THE INTELLECTUAL PROPERTY BINARY FACING THE PARTIES TO A FRANCHISE AGREEMENT…

2 min read

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ARE YOU PROTECTED FROM RISK?

At PBL we often receive instructions from both franchisors and franchisees in respect of the rights and risks associated with the valuable IP that goes hand in hand with the franchise relationship. As most stakeholders would be aware, often it is the trademarks brand and logos that are fundamental to the franchisor‘s offer to a franchisee that will induce the franchisee to agree to enter into the license arrangement offered by the franchisor.

But there are fundamental rights, risks and obligations associated with such IP. 

Typically the franchisor will have already received good quality advice to the effect that the IP should be owned by another entity which will then license it to the franchisor entity to enable it to achieve the umbrella asset protection afforded from such a structure. Normally the license so created is either able to be terminated at will by the asset holding entity or on certain events such as the insolvency of the franchisor. It makes good sense to have this structure in place if you are a franchisor. Also often there is a royalty fee that is payable under such license which can be calculated by reference to market value of other such methodologies available to the franchisor.

On the other hand the franchisee obtains the rights under the franchise agreement to use the IP in the operation of the franchise business until the franchise is terminated but such agreements nearly always mandate that the franchisee has no rights whatsoever to the IP and it is all subject to the overarching agreement in place between the franchisor and the asset holding entity. Sometimes the franchisee pays a fee as well for use of such IP.

But what happens if the franchisor goes belly up?

The problem is at least 3 fold:

  1. The franchisee is still bound by the terms of the Franchise Agreement and will be held to their obligations by the liquidator or administrators in most cases.
  2. The IP License Agreement between the franchisor and asset holding entity can be and no doubt will be terminated IMMEDIATELY. This means that suddenly you have a franchise system without one of the essential ingredients of the system: the IP!
  3. The asset holding entity is free to dispose of the IP to whoever it sees fit. This may mean a disposal to the liquidator but you cannot count on this to happen if you are a franchisee.

So there are both rights and risks associated with the IP in franchising which mostly favor the franchisor and if you are a franchisee or thinking about becoming one then it is wise to undertake a full due diligence audit on the IP preferably before you enter into the Franchise Agreement.

At PBL we can provide you with valuable advice about this and other franchise topics.

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Picture of Authored By<br>PBLTeam

Authored By
PBLTeam

Director Lawyer, PBL Law Group

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Jye Hall
Anita Bradley has been an absolute dream to deal with. Anita's conveyancing skills and knowledge knows absolutely no boundaries along with her effective communication skills which has made selling and buying a completely stress free exchange for us. We recommend PBL Law to everyone looking for outstanding service. We will definitely be returning clients.
Kushlan Aluwihare
PBL Law Group were fantastic. Anita from PBL worked with us closely during our property search and made the exchange and settlement process smooth and stress free. Highly recommended.
Gail Whitford
PBL handled my late mothers estate, they were very obliging and patient with any and all questions that we had, thank you to David , Sharon and the other staff that we dealt with, everyone was so easy to talk to and friendly .David came to the home where my Mother was living and helped her to get her will in order, Sharon helped us through the process of executing her wishes when the time came even doing a house call which was so much easier, thank you all so much
S M
I have experienced an excellent service from PBL (especially from Anita) during the sale of my recent property on Central Coast, and during the purchase of our current property in Sydney. Throughout many challengers, especially with the sale, Anita presented her very professional and knowledgeable conveyancer, positively solving all obstacles. "Above and Beyond" Award going to Anita!!! :-)
Amanda Reitzin
The five-star reviews are well-deserved. I needed a motion and a bylaw drawn up for urgent repairs of my strata unit and the AGM was in two weeks' time. My solicitor was friendly, efficient, knew what documents to ask for, and had all the paperwork prepared well within the timeframe. She also took the time to run through all the legalese and the different possible scenarios with me to make sure I understood. I am so glad to have found this firm and I will not hesitate to use their services again in future if the need arises.
Ricky Cooper
Anita is amazing! So attentive, approachable and communicates everything every step of the way. I have now bought and sold property with Anita and I cannot recommend her highly enough.
Ron Thomsen
Our Commercial Property conveyancing was handled very professionally. Anita’s experience and responsiveness was an asset in this transaction.
Trace M
I am so grateful for Anita Bradley from PBL Law Group helped me with this property settlement, she has went above beyond to ensure I understand everything because of our deafness. I will recommended Anita or their team. Thank you so much for all the hard work you have done for us.
Tricia Wheatstone
For almost 18 months I have been a client of Alex Ilkin. Alex is very knowledgeable and professional and has consistently provided me with thorough, honest and well set out advice, including steering my case through appeal proceedings. He always worked for my best interests with integrity and compassion. I recommend Alex and his team at PBL.

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Jye Hall
Anita Bradley has been an absolute dream to deal with. Anita's conveyancing skills and knowledge knows absolutely no boundaries along with her effective communication skills which has made selling and buying a completely stress free exchange for us. We recommend PBL Law to everyone looking for outstanding service. We will definitely be returning clients.
Kushlan Aluwihare
PBL Law Group were fantastic. Anita from PBL worked with us closely during our property search and made the exchange and settlement process smooth and stress free. Highly recommended.
Gail Whitford
PBL handled my late mothers estate, they were very obliging and patient with any and all questions that we had, thank you to David , Sharon and the other staff that we dealt with, everyone was so easy to talk to and friendly .David came to the home where my Mother was living and helped her to get her will in order, Sharon helped us through the process of executing her wishes when the time came even doing a house call which was so much easier, thank you all so much
S M
I have experienced an excellent service from PBL (especially from Anita) during the sale of my recent property on Central Coast, and during the purchase of our current property in Sydney. Throughout many challengers, especially with the sale, Anita presented her very professional and knowledgeable conveyancer, positively solving all obstacles. "Above and Beyond" Award going to Anita!!! :-)
Amanda Reitzin
The five-star reviews are well-deserved. I needed a motion and a bylaw drawn up for urgent repairs of my strata unit and the AGM was in two weeks' time. My solicitor was friendly, efficient, knew what documents to ask for, and had all the paperwork prepared well within the timeframe. She also took the time to run through all the legalese and the different possible scenarios with me to make sure I understood. I am so glad to have found this firm and I will not hesitate to use their services again in future if the need arises.
Ricky Cooper
Anita is amazing! So attentive, approachable and communicates everything every step of the way. I have now bought and sold property with Anita and I cannot recommend her highly enough.
Ron Thomsen
Our Commercial Property conveyancing was handled very professionally. Anita’s experience and responsiveness was an asset in this transaction.
Trace M
I am so grateful for Anita Bradley from PBL Law Group helped me with this property settlement, she has went above beyond to ensure I understand everything because of our deafness. I will recommended Anita or their team. Thank you so much for all the hard work you have done for us.
Tricia Wheatstone
For almost 18 months I have been a client of Alex Ilkin. Alex is very knowledgeable and professional and has consistently provided me with thorough, honest and well set out advice, including steering my case through appeal proceedings. He always worked for my best interests with integrity and compassion. I recommend Alex and his team at PBL.