|In September 2017, INTA’s In-House Practitioners Committee hosted two Idea Exchange sessions on International Licensing and Franchising.
A diverse group of INTA corporate in-house members from various countries and industries participated in the teleconference. Susan Crane, Group Vice President Legal, Intellectual Property for Wyndham Worldwide Corporation; Allison McDade, Senior Trademark Counsel, 7-Eleven, Inc.; and Michelle Peterson, Trademark Administrator, 7-Eleven, Inc., were the moderators of these sessions. This article provides a general overview of the issues discussed and the experience encountered by participants in the session, but does not identify any individual or corporate views discussed.
Do business colleagues interact directly with trademark counsel or the business unit/franchise lawyers?
In many cases it is a team effort between trademark counsel and international franchise counsel working side by side with the international licensee or master franchise licensee.
Who is responsible for developing the trademark/branding guidelines?
Most participants indicated that it is usually the marketing/branding department that develops the guidelines and seeks input from others, including trademark counsel. Trademark counsel has an opportunity to make changes and clarify guidelines based on their experiences with other entities to avoid confusion and misuse of the brand.
What factors are evaluated when considering whether license recordation is necessary?
When recordation is necessary to validate the license, or permit royalties to leave the country, and/or for enforcement purposes, license recordation is pursued, and where possible, a short summary of the license is recorded as opposed to the full agreement. Tracking recordation of the license can become complicated as it is not always tied to the trademark renewal or other trademark filings necessary to maintain the mark, and it is important to have a system in place to ensure that recordation is tracked along with license renewals. For example, participants noted that in Brazil, the trademark office takes the position that the license is only valid for the period of latest expiring registration. This can create a lot of issues when there are multiple marks in the agreement and might require re-execution of agreements and amendments for each registration. Of interest, it was noted that in Thailand a license is invalid if not recorded and a franchisee can demand a refund of the royalties paid if the license is not recorded. Most participants agreed that license recordation is difficult due to the variation of recordation requirements in each jurisdiction. INTA’s Country Guides was identified as a useful resource that includes licensing and recordation requirements by jurisdiction. (INTA’s Country Guides: Essential Information on Trademark Protection Worldwide is available exclusively to INTA members and is a comprehensive searchable database of 120+ country profiles, offering basic, practical information on: trademark filing, prosecution, registration, maintenance, customs recordation and domain names.)
What model of franchising is most often used?
If the entity is new to the country and it doesn’t have boots on the ground, it will usually operate with a master franchisee and a local expert. If established in that country (or once established down the road), the entity might enter into a franchise agreement directly with the local, smaller entity. However, working with a master franchisee allows for it to handle the franchising directly with local entities and that can be more efficient when there is a significant volume in that country.
What is the approach to local marks, variations from branding guidelines, and domain names?
There was a consensus that when a corporate entity wants to transliterate or use a trademark in a local language/characters, it is addressed in the master agreement that prior approval must be obtained, and there must be adherence to specific guidelines. However, the corporate entity will manage the local trademark filing as opposed to the franchisee. Additionally, if permitting variations, it is done by formalizing the details with specific guidelines, and documenting that it is authorized as necessary due to local law. Franchise owner participants agreed it was challenging to manage the domains. Alternatives suggested were to acquire and license predefined, branded domains to the franchisees.
What is the course of action when things go wrong?
When a master franchisee defaults, and is unable to cure the default, entities have taken over the relationship, sometimes permanently and sometimes as part of a transition until a new master franchisee relationship is established. For that reason, master agreements have a provision that if terminated, then the underlying agreements with local and direct franchisees revert to the company and/or can be assigned to a new master franchisee. Also, if you own the real estate and you terminate, then it can be an easier transition if corporate takes control, but it helps to have boots on the ground and know the local government operations. The participants noted that they use checklists with very specific actions for a de-identification process when necessary. Participants all seemed to agree that certain jurisdictions—such as China, Pakistan, or Bangladesh—were often challenging for franchise disputes. For example, in China, AIC (Administration for Industry and Commerce, a national organization with local departments in every province and major city) will generally not get involved in a franchise dispute because it deems this to be a business dispute between two related parties. An additional difficulty that was discussed is timing needed for the former franchisee to cease all use of the brand when the branding is architecturally part of the building or there are design features that are unique to the brand, e.g., brand logo is a design feature in carpet throughout the premises.
Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.
© 2017 International Trademark Association