FOR IP PROFESSIONALS

Franchising and IP

Most people are familiar with the word 'franchise'. But what does it mean exactly? Essentially, it is a marketing concept - an innovative method of distributing goods and services.

Businesses such as 7-Eleven, Jim's Mowing and Pizza Hut are typical examples of well-known franchises.

So where does IP fit into the franchise picture?

If you purchase a franchise business, a big part of what you are buying is the IP. There are major implications for both the buyer (franchisee) and the seller (franchisor) of any franchise business.

IP and the franchisee (the buyer)

If you are the franchisee, the major benefit is the opportunity to trade under a well-known trade mark. It represents the IP of the business you are buying.

What you are really buying is the legal use of the business trade mark - its brand name. This allows you to market and sell the franchise products and services, as well use their patents and designs.

You are also buying other related IP, such as logos, promotional material, a business system, a marketing system, various confidential know-how processes, and shop fit-outs.

What normally happens is that the franchisor grants you a trade mark licence for a fee based on the gross turnover of the business.

You will probably also have to pay a fee for a marketing budget to promote the trade mark as part of the franchise business.

There are also other requirements and conditions that you must be aware of as a franchisee.

Make certain that you check the IP clause of the franchising agreement and/or disclosure document thoroughly before you sign anything. Ideally, you should have your legal or business adviser look over the agreement to ensure you understand your broader obligations.

Read our case study to find out how The Coffee Club built a franchise through branding.

Franchising Code of Conduct

The introduction of the Franchising Code of Conduct has made buying a franchise a less daunting experience. It clearly sets out the rights of the franchisee.

Also, the Australian Competition and Consumer Commission (ACCC) is watching franchisors who behave badly. The ACCC has a free Franchisee's manual available on their website.

IP rights and the franchisor (the seller)

Instilling confidence in prospective franchisees is the key to successfully turning your business into a franchise system.

Franchisees need to be convinced that the IP they are licensing from you is secure, and also effective in restricting competitors from entering the market.

Your trade marks and your unique business operation are your most powerful tools in the negotiation process. It is vital that you formally protect all forms of IP and unique business methods by registration. This not only assures potential franchisees, but is also effective business insurance for you as a franchisor.

Exporting your franchise system overseas may be an option worth exploring. The protection of your IP overseas will be critical to your success, so your first step should be to investigate the costs and processes involved in overseas registration.

The Franchising Council of Australia has produced various publications for franchisors and franchisees and provides comprehensive information about franchising.

You could also speak with your legal adviser or trade mark attorney about overseas expansion.

When you enter into a franchising agreement, generally the franchisee secures the rights to operate the business or use the IP for a set period. As the franchisor, you in turn, train and support the franchisee and market the business, usually for an ongoing levy or fee.

Where to get help

You can speak to an IP professional to assist in your franchising efforts. It may also be useful to speak with other franchise owners to discuss any issues they may have had.