Franchising and trademarks go hand-in-hand. When you franchise your business, a primary legal right that you will be granting to your franchisees is the license and right to use your trademarks. Franchisees will replicate your business model, and in doing so, will use your trademarks. As franchisor, you will instruct your franchisees as to how they may and may not use your trademarks, and it’s your obligation to make sure that your trademarks are registered with the United States Patent and Trademark Office (“USPTO”) and protect your trademarks from any infringing uses by competitors. Since trademarks are so important to franchise systems, FDD Item 13 is specifically devoted to disclosing information about your trademarks to prospective franchisees.
Below, we review the basics of franchising and trademarks, what you need to know about your trademarks as a franchisor, trademark registration, and trademark protection.
A trademark is a word (i.e., your business name), symbol (i.e., your logo), or both (i.e., the name of your business combined with your logo) that is used to identify your business, to identify the goods you sell, and to identify the services that you provide. A trademark may also include slogans that you use in the identification of your business.
Just because you have a trademark to identify your business doesn’t mean that you own it or that it is legally protected. Ownership and legal rights for a trademark come about through two sources:
In addition to evaluating “how” you obtained your trademark rights, it is important to evaluate the strength of your trademark. Under the law, a trademark that is “descriptive” is not protected by law, while trademarks that are “arbitrary” or “suggestive” have the capacity for legal protection.
Protection of your trademarks will require the filing of a trademark registration application with the USPTO. The trademark registration application will include a sample of your trademark, identify the owner of the trademark, identify the date that you first used the trademark in commerce, and list the classification codes for your business. Once a trademark application is filed, there will be a waiting period until the application is assigned to an “examining attorney.” The examining attorney will conduct trademark searches to determine whether or not someone else already registered the trademark, and evaluate the legal strength of the trademark to determine if it is legally protectable.
If the examining attorney believes the trademark is descriptive, she will issue what is known as an “office action letter” where she indicates that she has refused to grant registration. Part of the trademark registration process will involve responding to office action letters, where your franchise lawyer addresses issues raised by the examining attorney.
If your trademark application passes review by the examining attorney, your application will be published in what is known as the Trademark Official Gazette, which serves as notice to the world that you are claiming protection for your trademark. If there is no opposition to the publication of your trademark, then registration will eventually be granted. The typical time period for obtaining USPTO trademark registration is approximately eight months from the date of your initial registration application.
FDD Item 13 is specifically devoted to disclosures about a franchisor’s trademarks. Within Item 13, a franchisor must disclose each principal trademark, whether or not each trademark is registered with the USPTO, the status of all USPTO trademark applications, and the renewal status of each trademark. Additionally, within Item 13 a franchisor must disclose “the existence of any pending litigation, settlements, or superior rights that may limit a franchisee’s use of the trademark.” If a trademark is not registered with the USPTO, Item 13 must include the following trademark registration disclaimer:
We do not have a federal registration for our principal trademark. Therefore, our trademark does not have as 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.
As a franchisor, it is critical that you evaluate and protect your trademarks at the franchise development stage, through the launch stage of your franchise system, and on an ongoing basis as your franchise system grows.
Lawsuits involving trademark infringement are, most commonly, governed by federal law. The Lanham Act provides a federal cause of action for trademark infringement. Franchisors possess claims for trademark infringement against any third party (including former, and possibly, existing franchisees) who use a “word, symbol, or device” to “cause confusion” regarding the source of origin of the products or services offered by the third party. When assessing a potential lawsuit involving trademark infringement, franchisors must consider the following:
Trademark factors you should know and understand include:
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