Category Archives: Franchise Brand

Franchising and Intellectual Property

intellectual property word cloud

Malcolm invests in a franchise, builds his business for a decade, and then the franchise relationship ends. Malcolm makes some changes — the color of the uniforms his staff wears, the shape and font of the logo, and the name of the business — and carries on his business as he always has.

How much legal trouble will Malcolm find himself in?

A franchise business investment brings the franchisee plenty of valuable assets, including intellectual property. There are usually different kinds of intellectual property involved, and understanding the differences can protect both the franchisee and the franchisor.

The first kind of intellectual property includes assets like trademarks. These items might include

  • logos
  • signage
  • uniforms
  • mascots or characters
  • the “look and feel” of documents, websites, and products
  • the content of documents, ads, and websites
  • tag lines, slogans, and the like
  • branded merchandise

Typically, these things belong to the franchisor, and the franchisee has permission to use them as part of the value received from the franchisor in exchange for the franchisee’s investment.

If the franchise relationship ends, the franchisee will no longer have the right to use this type of intellectual property, or anything close to it. Malcom might want to change the name of his business but use a very similar logo and signage so that his customers will still be able to recognize him, but he can’t legally do this. He can’t hire someone to re-draw the cartoon mascot, change its name from “Jimmy” to “Jerry,” and make his own promotional materials and TV spots using the sort-of-new mascot. He can’t keep the look and feel of the franchisor, even though he probably feels like the branding is really his by now.

Doing these things would allow him to benefit from the franchisor’s name recognition and reputation, even though he’s no longer paying for those things.

You probably would not be able to negotiate permission to continue to use this kind of intellectual property, however good you are at negotiations.

The other kind of intellectual property includes business systems and “know-how.” Malcolm will probably, after 10 years, be very knowledgeable about the goods and services he supplies to his customers. Even if he has been using the systems exactly as the franchisor laid them out, the knowledge of how to run the business is firmly in Malcolm’s head by now.

He might have some ideas about how to do things better, too. Many franchisees have their own ideas and have to resist implementing them, in order to protect the brand. Malcolm’s knowledge and training from the company might inform his independent business, and it could be hard for him to prove that he’s not using things he learned during his tenure as a franchisee.

This kind of intellectual property can be included in negotiations.

For example, the franchisor might include a non-compete clause that prevents franchisees from opening a similar business within a certain length of time after they end the franchise relationship. The franchisee might include a clause that stipulates that the franchisee is the owner of his or her “know-how” at the end of the relationship, and can’t be prevented from using it.

As with any negotiations, the time to plan for this situation is before you buy the franchise. Make sure you have an agreement about intellectual property included in the contract, no matter what your future plans may be at the moment.

It’s All About the Franchise System

One of the big advantages of a franchise business opportunity is that it will come with an operating system that works.

Systems are the backbone of any successful business. Think about it – imagine that you decide to create your own special T-shirts and sell them in your own store. You can imagine that exciting first day when you open your shop and customers come in to buy. In your mind’s eye, it’s a balmy day and customers come in a few at a time, choose from your selection of products and check out one at a time, leaving you plenty of room to chat with each customer before closing with plenty of money in the till and time to walk the dog before enjoying a celebratory dinner. Your successful first day!

Now, how are you going to keep the right inventory in stock? If someone buys all the extra large size of a style in melon, will you order more right away or wait till the other sizes and colors are also sold? How will you handle special requests? Do you offer gift wrapping? Can you get larger or smaller sizes? What point-of-purchase software will you use, and what credit cards are you going to take? Do you offer volume discounts, senior citizen discounts, employee discounts? What sizes of sacks do you need, and when do you need to order more? Do you close for lunch until you’re ready to hire an assistant? Who will clean the bathrooms? Do you allow returns? Do you finish one transaction before moving on to the next person in line, or do you try to dovetail the work, ringing up the next person while the first writes a check?

And how exactly will you receive shipments? How do you know what’s in stock, what’s coming, and what’s backordered? How will you label items, who will unpack, and where will you unpack and store products? How do you deal with shipping errors and returns to the manufacturer?

Do you respond to customers who tweet a question, and if so, when do you check Twitter – in between email and unpacking that shipment?

Every sale seems like it comes with more questions, more uncertainties, and more things you never thought about. This is because you don’t have systems in place. Often, it takes years to develop truly workable systems for every aspect of your business.

With a franchise, all (or at least most of) those things have been worked out.

Some franchises have a very carefully developed system for each of the major business systems:

  • Lead Generation
  • Sales Conversion
  • Customer Service
  • Purchasing
  • Hiring
  • Training
  • Shipping
  • Inventory Management
  • Order Fulfillment
  • Pricing
  • Accounting
  • Payroll
  • Collections
  • Maintenance

Others have clear systems in some areas and lots of flexibility in others. Check on this when you explore different franchise opportunities, and make sure that you’re comfortable with the level of detail in each area.

Plan to follow the systems of your new franchise closely at first. However excited you are at the thought of being your own boss, there will unquestionably be a lot of things to learn and things you haven’t thought about. Give yourself a year to get everything running smoothly and then think about the improvements and adjustments you might want to make.