What is franchising all about?

Franchising is an extremely good distribution method and without question the most successful small business format in the history of business.

What is Franchising? The ‘franchisor’ or person, who starts a company or develops a concept, uses others (franchisees) to duplicate his concept and distribute it on a large scale. This inter-dependency forms the basis to the business format and its success lies in the effective implementation of certain basic but clearly defined business principles. The juxtaposed relationship between franchisor and franchisee needs to be fully understood and accepted for the overall business to succeed.

In first world countries, as much as 50% of retail sales are through franchising. In developing countries, it is referred to as the “empowering” ownership structure of the future.

Why is franchising such a runaway success? There are several key elements to the success of franchising and why entrepreneurs choose franchising over other business start-ups:

  • There’s a common saying in franchising: “Being in business for yourself but not by yourself.” The main advantage of franchising is that franchising provides the franchisee with ownership through a tried-and-tested business format and makes you part of a ‘family’ of franchisees who have the same goals for success.
  • A first-time business person may not have the know-how to start a business or have the training and experience to make it successful. A franchise gives you the blueprint to success and back-up in all aspects related to operating a business.
  • Whilst franchisees succeed because of support, they also succeed because franchisees follow a system. The consistency that comes with franchising extends to not only how the business is run but also to how it is perceived by the buying public.
  • With a franchise there is not only buying power but ongoing support in the form of research, market analysis, new product development and new ideas for the future – elements to business that, on your own, are difficult and costly to achieve.
  • A good franchise is tried and tested and commercial banks and development agencies recognize the lower risk profile of franchising and support the business method.
  • Franchising offers opportunities to everyone and franchisors don’t necessarily look for experts in their field. The requirements are committed and self-motivated people who can be trained to manage their businesses according to the franchisor’s guidelines.

Mine, yours, ours: Let’s talk intellectual property in franchising

While a franchise is one of the easiest, safest businesses to start, you must ask the right IP questions to avoid ease and safety becoming complications and risk later.

There are three main types of intellectual property (IP) in franchise relationships: trademarks, copyright and know-how. When a franchisor licenses IP to a franchisee, all three should be included in the franchise agreement under “Intellectual Property”.

Trademarks

Trademarks generally include trade names, symbols, signs, trade dress, insignia, emblems, logos and slogans. It is the trademark that underpins all franchise businesses, because this is what the public is aware of and what attracts customers.

Trademarks are usually recorded in an attachment to the franchise agreement. It is critical for the franchisor to have a detailed knowledge of trademarks and the principles regarding their use in a particular class, who is licensing the use, and who is being licensed the use. It is also preferable for all licensed trademarks to be registered, to avoid any issues relating to ownership and assist with enforcement.

Copyright

Copyright normally subsists in the operations manual, computer programs, and fixation of the know-how (when the know-how is removed from one’s head and recorded), whether incorporated in the operations manual or any other documentation or computer program.

The franchise agreement should make clear to the franchisee that copyright in the operations manual vests with the franchisor, and that any copying of it (other than as specifically permitted) would be an infringement of copyright.

Know-how

Know-how, which includes a business’s trade secrets, can be hard to protect, because it often exists only in the head of the employee. It is generally controlled through a confidentiality agreement, which stipulates the protection of information that relates to:

  • The finances (income and expenditure) and profitability of the business; and
  • All confidential, technical, and commercial information relating to operations.

As far as trade secrets are concerned, the information to be protected would be confidential information relating to the business of both the franchisor and the franchisee, and the rights granted in terms of the franchise agreement.

Spoor & Fisher

Known for its extensive work with franchisors and franchisees, Spoor & Fisher has in-depth expertise in protecting, managing and enforcing IP across Africa and the Caribbean.
Contact Spoor & Fisher on +27 12 676 1111 or info@spoor.com to assist you in protecting, managing and enforcing your intellectual property.

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FASA Franchise Association South Africa
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