Articles

Intellectual property protection

Finweek 27 March 2008
By Ian Jacobsberg

For the franchisor, it’s essential that his intellectual property be protected, as this is the cornerstone on which the franchise is based. As for the franchisee, although the protective provisions seem to impose onerous obligations on him, it is worthwhile to remember that it’s in his interest, too, that the integrity of the information be protected, as this will ensure that the franchise in which he has invested remains unique. Ian Jacobsberg, director at Routledge Modise Attorneys, exams the importance of intellectual property protection.

For any franchisee, in general, the value of belonging to a well-known franchise network lies in being able to make use of an established brand name and a proven method of doing business. This method makes up the franchisor's "business format" – its methods of running a franchised business, designing and decorating stores, marketing and presenting products, etc.

For the franchisor, his ability to expand his business by attracting new franchisees, of course depends on maintaining the goodwill attached to his brand and persuading smaller entrepreneurs that being affiliated to a well-known brand and having access to the business methods perfected by the franchisor will give them an advantage that they would not have had had they attempted to establish their businesses independently.

For both the franchisor and the franchisee, therefore, much of the underlying value of a franchise lies in the franchisor's intellectual property. The franchisee needs to have access to the intellectual property in order to run his business successfully. The franchisor, as owner of the intellectual property, must make sure that it remains unique and is protected from "piracy" by other parties, so that it retains its value, both for him and for his franchisees.

Some intellectual property can be protected against unauthorised use by registration with the Department of Trade and Industry. This will preclude any outside party from using the registered right without the express authority of the owner (the franchisor). Intellectual property that may be registered includes methods of manufacturing products or carrying out services that form part of the "franchise package", which could be made the subject of a registered patent. In addition, the brand name, or any unique product names used by the franchisor, could be registered as trademarks.

Many businesses even go as far as to register slogans that they use in advertising their products as trademarks, to prevent competitors from taking advantage of the reputation of the franchisor's products.

There are, however, some intellectual property rights that cannot be protected through registration. These are the "ideas" that make up the business format. Once they’re disclosed to a franchisee, or any other person, there is a danger that that person will make use of the ideas to imitate the franchisor's business format. These rights can only be protected by making sure that they are only disclosed to those persons who need to have access to them, and that the persons to whom they are disclosed are obliged to respect their value by keeping them confidential.

Very often, the greatest danger is posed by former franchisees who came into possession of the ideas while their franchise agreements are in force, and who after expiry of their agreements, imitate the franchisor's business format, while actually competing with the franchise network. For this reason, a franchisor must ensure that the all of the information that he is going to disclose to the franchisee in the course of their relationship is both clearly defined and protected.

This the franchisor will achieve by:

• Firstly, describing the information in detail in the agreement, or clearly defining the sources of that information, e.g. "the operations manual and other directives and instructions issued by the franchisor to the franchisee while the franchise agreement remains in force".

• Including in the franchise agreement an acknowledgement by the franchisee of the confidentiality of the information and an undertaking not use it for any purpose other for the purposes of the franchise.

• Imposing an obligation on the franchisee to ensure that all of his employees are aware of the confidentiality of the information and undertake to observe it.

• Obliging the franchisee to return all documents, disks and the like which contain any of the information when the franchise relationship is terminated.

• Perhaps even imposing a restraint of trade on the franchisee, so that he is prevented for a certain period from operating a business that competes with the franchise network in the area where his franchised business was previously carried on.

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Ian Jacobsberg

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