise agreement, enjoy a broad range of intellectual property rights against an errant franchisee. Essentially this will prevent the franchisee, to the detriment of the franchise system, from carrying on a business by the unauthorised use of the intellectual property, business system and copyright protected client database of the franchisor.
The solution is to ensure that, in addition to having a competent franchise agreement, the franchise system enjoys ongoing competent and updated registered trade mark, copyright and know-how protection.
Bowman Gilfillan Attorneys
To protect the franchise system and the franchisor’s rights during, upon and after termination of an agreement, intellectual property rights can be utilized both independently and in the provisions of the franchise agreement. These intellectual property rights include trade marks, trade dress, copyright, know-how, trade secrets and goodwill as the primary rights licensed to the franchisee during the term of the franchise agreement.
In our most recent article we briefly dealt with the franchisor’s contractual arsenal as set out in the franchise agreement. For the purposes of this article we will focus primarily on intellectual property under the headings of trade marks, copyright and know-how. In certain instances the different types of intellectual property do overlap, providing additional protection.
Trade MarksIn terms of the Trade Marks Act, a trade mark includes any sign capable of distinguishing the products or services of a business, in relation to what it is used for, from those of its competitors. To serve that distinguishing function and to qualify for registration with the South African trade marks registry, the trade mark must be distinctive or unique in some way.
Although franchisors usually protect their core word or name and logo trade marks, the protection available covers a much broader spectrum.
In addition to the primary name or word trade marks and the logos of the franchisor, consideration should be given to protecting all aspects of the brand from corporate identity to products, labels, packaging and containers or distinctive parts or aspects thereof.
Trade marks which can be registered include a word or words, name, slogan, signature, logo, label, colours and colour combinations, packaging, containers for goods, the three dimensional shape and configuration of a product or a feature thereof, and any ornamentation, pattern or design on the product. Any combination of the aforementioned can also be registered, provided it is distinctive.
It is advisable that registered trade marks be reviewed every six months. Doing so will ensure that the franchisor and franchise system, including the brand, corporate identity and all trade marks, and the distinctive parts thereof, are adequately protected in the relevant classes of interest. In addition, protection should be enjoyed in any countries the franchisor has, or intends to have a viable commercial interest in.
The rights resulting from a trade mark registration include infringement remedies, entitling the franchisor to prevent unauthorized use of confusingly similar trade marks in relation to the same or similar products and services. In addition, as a result of the use, promotion and exposure of the trade mark and brand, the franchisor also acquires common law rights in terms of which he is entitled to prevent a third party from confusing or misleading members of the public into believing that the business, services or products of the rival trader are associated with that of the franchisor.
Registered trade mark protection is key to the franchisor’s ability to protect and enforce his rights, should any unauthorized use of any confusingly similar trade marks occur.
Copyright Copyright is yet another powerful tool and weapon in the arsenal of the franchisor.
It is critical to know that copyright comes into existence automatically, provided that time, effort, labour and skill is expended to create a work of a new original character, and that the provisions of the Copyright Act are met. Copyright protection therefore does not need to be registered. In fact, in South Africa it is not possible to register copyright other than in relation to films.
Copyright protects a whole range of works in a franchise system. Examples of items covered by copyright includes the logo, signage, fixtures and fittings, layout, design, the database, client lists, software, advertising and corporate materials and documents, the operations manual, the website, price lists, catalogues and the like.
The remedies available to a franchisor for copyright infringement include the right to force any unauthorized person to stop using the copyright or an adaptation thereof. In addition, there are also criminal penalties and remedies.
A pitfall to be avoided at all costs, is that where the development or creation of any work is outsourced, ownership of the relevant item, work or material will reside with the creator rather than the franchise, even if the franchisor commissioned and paid for the work to be done. It is strongly recommended that where the creation or development of a work is outsourced to a third party, a copyright assignment agreement should be drafted in terms of which copyright in the relevant work, item or materials is transferred and assigned to the franchisor.
A further advantage of copyright is that in terms of the international Berne Convention, copyright in South Africa is recognized and enforceable against any third party making unauthorized use thereof, in any signatory country. At present there are around 150 signatories to the Berne Convention, including most of our trading partners.
Know-howKnow-how includes any processes, systems, methodologies, expertise, formulae or recipes developed by the franchisor in the course of business, which is valuable and gives the franchisor or franchisee some sort of advantage over its competitors.
To enjoy the proper protection, it is imperative that know-how, trade secrets and confidential information be properly managed.
As a first step, all employees, of both the franchisor and franchisee should be required to sign a confidentiality agreement. In addition, important know-how should only be furnished to specific employees on a need-to-know basis. In the event that any know-how, trade secrets or confidential information is compromised, immediate steps should be taken to contain and limit any such publication or leak.
It is perhaps appropriate to, by way of example, set out certain rights the franchisor may enjoy if their full arsenal is in place at the outset and was maintained and updated on an ongoing basis. In this example, the franchisee, at the lapsing or termination of the franchise agreement, simply replaces the signs at the front of the business, but in all other respects continues to do business as before. The rights of protection available to the franchisor includes copyright, trade mark, trade dress, know-how, infringement, passing off and even unlawful competition.
By way of example:
• Architectural or design drawings, or photographs of the interior and exterior of the premises could provide copyright protection and enforce substantial changes to the premises.
• Technical drawings of fixtures, fittings and designs, in and outside the premises, could also provide protection.
• Trade mark and trade dress protection could provide protection for the colours and colour combinations, the design, look and feel and get-up.
• Client database protection could provide further protection for the business.
• Confidentiality agreements will provide protection against the unauthorized use of recipes, formulae, processes and methodologies.
In conclusion, provided they were competent in dealing with, protecting, maintaining and updating their intellectual property, the franchisor may, separately and apart from the franchise agreement, enjoy a broad range of intellectual property rights against an errant franchisee. Essentially this will prevent the franchisee, to the detriment of the franchise system, from carrying on a business by the unauthorised use of the intellectual property, business system and copyright protected client database of the franchisor.
The solution is to ensure that, in addition to having a competent franchise agreement, the franchise system enjoys ongoing competent and updated registered trade mark, copyright and know-how protection.
Bowman Gilfillan Attorneys
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