Franchise: rights over trade marks

The Colombia Superintendence of Industry and Commerce (SIC) has issued an important understanding when drafting franchise contracts. While it was specifically addressed to trade marks it also extended to other intellectual property rights.

Basically, the understanding establishes that franchise contracts and “license agreement can only be concluded through the effective owner, that is, the person or company to which that entity authorises the registration of the mark.” In other words if there is no registered trade mark there is no right to be given by the franchisor. According to Prof Germán Darío Flórez (Colombia National University) the franchisor must be the owner of the trade mark in the territory in which the figure is to be exercised. He also extends to say that "when a contract is made between a franchisor and a franchisee, the trade mark is the main element that is transferred because it includes knowledge or 'know-how', and the secret in order for the business to thrive." While indeed the trade mark is the main element in a franchise to what extend can we say that the know-how is attached to the trade mark?

A trade mark is the sign that distinguishes one good or service from those of another company. Its function is the origin and we connect this with quality as well. A trade mark does not include the know-how. A company can authorise another one to use its trade mark or logo without imparting any knowledge but establishing quality standards. For example if I use the trade mark ‘banana’ for
mobile phones and I authorise another company to use ‘banana’ for mobile charges, there is no need to disclose the know-how of the company – let alone any trade secret. Yet going back to the case of franchise contracts, the franchisor owns the overall rights and trade marks of the company and allows its franchisee to use these rights and trade marks to do business.

Recently in a training session I was asked what the best way to draft an IP licence agreement is - there is not straightforward answer. But there are crucial things to consider depending on the IP wanted to be shared. In a franchise the franchisee not only would like to use the trade mark but actually the know-how of the company…that is the point. Therefore in such type of contract different clauses are included: use of trade marks (limitations), know-how, trade dress and the like; each one is independent of the others. Moreover, a franchisor may have other know-how and trade secrets that in this particular contract do not want to disclose.

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The standard noted by SIC also includes “inventions, models, processes, image and constant advice, among other aspects protected by intellectual property and industrial secrecy.” This understanding goes in line with national IPO offices in Latin America. For example in Brazil INPI neither annotates agreements nor issue certificate of registration for the license of non-patented proprietary technological knowledge. In Mexico IP license/assignment must be registered with the IMPI and will not register if the IP registration had expired or if the agreement is longer than its IP valid term.

In Colombia there is no legislation on franchising and thus according to Prof Flórez “companies have made contracts in this modality without being the owners of the trade mark".

Source El Tiempo.