Your expansion overseas can be undermined if you have failed to properly protect your intellectual property. Your guide through shark-infested waters is Bill Edwards of Edwards Global Services
Taking a franchise into a new country can be both exciting and daunting. A key to global success is controlling the intellectual property of a franchise brand. Not all countries protect the intellectual property – trademarks and domain names – of foreign franchisors. If there is a problem with the local franchisee it can be difficult in some countries to maintain control of your trademark.
“Franchising starts with one basic element – a license to use a trademark. The trademark goes a long way in creating the value that is the franchise system – it implies the support which franchisees seek to have, and certifies the quality of that good or service being sold and purchased”, according to Chad Finklestein, a lawyer and Registered Trademark Agent with Dales & Lessmann in Canada. ‘Financial Post’. The principle function of a trademark or service mark is to distinguish the goods and services of one enterprise from that of another business according to the World Intellectual Property Organization website.
U.S. Franchise Disclosure Documents (FDDs) often state that a franchise agreement typically grants a franchisee the nonexclusive right to use the trademarks of a franchisor and the various designs and logo types associated with franchisor’s services. This is, simply put, the intellectual property of a franchise brand. This is the heart and soul of a franchise and it must be protected both in your home country and around the world.
How does a franchisor establish and maintain its brand around the world? The really good news is that it is possible in most countries to establish trademarks and domain names and to protect them.
Choose the countries where you do business carefully – Use your legal advisor or development consultant to determine what countries protect foreign brand intellectual property the best. You do not need to register your marks in 30 or 40 countries to start with. This is not only very expensive but it can take a lot of administrative time. Focus on the core countries where you believe you will expand into for the next five years of your international development. This does require a proactive international development plan. And use a trademark company in your home country that has worked with franchisors.
Apply up front for trademarks – and domain names – in the countries which you consider as having the highest potential return on investment for your specific franchise brand. It is advisable to hire a trademark attorney to help with trademark search, clearance and filing efforts. Apply for marks before you start seeking a franchisee for a country. Burger King® has registered over 2,100 marks in 125 countries. But Burger King® took too long to register their globally-known trademark in Australia. Someone else registered it, which is why Burger King® in Australia became Hungry Jack’s.
Do not let your franchisee ‘help’ you register your marks and domain name in their country. A U.S. franchisor made the mistake of letting their U.K. franchisee ‘help’ them register the franchise’s trademarks in the European Union countries. The U.K. franchisee ended up owning the trademarks himself and offered to sell them back to the franchisor for US$800,000.
A good first choice is to apply for the Community Trademark (CTM) – This allows the applicant to register its trademark in all the European Union countries in one application and by paying just one fee. Also consider using the Madrid Protocol which applies to a group of 86 countries. Through this system you can extend your home country trademark filing into key countries. ‘Business News Daily’, July 2012
Select the correct licensee – nothing is more important in protecting the image of a brand in foreign markets than choosing the right licensee with a positive image and a track record of success in the local market, to facilitate the success of the new brand. Once the image of a brand is damaged by the failure of a licensee, it is much more difficult to go back a second time to try and find a new licensee – there is already a perception that the brand failed because “it can’t work in that market,” rather than because of a problem with the licensee. The U.S. Patent and Trademark office say that one of the most important things a franchise has to do is to conduct due diligence of potential foreign partners to ensure they have a good business and ethical reputation. They will be the representative of the franchisor in their country. Due diligence before signing an agreement is protecting the brand of a franchisor up front.
Ensure your international franchise agreement is written by an attorney who is well versed in international law for that specific country and/or uses local legal counsel who is knowledgeable in the franchise sector. Be sure the international franchise agreement has detailed and strong intellectual property protection clauses and termination clauses if the brand is damaged by the franchisee – or its government.
Offer strong in-country training and grand opening support to ensure the licensee is following the brands operational guidelines.
Communicate with your licensees at least once a month to keep aware of what they are doing with your brand and business. Require they provide you with monthly operating results. Conduct yearly audits.
Make a long-term commitment to the market – Just as in a marriage, there will be ups and downs in regards to the relationship between the franchisor and the franchisee, so it is critical that the franchisor makes a long-term commitment to the success of that relationship (it is much easier to make the extra effort to assure success, rather than to have the brand fail and then try to return a second time to find a licensee).
And finally, enforce your agreements – Terminations are never fun but they can be essential to protecting your brand and maintaining control of your trademarks.
ABOUT THE AUTHOR
This article was created by the US-based Team of Edwards Global Services, Inc. (EGS) who collectively have 150 years of international franchise experience. EGS publishes the GlobalVue™ country-ranking tool quarterly to help companies decide which are the best countries for profitable development of their business. William Edwards is CEO of Edwards Global Services (EGS). You may contact him at bedwards@ edwardsglobal.com or +1 949 224 3896. http://edwardsglobal.com