Transcript GURMEET S JAKHU, PARTNER HAMILTON PRATT SOLICITORS ENGLAND, UNITED KINGDOM Workshop 10: Maximising Intangible Benefits, from IPRs Protection to Exploitation of IPRs: Business Strategies based on Franchising.

GURMEET S JAKHU, PARTNER HAMILTON
PRATT SOLICITORS ENGLAND, UNITED
KINGDOM
Workshop 10: Maximising
Intangible Benefits, from IPRs
Protection to Exploitation of IPRs:
Business Strategies based on
Franchising and/or Merchandising
•1 Issues & Franchising
IP
INTRODUCTION:
IP ISSUES & FRANCHISING
1.
2.
3.
4.
What is a franchise & statistics?
Definition of franchising.
Why franchise & is the business
franchisable?
IPRs,franchising and Due Diligence.
a.
b.
c.
d.
5.
Trade Marks
Confidential Information & Trade Secrets
Copyright & Patents
Goodwill & Trade Dress
Conclusion
•2
WHAT IS A FRANCHISE?
 Word
franchise’ comes for the old French
‘franchir’ which meant to liberate/set free.
 Offers people the freedom to own, manage
and direct their own business.
 Business format – most common form.
Fr’ee replicates the entire business
format/method to conduct their business.
 Started off in the US in the 1950’s; rapid
growth in the 1980’s due to international
expansion into Europe & UK.
•3
FRANCHISING IN THE UK,USA &
ITALY

UK:



more than 900,000 franchise businesses in the US provide 20 million jobs and
$2.3 trillion in economic activity
President Obama pledged support for increasing the Small Business
Administration loan limit from $2m to $5m to help SB expand and create new
jobs and set the country on the road to economic recovery (October 21 2009)
Italy:
(1International Franchising In Italy, Trends and Perspectives 2002 (A Majocchi & E
Pavione); Infofranchise press 07/03/2007 & 3Rapporto Quadrante Franchising 2008)






£11.4 billion overall turnover of UK franchise sector in 2008 (drop of 8%); 838
franchise systems (up by about 28); 34,600 (franchise units) 90% franchisees
making a operating profit; 467,000 people employed in the franchise sector.
USA: (IFA & News Release October 2009)


(BFA/Natwest Survey 2009)
2
Brands
Turnover (billion euros)
No of outlets
No of employees
562 (2002)1; 766(2006)2; 847 (2007)3 & 852 (2008)3
11 (2000) 1; 19 (2006)2; 21.13 (2007)3 & 21.4 (2008)3
52,725 (2007)3 & 53, 434 (2008)3 [2002; 31,439 Fr’ees1]
75,000 (2000)1; 182,215 (2008)3
Franchise Business Outlook 2009 by PWC and FRANdata – Fall in
borrowing by franchisees and sharp drop in consumer spending will affect
franchising
•4
INTERNATIONAL
FRANCHISING


Market is in overseas growth: (USA: Wall Street Journal Aug 09)
 Subway & Curves International reported expansion abroad
esp.: Brazil and Central & Eastern Europe. Also in India and
China where new middle classes are emerging.
 Curves opened 612 centres outside N America from Feb 08,
compared to just 18 in US and Canada.
 Since Jan 2008, Subways has opened 1,432 locations abroad,
202 more than in the US.
 McDonalds Corp has opened 286 units abroad, compared with
56 domestically.
International push due to saturation of US market; master Fr’ee
bank roll whereas domestic fr’ees may require bank loans (credit
not available locally) or maybe down to tradition:
 Home Instead Inc (professional care for seniors). In Japan
tradition dictates that aging parents be looked after by the
wife of eldest son, but now many have jobs. Fr'sor has 149
locations in Japan, more than half of its 268 international
franchises which are spread across 14 countries.
•5
DEFINITION OF FRANCHISING
UK has no franchise specific laws; unlike USA,
Canada, Italy and Australia do have franchise
specific laws.
 EU member states view the relationship between
a Fr’sor and a Fr’ee differently:




Relationship between 2 independent businesses & adopt
a ‘buyer beware’ approach eg: UK & Ireland where there
is no specific legislation aimed at franchising.
Others view franchisees as parties in need of some form
of special protection eg: France, Germany and Italy.
But even within these members states they have
differing levels of protection (disclosure requirements;
list of fr’ees; disputes etc)
•6
DEFINITION OF FRANCHISING (2)
 European
Franchise Federation
(EFFCode):
“Franchising is a system of marketing goods
and/or services and/or technology, which is
based upon a close and ongoing collaboration
between legally and financially separate and
independent undertakings, the Franchisor and
its Individual Franchisees whereby the
Franchisor grants its individual Franchisee
the right, and imposes the obligation, to
conduct a business in accordance with the
Franchisor’s concept”.

This definition has been adopted by the BFA (British
Franchise Associations).
•7
DEFINITION EXPLAINED
A contract between two legally independent parties which gives:




a person or group of people (franchisee) the right to market a
product or service using the trademark or trade name (IP
rights/branding) of another business (franchisor).
The franchisee the right to market a product or service using the
operating methods of the franchisor (use of the System -‘knowhow’).
an obligation on franchisee to pay the franchisor fees for these
rights (made up of an initial fee and ongoing royalty/ management
service charge: (payment of royalty is based on levels of
franchisee’s turnover and not profit, hence incentive to achieve
market penetration rather than profit)).
franchisor’s obligation to provide initial and ongoing support.
•8
WHY FRANCHISE?
 Cost
effective means of raising capital and
expanding quickly.
 Motivation, skill & finan. comes fromFr’ee
 Franchisee’s perspective:




Proven brand recognition and profit potential.
Proven concept - don’t worry about failure.
Ownership & independence.
Being in business for yourself and not by
yourself.
 Key:
business expansion involving
exploitation of an IP asset, Fr’sor control
and assistance.
•9
IS THE BUSINESS FRANCHISABLE?



Yes – replicated & generates profit for franchisee.
Pilot Testing (establish system & income stream).
BFA’s says concept should consists of know-how ie:
trade secrets that can be passed (know-how must be
present); If not, a mere trade mark licence granting a
right to use a name
Most businesses are franchisable except:
 Creative businesses (require skill not easily taught).
 Technical business (with the exception of McDonalds
who have an extensive training course, most have a
short induction).
 Fashion production (concept/idea must last original
term plus a renewal).
•10
EXAMPLES OF FRANCHISED
BUSINESSES








Restaurants and fast food - McDonalds, Burger King,
Domino’s Pizza, Pizza Hut, Subway, KFC and 7-Eleven.
Retail Clothes - Benetton; Levi; French Connection.
Health and Beauty - Curves; Body Shop; Supercuts;
Saks; Toni & Guy & Rejuvinate Health Clubs.
Hotels - Marriot & Choice (Canada).
Parcels Delivery - DHL & UPS.
Training and Education services - Gymboree
(children’s exercise and learning) & New Horizons.
Maintenance, cleaning and sanitation services ServiceMaster, Jani King & Dyno Rod.
Professional services, accounting, tax and Copying TaxAssist; Century 21, Your Move & CartridgeWorld and
Kall Kwik.
•11
IPR RIGHTS (GENERAL)
IPR’s are territorial.
 Different countries have different laws-need to
apply to different countries to get protection.
 There is some international harmonisation – via
international treaties.
 Need to map out IP exploitation ahead of actual
expansion overseas.

•12
IPR’S AND FRANCHISING
IPRs are inherent to a franchise.
 Eg: Trademarks - the life blood of a franchise:





IPRs (differing importance):






Identifier and indicator of source.
Immediate consumer recognition.
Communicates a way of doing business.
Trademarks
Confidential Information & Trade Secret
Copyright
Designs rights
Patents
Review IPRs being granted (Due Diligence)
•13
DUE DILIGENCE & REVIEW OF IPRS



Due Diligence - nothing more that the process of accurately
assessing the value to be acquired.
In addition a prospective Franchisee needs to:
 Obtain a list of all registered IP, such as trade marks, tradenames, business names and patents (if applicable).
 Equally important are all unregistered IP rights, trade
secrets, ‘secret sauce’, recipes, copyright or other confidential
information which form a part of the target franchise’s model.
Prospect Franchisee would want to know the:
 Nature of the licensing rights to be held.
 Whether granted equally to all franchisees.
 Whether these are capable of being modified during the term.
•14
WHAT IS A TRADEMARK?
A
Trademark may ‘consists of any sign
capable of being represented graphically,
provided such signs are capable of
distinguishing the goods or services of one
undertaking from those of another’
(Art 2 of the Trade Marks Directive
(89/104/EEC)
A
sign that distinguishes the goods and
services of one enterprise from that of
another eg: Rolex (watches): Mont Blanc
(pens) & American Express (financial
services); Kodak etc
•15
PROTECTION OF A TRADEMARK

TM are protected through registration




UK registered within one or more of 45 classes (TMAct 1994)
& Italy (Italian Trademarks & Patents Office - Rome)
Community Trade Mark registered in all member EU states
via the OHIM (Alicante).
International registration filed under the Madrid Protocol
administered by WIPO (Geneva).
TM owner is protected by the law, where appropriate can:
(i) Stop any business/person making unlawful use of his TM.
(ii) to collect damages for his loss or gather up the wrongdoer’s
profits &
 (iii) to secure the destruction of any infringing goods



Law of Passing off – available to both reg and unreg TMs

(expensive and time consuming, must prove use and goodwill)
•16
TRADEMARKS; FRANCHISE
AGREEMENT


Franchisors should develop an active TM
protection programme designed to educate its
field staff, key employees and all of its fr’ees as to
proper usage and protection of the TM.
Franchise Agreement – sets out contractual
terms relating to TMs
Trademark User Compliance Manual - more
detailed guidelines for proper usage &quality etc.
 TUCM incl. in Operations Manual to specify:



Proper display of the marks.
All documents on which the Fr’ee must display the TM
and identify itself as a Fr’ee.
•17
TRADEMARKS; FRANCHISE
AGREEMENT (2)
 Every
FA will have a section devoted to
the proper use and care of the Fr’sors TMs
 As a minimum should stipulate the:




Identity of the trademark that the Fr’sor is
licensing the Fr’ee to use.
Require the Fr’ee to use only the TM
designated by the Fr’sor.
And only in the manner authorised.
‘On loan’ during the term of the Agmnt.
•18
TRADEMARKS; FRANCHISE
AGREEMENT (3)
Franchise Agreement provides that the Franchisee:

Is not be able to licence the TM to a third party.

Must not register the TM in its own name or a third party
with whom it is associated.

Notify, if it learns of any improper use of the TM.

Required to expressly acknowledge that the Fr’sor is the
owner of the TM & goodwill associated with the TM.

unauthorised use (infringement of Fr’sors rights) & may
amount to grounds for termination (often immediate).

On termination must immediately cease use of TM (& CI)
•19
CONFIDENTIAL INFORMATION &
TRADE SECRETS
1.
Fr’sor consider whether its: techniques,
business operations, manuals, recipes,
prospect list, customer lists, pricing can
be protected as trade secrets.
2.
Trade secrets are confidential
information that has commercial value
(by virtue of being kept secret and
reasonable steps have been taken to
keep it secret).
•20
CI & TRADE SECRETS (2)
3.
Although not strictly an IP right,
information may be protected as CI if:
a.
b.
c.
d.
it is confidential in nature.
it was disclosed in circumstances importing
an obligation of confidence (Coco v A N
Clark (Engineers) Ltd (1969) RPC 41).
And there has been a breach of that
confidence (by the person receiving the
information) to the detriment of the other
(person imparting it) ie: causes harm.
No registration in the UK.
•21
CI & TRADE SECRETS (3)
Make it known that disclosure of a TS
may result in termination and/or legal
action & Monitor compliance.
Protection achieved via:
4.
5.
Non Disclosure Agreement: at the outset, sets out
what constitutes CI, clarity and certainty.
 Ops Manual: should identify information which
Fr’sor considers to be trade secrets & discuss the
protection and use of those secrets.
 FAgmnt: both during and post termination.
 Law also protects ‘Database’ rights.

•22
COPYRIGHT
Protect the results and expressions of creative
ability. Eg. Operations Manual & Software
Programmes (accounting software), forms,
templates etc.
Exists automatically upon creation of a piece of
work & no registration in the UK.
What is protected?
1.
2.
3.


creative output - literary & artistic and includes
computer software (Software Directive (91/250/EEC)
directs that computer programmes (which includes
the preparatory design material) are protected as
literary works)
UK, Copyright, Designs and Patents Act 1988,
computer software qualifies as a literary work.
•23
COPYRIGHT (2)
4.
Prevents unauthorised copying.
5.
In case of Infringement:



6.
Injunction to prevent further copying;
Damages
Delivery up and destruction of offending items)
Include additional provisions, in FA/Ops
Manual, reinforcing in FA/Ops Manual rights.
•24
PATENTS
Protect inventions & on registration grants
monopoly rights for 20 years.
 In the UK regulated by the Patents Act 1977
(novelty must be present in the invention).
 International Protection:



European Patents office (Munich) once registered
provided protection within member states of EU.
Patent of Co-Op Treaty – enables application in a no of
countries but actual patent dealt with at a national
level.
Provides protection from TP using the patent.
 90% of patents once registered not put to
commercial use.

•25
GOODWILL
 Goodwill
associated with the Franchisee’s
local contacts, reputation and customers.
 Who does it belong to?


Some FAgmnts provide that this could belong
to the Fr’sor, after all the Fr’ee has been using
the Fr’sor TM, know how and system to build
his own goodwill
However, there is an element of the GW which
is down to the hard work of the Fr’ee and
which he should be able to realise on sale
•26
TRADE DRESS
 Unregistered
right: combination of
elements, where there is retail / public
presence (Part of the ‘Get up and go’).
 Trade dress may include, external
building feature, interior design, signage,
uniforms, packaging.
 Designed to build brand awareness and to
distinguish one company’s product or
services from those of another (Op Man).
•27
CONCLUSION





FA - form of business expansion
characterised by the exploitation of
IPRs.
IP rights - important intangible asset &
can be crucial to the future financial
success of the business.
Main IP right in franchising is trade
marks, (trade names, CI & trade secrets,
copyright).
IP protection is paramount to the
survival of any business.
Tough measures are needed to preserve
and prevent the misuse of IPRs in FA.
•28
THANK YOU
 The
contents of this presentation are not
meant to be legal or professional advice.
The presenter and/or Hamilton Pratt do
not accept any responsibility for any loss
or damage arising out of any attendee’s
reliance on the contents of this
presentation.
Gurmeet Jakhu
Partner, Hamilton Pratt England UK
+44 (0)121 237 2022
[email protected]
•29