What is franchising?
Franchising is where a business or businesses operate under the brand of another business. IP rights underpin the arrangement, with the original business – the franchisor – licencing their IP rights to franchisees.
As a franchisor, you get to manage how each franchisee's business is run, and the name, brand and business system they'll use.
Franchising typically involves having an ongoing relationship with franchisees, including:
- Providing them with ongoing assistance to run their business
- Providing them with training on business, marketing, processing and repairs
- Coordinating marketing activities for the franchise.
Common types of franchises
In Australia, many kinds of businesses are run under franchise arrangements, including:
- Takeaway food outlets
- Mortgage brokers
- Motor vehicle dealerships
- Gardening services
- Convenience stores
- Hairdressing salons
- Home care services
- Hardware stores
- Automotive suppliers
- Dry cleaners
What's covered in a franchising contract?
Franchise contracts detail the arrangements between you and the franchisee.
They should cover the following issues:
All IP rights – patents, trade marks and registered designs – should be listed in a franchising agreement along with guidance on how you want them used.
It's important to specify which party is responsible for managing the IP and who'll take action to defend the IP rights if they're infringed.
Each franchisee needs to keep your trade secrets confidential. While they'll have to disclose some information to staff members, the franchise agreement should prevent them from any additional disclosures.
We recommend that all parties sign a non-disclosure agreement up front, before you start to engage in any contract or franchise negotiations.
An operating manual
You need to provide each franchisee with a detailed operating manual that contains everything they need to know about running the business. This includes:
- Quality control requirements
- Details on ordering supplies
- Payment of franchise fees
- Inspection times that provide a regular opportunity for you to assess operations.
You must also provide comprehensive training on operating the business.
How franchising works
In Australia, franchising arrangements must operate in accordance with the Franchising Code of Conduct, developed by the Australian Competition and Consumer Commission (ACCC).
If you're considering franchising your IP, we recommend you consult the code early in the process to ensure your franchise agreement and any representations you make don't breach the laws about franchising.
In particular, under the code you must provide potential franchisees with an information statement as soon as they show a genuine interest. The code specifies that this must be within seven days of the enquiry.
If you're considering becoming a franchisee, we recommend familiarising yourself with the ACCC's Franchisee's Manual.