DEALING WITH IP ISSUES IN A FRANCHISING AGREEMENT by Tan Tee Jim, S.C. Senior Partner, Head, IP & IT, Lee & Lee Lahore, December 2007

TYPICAL IP RIGHTS IN A FRANCHISING AGREEMENT  Proprietary Marks  Registered Trademarks  Trade dress  Copyright  Manuals  Drawings Architectural drawings of specially designed buildings or premises Interior and exterior layout Menus

TYPICAL IP RIGHTS IN A FRANCHISING AGREEMENT  Confidential Information / Trade Secrets  Business methods  Recipes  Restraint of Trade clauses  Designs  Specially designed furniture  Patents  Business method patents

ISSUES RELATING TO PROPRIETARY MARKS  Enforcement of rights in registered trade marks  Franchisor reserves sole discretion to take whatever course of action it sees fit against an alleged infringer.  In a number of jurisdictions, the franchisee may institute proceedings against an alleged infringer in his own name.

ISSUES RELATING TO PROPRIETARY MARKS  Franchisee may wish to include a term requiring the franchisor to take action against an infringer upon the complaint of the franchisee or failing which to consent to the franchisee instituting such action in its own name  Issue of damages

ISSUES RELATING TO PROPRIETARY MARKS  Undertaking by the franchisee not to do anything to prejudice the goodwill and reputation of the brand name/trademark

ISSUES RELATING TO PROPRIETARY MARKS  Goodwill  Additional goodwill generated belongs to the franchisor  Reservation of right to replace the trademarks  The franchisee should require that reasonable notice be given

ISSUES RELATING TO PROPRIETARY MARKS  Registration of trademark licence  To record the licence of the trademark to the franchisee if the regime allows it.  Indemnity against 3 rd party claims for use of trademark not in accordance with the agreement

ISSUES RELATING TO COPYRIGHT  Copyright will exist in the following that are provided by the franchisor:  all written manuals;  website content and design;  drawings of the layout; and  any other documents, or photographs  The copyright in a drawing may also extend to a 3- dimensional representation of the drawing.

ISSUES RELATING TO COPYRIGHT  The licence given to the franchisee to use the copyright material is only for use for the franchise business.  The franchisor will usually reserve to himself the copyright in all the additions to the manual.  This will include any additions or translations of the manuals made by the franchisee

ISSUES RELATING TO COPYRIGHT  While copyright is automatic, in infringement proceedings, it will be necessary to prove that copyright protection vested in the plaintiff:  All original plans or drawings together with the details of the creator and the date of creation ought to be kept.  Documents showing the root of title of the copyright should be kept

LAW OF CONFIDENCE & TRADE SECRETS  The franchisor will seek to include a provision treating all information (except those already in the public domain) disseminated to its franchisee as confidential information.  The franchisee will be required not to divulge any such information to any third parties.

LAW OF CONFIDENCE & TRADE SECRETS  The franchisee may wish to request to include a term that allows the franchisee to employ subcontractors and to make known to the information they require to carry out the work.  The confidentiality clause is usually worded such that the franchisee remains obligated not to divulge confidential information even after termination of the agreement

LAW OF CONFIDENCE & TRADE SECRETS  The franchisor would further seek to protect its confidential information/trade secrets by providing for restraint of trade clauses in the franchise agreement

LAW OF CONFIDENCE & TRADE SECRETS  Restraint of trade clauses in franchising agreements generally restrain the franchisee from being connected with a business or trade which is deemed similar or in competition with the franchise business and would usually continue to operate for a period after termination

LAW OF CONFIDENCE & TRADE SECRETS  Restraint of trade clauses are common in employment contracts.  Courts have held that in light of the bargaining power the employer has over the employee, such clauses are to be narrowly interpreted.

LAW OF CONFIDENCE & TRADE SECRETS  However, in respect of franchising agreements, which are typically between business entities, the courts may not interpret such clauses narrowly.

LAW OF CONFIDENCE & TRADE SECRETS  Validity of restraint of trade clauses  Does the franchisor have a legitimate interest to protect  Reasonableness – (duration & scope)

THANK YOU Tan Tee Jim, S.C. 19