Whether you’re actively considering taking your business to the next level through franchising or you’re just getting started on launching your idea, it pays to be aware of the potential implications of franchising. Since the ability to successfully run a franchise scheme depends on having effective protection of your IP in place, we always advise those launching businesses, products or services to secure their rights as soon as they can and to consider doing so for markets overseas too. This way, when it comes to putting an attractive franchising proposition together, there will be a package of IP assets in place that potential investors will be reassured by and see value in.
How franchises intellectual property agreements work
Some of the world’s most successful and recognisable brands operate as franchises. Franchisees are granted access to use IP rights of the franchiser under a licensing agreement, which will allow them to use those rights in a defined way. Franchises can work in a number of ways – the franchisee may run their own store or restaurant under the Franchisor’s brand or perhaps own the franchise to sell their products or services in a particular area. The former is known as business format franchising and the latter product and trademark franchising. In order to operate, franchisees will be granted access to business concepts, particular processes, use of trademarks such as logos and copyright and perhaps trade secrets such as recipes. For granting these privileges the franchisor receives a regular or sometimes a one off fee and the conditions of use will be outlined for both parties within a franchise agreement.
The benefits of franchising your IP
Franchising is a way of expanding your business and increasing profits while limiting risk to yourself and without borrowing additional capital. It can be a particularly effective way to grow reach and profits for your business without the need to invest in things such as new staff or premises and can help you gain advantage against competitors through faster increase of market penetration. It’s a method favoured by many big businesses for taking their brand overseas and for many big names it’s been an effective way for a successful business model to reach potential without overextending the owners of the IP. In short, it can present you with opportunities you may otherwise be unable to exploit or can help you to exploit them more quickly.
Potential IP obstacles franchisers should be aware of
There can be a lot of hidden obstacles when setting up franchise frameworks, which our experts are happy to talk you through. One of the most common areas is failure to protect your IP sufficiently – either prior to the franchise being set up or as part of the agreement. Not adequately protecting your IP will devalue it – if a competitor is able to offer the same products and services or use your trademark, why would someone pay for the privilege through franchising? Some franchise agreements fail to incorporate proper confidentiality or non-compete clauses, which mean that if the franchisee decides to terminate the agreement they are free to set up in competition using knowledge they have acquired during their time as a franchisee. This could incorporate knowledge of key areas such as your business processes.
You should also consider what would happen to your IP and therefore your franchise potential, should your company be put into liquidation for any reason. For example, if your firm was sued, would your IP be protected? Many business owners set up a separate company with ownership of their IP for this reason.
As a franchisor you will be obligated to protect the IP that is licensed, so you will need to maintain your assets carefully. You’ll also need to consider how you will ensure your franchisees will add value rather than diluting or diminishing the brand you have worked hard to establish. Franchises can help you access talent and skills you may otherwise not have been able to bring on board but you will need to put some quality assurance in place to protect the value of your brand and future franchises. This will involve laying out clear guidelines within your franchise agreement, keeping checks on your franchisees and it will likely involve the provision of quality training and other assistance such as access to marketing or promotional materials.
While licensing can help you penetrate new markets more easily, it’s possible to overlook potential barriers that could impact your franchise taking off in foreign lands. As well as nuances of cultural difference you need to consider whether franchising is a readily accepted business model in your target territory and evaluate whether the region’s economic situation indicates ready availability of finance to fund it. Once all of that is covered off, you’ll need to take a strategic approach to roll out – too quick and you could be ill-prepared, too slow and you might lose out to competitors. There’s also the matter of negotiating territories favourably to maximise your profits and impact while protecting your expansion plans.
Do you see franchising in your future? Speak to one of our IP experts today to talk about how you can prepare and protect your assets.