Intellectual Property Tips for NZ Franchisees

Franchisees operate a business within a franchise network underneath a franchisor. Becoming a franchisee allows you to purchase and operate your own business using the franchisor’s intellectual property. This can have benefits for both parties. As you will be using the  franchisor’s intellectual property, it is best to make sure you understand the boundaries of that use. This article will set out the intellectual property clauses of a franchise agreement and some intellectual property-related problems that franchisees may face. 

Franchise Agreement 

Your franchise agreement is very important to the relationship between you and the franchisor. The purpose of a franchise agreement is to outline the terms and conditions of your business. It allows you to use the intellectual property of the franchise for your own profit. To do so, you will need to pay regular franchise fees to the franchisor. There are many clauses in a franchise agreement, including two that relate to intellectual property under the grant of rights. These are the:

• discretion clause; and 
• intellectual property clause.

The grant of rights sets out details about your relationship to the franchise and franchisor. It essentially grants you rights to benefit from the franchise as long as you comply with the franchise agreement. You can look at your franchise agreement like a rental agreement. You are renting the intellectual property and business model for mutual benefit and, if you adhere to the rules, you will most likely get to continue running your franchise. 

Intellectual Property Clause

The intellectual property clause should set out all of the intellectual property that the franchise owns. It will outline that franchisees are able to use the franchise’s intellectual property for marketing and profit. However, the intellectual property still belongs to the franchisor. There are limitations to your use of intellectual property as a franchisee. Any changes to the intellectual property will likely have to go through the franchisor. 

Discretion Clause

This clause will act as a confidentiality clause. You will need to keep all intellectual property owned by the franchise confidential. This is so other businesses or franchises cannot copy the intellectual property. Some intellectual property rights, such as patents, require you to keep information out of the public domain. Therefore, it is important that this clause is in your franchise agreement. Keeping intellectual property secret can be beneficial to both you and the franchisor. 

What if the Intellectual Property Is Damaged?

Your franchise agreement should protect you from damaged intellectual property. Additionally, it is up to the franchisor to manage and maintain the intellectual property. It is in their best interest to do so. If you find that the intellectual property within the franchise is damaged you have several options.

Firstly, if the intellectual property was not disclosed to you as damaged, then this may be considered a breach of contract. In this situation, you are best to contact a lawyer for help as you may wish to take your franchisor to court.

Secondly, if the intellectual property becomes damaged during your agreement, this may impact your business. It is generally the job of the franchisor to take care of the intellectual property. This is usually explicitly stated in your franchise agreement or is implied. Again in this situation, you are best to contact a lawyer for legal advice. If the matter is taken to court you may be awarded damages for your loss. 

What if the Franchise Goes Bankrupt?

If the franchisor and franchise go bankrupt, there are two possible outcomes. First, a third party may come in to buy the franchise. In this case, your franchise agreement will be assigned over to the new owner. This transition can usually run relatively smoothly and you can continue operating as usual with the intellectual property of the franchise. The second option may occur if there is no third-party buyer. Franchisees will have the choice to come together and purchase the franchise themselves. This will give you ownership of the intellectual property of the franchise. This will mean, however, that you inherit the financial state of the franchise. If you find yourself in this position you may want to seek legal advice to determine if there are further options for you. 

Key Takeaways

When you are using the intellectual property of a franchise, you will likely enter into a franchise agreement. These agreements set out all of the details of your relationship with a franchisor, including how you can use their intellectual property. If you find yourself in the situation as a franchisee where your franchise has gone bankrupt or has damaged intellectual property, it is best to speak to an intellectual property lawyer. If you need help with this, contact LegalVision’s intellectual property lawyers on 0800 005 570 or fill out the form on this page. 

Frequently Asked Questions