Seeking practical and legal counsel in franchise matters, whether domestic or international, is essential for those who establish franchise businesses as their new ventures. From protecting intellectual property rights to termination, a franchise business entails various components regarding its products, brands and operations. Therefore, knowing the right procedures and terminologies can facilitate smooth franchise operations that favor both parties and protect the business from future disputes.
However, each state governs the franchise business with its own rules. Therefore, a keen understanding of franchise laws and legal assistance from a franchising attorney who can navigate its intricacies and draft legal documents for both parties involved is required.
The Legal Definition of Franchising
In the USA, the Federal Trade Commission (FTC) regulates the offerings and sale of franchise businesses. As per the FTC rules, any business arrangement will be deemed a franchise business if the terms of the contract, whether written or verbal, will exercise the given three elements such as:
- The franchisee will be granted the right to sell, offer or distribute the goods and services under the provided substantial part of the franchise contract prescribed by the franchisor.
- The operation of the franchise business under such a plan is associated with the trademark, brand name, logotype, advertising, or other commercial symbol representing the franchisor or affiliated with the main business.
- The person granted the right to pursue the franchise business must pay a direct or indirect fee to the franchisor or affiliated person, as prescribed by the FTC laws.
However, many states have franchise laws to govern franchise businesses. In contrast, some states do not have a particular definition of franchise business and consider franchise rules in their jurisdictions to govern a franchise business.
The Presale Offerings and Sale of Franchise Businesses and Their Regulations
The franchise business rules impose a pre-sale disclosure from the franchisor to the franchisee, which applies to all states. Presale and offerings refer to all those terms related to franchise business operations and their selling to third parties. The disclosure obliges the franchisor to provide the prospective franchisee with important information on the business’s material terms before consummating the franchise business’s sale and offering. The Franchise Disclosure Document explains the information and must be presented before the franchisee.
Franchise law generally requires the franchisor to register the FDD with the local and state authorities. However, failing to register can put the franchisor in conflict with the overlapping federal and state laws ruling the franchise business and their disclosure regarding sales and offerings.
The Other Factors to Consider During Commencing Franchise Business
In addition to the franchisor’s obligations and rights regarding the abovementioned franchise document disclosure laws, there are some other aspects a franchisor must consider when entering a franchise business.
Trademark registrations
As stated, the franchisee business operates under the trademark of a franchisor. Therefore, the franchisor must pursue the registration of its trademark service marks, trade names, logos, domain names, and other commercial symbols with the United States Patent and Trademark Office. That will be used in connection with the franchise program. The registration of the franchise trademark will confer some benefits on the franchisor, including:
- Protection against any infringement
- It nullifies the presumptions of the trademark’s validity
- Adding recognition and making it a valuable asset
- The franchisor can notify the potential infringers of the franchise ownership of the trademark.
- Prevention of the registration of a similar trademark.
Naming a brand name
Franchisors must name their business before commencing a franchise. They must adopt an assuming or fictional name under which they can operate with proper administrative management and protect their brand name from further misuse.
Copyright protection
The Copyright Act protects authorship of original works fixed in a tangible expression. It broadly protects literary, musical, dramatic, pictorial, graphic and sculptural works, sound recordings, motion pictures and audiovisual works, and architectural works. These categories may be seen broadly, but careful action is required in their use. A franchisor should register its trademark. However, if there is still any issue, a franchisor can take this case to the franchising attorney and resolve such matters within the time.
Registration of franchise sellers and brokers
In certain cases, franchisors must register their franchise sellers with an appropriate agency before selling them or developing the multi-unit rights of their operations in the same cities. Failure to do so can lead to severe penalties for both parties. With the help of a skilled franchising attorney, they can mitigate the liability and proceed with the franchise business expansions.
The duties of a franchise lawyer in legal compliance
Consulting with a skilled and licensed franchising attorney can provide you with a wide perspective on how you can initiate a franchise business, either domestic or international. However, commencing a franchise business can take a lengthy procedure, and in such a situation, a franchise lawyer can help you with the following:
- They can draft your franchise agreement and include terms and conditions that address your business needs and the franchisee’s rights.
- They can review your agreements and alter them to meet your current needs.
- Your attorney will register your FDD with the federal authorities and explain the franchise business terms to the other party.
- They can work as a mediator between both parties. However, they can take your case to court litigation if this does not result in fair justice.
Conclusion
Setting up a franchise business or expanding its horizons can involve several legal formalities that require the assistance of a franchise attorney. Franchise business includes sharing several franchise rights with prospective franchisees and protecting the brand from false uses. Therefore, all new entrepreneurs getting into expansion and trying their hands on franchise business must hire a franchise attorney and protect their franchise business while giving it a new place with profits.