Franchising and IP: joined at the hip, all over the world

Intellectual Property and Technology News

By:

The interplay between Franchise and Distribution lawyers and IP lawyers is often overlooked. But the connection between the two areas of practice is pervasive.

Take the simple but frequently overlooked reality that at the heart of every franchise is a trademark. When a franchise lawyer is asked by a client to assist in creating or expanding a franchising program, the threshold question is likely to be: “Is your trademark protected?”

But that’s just the beginning. Issues like trade dress, confidentiality, privacy of information, consumer protection, advertising and the use of social media are increasingly top-of-mind to franchisors. Thus, Franchise and Distribution lawyers and IP lawyers often are working side by side, needing not only to apply legal principles, but also to learn client goals.

Only a relatively small number of lawyers in the world are familiar with the statutes and regulations determining whether a particular transaction will be treated as a “franchise” and the legal ramifications that entails. But whether or not the technical definition is met, the bulk of legal issues which will need to be addressed by the “distribution” practitioner remain, and there will likely be need for the skills of other intellectual property practitioners.

A recurring theme in the statutory scheme of franchising regulation is its breadth: so-called franchise laws sweep in distribution arrangements which no one – neither the seller nor the buyer, nor their respective lawyers – knew or planned to be treated as “franchise” issues.

Franchising regulation in the United States is now in its fifth decade and is sufficiently developed that most companies and lawyers are at least aware of its existence. Not so outside the US. Beginning slowly, but picking up speed in the 1990s with new legislative proposals now being introduced with disconcerting frequency, franchise laws exist in more than 20 jurisdictions outside the US. To make the life of the lawyer more interesting, these laws are not uniform and are sometimes rife with ambiguity. Indeed, some do not even use the word “franchise.” Some laws are modeled on US disclosure laws. Others impose restrictions on the contractual relationship between the parties. Some do both. Some dictate a form of registration with a governmental agency, in some cases requiring approval of aspects of the relationship. And, unlike the typical US franchise regulation, some spell out, as a prerequisite, conditions for the franchisor (e.g., length of time in business or operation of owned outlets) or the franchisee (e.g., native origin).

This map is a guide to global franchise laws. Because legislation is being adopted speedily, we urge companies to consider franchise and distribution issues early in their cross-border expansion planning to avoid an unwelcome and costly surprise.

 

For more information about the close ties between franchise and IPT laws, please contact Dennis Wieczorek and Philip Zeidman.