Business | Franchise | Employment | Litigation

Franchises, Intellectual Property, & Donuts

A franchise enables someone else (a franchisee) to use the franchisor’s intellectual property. To highlight how interconnected these two are, we will use the example of a fantastic donut shop created and grown here in Miami: The Salty Donut. Before we begin, we should point out two things. The first is that The Salty Donut is not a franchise despite having seven locations throughout Florida, North Carolina, and Texas. The second is that their brown butter and salt donut is life-changing. 

One of the reasons we chose to use this donut shop as a backdrop to our conversation about franchises is because of their unique products. Even if you don’t like the location—or donuts, for that matter—the concepts will still land. Imagine that a donut shop like ‘The Salty Donut’ decided to franchise. What exactly is the franchisee getting? Simply put, the franchisee receives the rights to use the protected intellectual property and the systems and processes the company has developed. This typically applies to any franchise. 

The store owners likely spent years reshaping the process by which their products are created. They have identified ingredients, specialty source specific ingredients, and a particular method in preparing their goods. This is just as valuable as the logo on the store. When you see that logo, you instantly know the quality of the donut you receive. The franchisee inherits a way to create an identical product and cohesive branding that indicates to consumers what is inside the donut store.

Considerations for a Franchisee

The established business (‘The Salty Donut’ or anyone else who wants to franchise) is referred to as the franchisor. In contrast, the person or entity who wants to use the franchisor’s IP is the franchisee. If someone is considering investing in a franchise, what should they be aware of? First off, having an attorney to represent your interests is paramount. Before you sign any agreement with any business, you want to be sure what the franchisor’s relationship to their intellectual property is.

If a franchisor has unregistered IP, is that a reason to walk away from the deal? Impossible to say, but you need to discuss it with your attorney. Second, you want to ensure you have a command of your new relationship with that IP, your obligations, and the extent to which you can use it. Even well-written agreements can be challenging for someone unfamiliar with the law and contractual language. Your attorney will read each clause and translate it so that you understand your capabilities and limitations. 

In all likelihood, the agreement will force you to acknowledge that the IP does not belong to you formally, even though you are using it. Additionally, misusing IP could terminate your rights as a franchisee. This is more complex and robust than not following an exact donut recipe, but that may be discussed in the agreement. You need to be aware of what constitutes authorized use. If you create marketing materials to promote your location, who needs to approve them? Do you require approval at all? Should you make recommendations to improve a system or process (which could happen), you need to know how that gets communicated and that the franchisor will likely own the improvement too. These are relevant points in determining your rights and obligations in accordance with the franchise. 

Speak to an Attorney at Trembly Law Firm about Franchise Agreements 

Purchasing a franchise is an involved process, but it is one that we have a significant amount of experience with. The attorneys at Trembly Law Firm will guide you through the franchising requirements, some of which are dictated by the Federal Trade Commission (FTC). Additionally, we can prepare and execute franchise agreements. Contact our office today to schedule your consultation.

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