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Required Disclosures: Item 13, Trademarks

By Mario Herman, Esq.

The franchise brand represents the foundation of the franchise program. Protecting the brand through trademark registration is key. Learn why this is an important part of the Franchise Disclosure Document review.

The Federal Franchise Rule requires a franchisor to disclose to prospective franchisees specific information relating to the franchisor’s trademarks and the parties obligations related thereto. The franchisor is required to disclose:

(1) Each principal trademark to be licensed to the franchisee. For this Item, ‘principal trademark’’ means the primary trademarks, service marks, names, logos, and commercial symbols the franchisee will use to identify the franchised business. It may not include every trademark the franchisor owns.

(2) Whether each principal trademark is registered with the United States Patent and Trademark Office. If so, the franchisor must state:

(i) The date and identification number of each trademark registration.

(ii) Whether the franchisor has filed all required affidavits.

(iii) Whether any registration has been renewed.

(iv) Whether the principal trademarks are registered on the Principal or Supplemental Register of the United States Patent and Trademark Office.

(3) If the principal trademark is not registered with the United States Patent and Trademark Office, the franchisor must state whether the franchisor has filed any trademark application, including any ‘‘intent to use’’ application or an application based on actual use. If so, the franchisor must state the date and identification number of the application.

(4) If the trademark is not registered on the Principal Register of the United States Patent and Trademark Office, the franchisor must state: ‘‘We do not have a federal registration for our principal trademark. Therefore, our trademark does not have many legal benefits and rights as a federally registered trademark. If our right to use the trademark is challenged, you may have to change to an alternative trademark, which may increase your expenses.’’

(5) Any currently effective material determinations of the United States Patent and Trademark Office, the Trademark Trial and Appeal Board, or any state trademark administrator or court; and any pending infringement, opposition, or any cancellation proceeding. Include infringement, opposition, or cancellation proceedings in which the franchisor unsuccessfully sought to prevent registration of a trademark in order to protect a trademark licensed by the franchisor. The franchisor must describe how the determination affects the ownership, use, or licensing of the trademark.

There are additional requirements that I will address in next week's column. One of the principal reasons some prospective franchisees decide to enter into franchise agreement is to obtain the benefit of name recognition. It is critical, then, to know the strength of a franchisor’s rights in the trademarks it is licensing to the prospective franchisee. These are complicated provisions, and an experienced franchisee law attorney can assist you in determining whether your rights will be protected.

Read Part 2 here.