A Franchise Is...

Without a thorough understanding of what a franchise is, it will be difficult to create and understand the legal documents, let alone sell the concept.

Franchising is a relationship between a company that wishes to franchise its business – the franchisor - and a person who wants to purchase and operate the franchise – the franchisee.

Franchising is a business method and relationship. Franchises offer a trademark and logo and a complete system of doing business.

The relationship between a franchisor and franchisee is held together by a contract called the Franchise Agreement that outlines the privileges, terms, conditions, restrictions and other details of the system.

Identify The Types of Franchises

Before you begin the process and draw up the legal documents, you have to determine the correct franchise category for your business to ensure you are legally compliant and forming the type of franchise structure that you need.

There are three types of franchise models:

• Distributorships grant the right to sell the parent company’s products. Examples: car dealerships selling General Motors, Ford, Toyota vehicles.
• Brand Name Licensing gives the licensee the right to use the parent company’s brand in the operation of their business. It is the product or service that is licensed and not the business itself. Example: a sports store in a small town is granted the exclusive rights in that town to sell Nike products.
• Business Format allows the franchisee to purchase the right to operate a unique business system (retail, home-based, fast food concept, etc.) that has an established history and track record created by the franchisor. This is the most commonly used franchise model.

Define Franchisor and Franchisee Obligations

To establish a strong franchise relationship the franchisor and franchisee must have clear communication and not only understand, but embrace their roles and responsibilities. Both parties are contractually bound and contribute to the success of the relationship and franchise organization.

For an initial fee and an ongoing royalty, the franchisor provides:

• Established market presence
• Trademark rights
• Know-how and experience
• Training
• Ongoing support
• Intellectual property

In return for a proven business system, trademark and support the franchisee provides:

• Up-front fee and ongoing royalties
• Motivated and enthused effort
• Expanded market awareness
• Additional site management

Protect Your Trademark

Once you’ve completed the application process and your trademark is legally registered with the United States Patent and Trademark Office (USPTO) you have to establish a method of protecting it.

The USPTO does not regulate use of a mark. In fact, they very clearly state: “We do not decide whether you have the right to use a mark (which differs from the right to register). Even without a registration, you may still use any mark adopted to identify the source of your goods and/or services. Once registered it is your responsibility to enforce your trademark rights."

This is very important. You spent a lot of time and money registering your mark, and you have a credible business you want to protect. You have to be aware of possible infringements on your mark and you have to be prepared to stop them.

Detect Trademark Infringements

The most economical way to search for infringements is to periodically search the Internet for variations of your trademark. If you find a business operating under a similar name in your industry, you then need to have your trademark attorney address the issue.

You can also find third parties in the yellow pages and online that will monitor your trademark and potential infringements. These are, however, expensive services.

Act Against Trademark Infringement

Once you’ve found an infringement, your attorney will have to issue a Cease and Desist letter to the infringer. The Cease and Desist letter will contain your trademark registration number and the classes the trademark is registered in. Typical verbiage includes:

"The use of a mark that is confusingly similar to a federally registered trademark is trademark infringement. The use of nearly identical words for exactly the same service is clear trademark infringement. Our client has invested a considerable amount of time and energy in promoting its mark. This is an investment that must be protected. Accordingly, we must demand that you cease and desist all further use of the mark, the domain name and any other colorable variation of the mark. If you are willing to voluntarily change the mark now, our client will provide a reasonable period of time for you to adopt a new name."


If all goes well and you’re able to avoid protracted litigation, then the infringing business will send you a detailed plan and timeline for changing their name. This is an extensive list and should include business name, signage, telephone book advertisements, magazine advertisements, flyers, coupons, business cards and websites. Physical changes will be verified by photographs. It’s a time-consuming process, and an expensive one, but it is critical. You cannot allow trademark infringement once you’re aware of it.

A typical Cease and Desist letter without extensive follow-up will cost approximately $500. Follow-up is billed on a per hour basis.

Check The Trademark Application Status

Registering a trademark is a very lengthy process. It can take up to 18 months to complete.

At any time during the process you can check the status of your application in the Trademark Application and Registration Retrieval (TARR) database that is available online at www.uspto.gov. You may also call the Trademark Assistance Center at 1.800.786.9199 to request a status check.

Define Trademark Limits

Know the limits of a trademark. While it is a required step in franchising, the trademark alone does not protect your business, ideas or processes.

The United States Patent and Trademark Office (USPTO) is the entity controlling trademarks in the United States. They explain: “A trademark is a word, name, symbol or device which is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others.”

The terms "trademark" and "mark" are both commonly used to refer to trademarks. Registering your mark does not prevent competitors from selling the same goods or services under a different name. It does grant you rights to prevent those competitors from using a confusingly similar name and benefiting from your established name and goodwill.

The USPTO notes that trademarks provide ”notice to the public of the registrant's claim of ownership of the mark, a legal presumption of ownership nationwide, and the exclusive right to use the mark on or in connection with the goods or services set forth in the registration.”

Define Servicemark Limits

Know the limits of a servicemark. While it is a required step in franchising, the servicemark alone does not protect your business, ideas or processes.

A servicemark is the same as a trademark except that it identifies and distinguishes the source of a service rather than a product.

The terms "trademark" and "mark" are commonly used to refer to both trademarks and servicemarks. Registering your mark does not prevent competitors from selling the same goods or services under a different name. It does grant you rights to prevent those competitors from using a confusingly similar name, and thus benefiting from your established name and goodwill.

The USPTO notes that servicemarks provide "notice to the public of the registrant's claim of ownership of the mark, a legal presumption of ownership nationwide, and the exclusive right to use the mark on or in connection with the goods or services set forth in the registration."

Calculate Trademark Scope And Cost

There is a significant cost to registering a trademark. Minimally, there are search, legal and filing fees. You must register by class. Class is a description of the goods and services for which you intend to use your mark in commerce. Most trademarks will be registered in multiple classes.

Generally, you will register at least two trademarks, one for business name and one for logo. You may decide to register combinations of name and logo, depending on your industry norms and legal counsel.

For one trademark, registered in 3 classes, reasonable costs are:

• Legal Counsel $600 - $1,000
• Comprehensive U.S. Search $600 - $1,400
• Application Preparation and Submission $200 - $600
• Electronic Filing Fees (3 classes at $325 each) $975

Assuming the company you hired for this process is capable and everything goes as planned with no penalties or late fees assessed, you should expect to pay between $2,375 and $3,975 per mark.

Do The Trademark Application Yourself

You may elect to do a significant portion of the trademark application yourself. If you choose to prepare and submit the application without using a third party you can save $200 - $600 per mark.

The Trademark Manual of Examination Procedures (TMEP) is the definitive reference work on trademark registration practices and procedures. It is a resource for United States Patent and Trademark Office (USPTO) examining attorneys, trademark applicants, and attorneys and representatives for trademark applicants.

It is available for download at no charge on the USPTO.gov website.

Beware The Financial Consequences

If you do not register your mark, and someone else chooses to use or challenge it, you may be forced to change your name and logo. A name change for one site with established operations costs approximately $25,000. It also confuses the public and has adverse effects on goodwill.

Further, when you sell your franchise you have to provide the prospective franchisee with a Uniform Franchise Offering Circular (UFOC). This document is required and has a section detailing trademarks and servicemarks. If you do not own your trademark, it will be noted here. A prospective franchisee should be advised to question why you don’t own it and what the potential costs are should a name change be forced upon the company. This is a large factor in deciding what franchise to purchase.

Validate Your Name Before You Register

Streamline the trademark registration process and save time and money. Perform your own search of existing United States Patent and Trademark Office (USPTO) trademarks to check if there are any names confusingly similar to yours.

You should select a trouble-free and register-able mark. If you find names that are similar to the one you want to trademark you should change your name. If your proposed name is confusingly similar to a name registered in the same classes, it will be rejected.

The USPTO does not conduct preliminary searches for an applicant. There are plenty of third party companies that specialize in searching. Check your local yellow pages for trademark-related businesses, or search online for businesses specializing in legal document preparation. You may also want to retain a trademark attorney.

Make Your Mark Unique

The Trademark Electronic Search System (TESS) is a database of pending and registered marks. It is available online at www.uspto.gov and if needed, there are several levels of online help. You may also search registered and pending trademarks at a Patent and Trademark Depository Library (PTDL). PTDLs are located throughout the U.S. and a listing of their locations is available at the United States Patent Trademark Office website – www.uspto.gov.

There is no charge for using TESS or PTDLs to search for conflicting marks. Local and online businesses charge $200 - $400 depending on the scope of the search. Most attorneys bill on a per hour basis that range from $250 - $350 an hour.

Interview A Trademark Attorney

It is very important that you consult with a trademark attorney who has extensive trademark registration experience in the early stages of the process. This is too critical a time to be learning by trial and error as the consequences of incorrect registration can be far-reaching in terms of time and money. Do not choose attorneys based solely on lawyer referral services. These services typically do not evaluate the abilities of the attorneys in their listings. They accept any attorney willing to pay their membership dues.

Do not choose attorneys based solely on their advertisements. All a fancy advertisement tells you is that the lawyer has funds for advertising.

DO interview attorneys and determine who you’ll be working with – the attorney or paralegals.

DO ask if the trademark lawyer has experience registering trademarks in your industry.

DO not worry about physical proximity. Your attorney will be able to work effectively via telephone, e-mail and fax.

DO check the Patent Trademark Office’s web page, www.uspto.gov, to make sure that the attorney has previously registered numerous trademarks.

DO trust your instincts. Personality is important, as you will be working closely with your attorney during the initial phases of trademark registration and later in the event of infringements.

DO understand the attorney’s billing policies. Is it per hour? And what is the rate per hour? Make sure it’s affordable for the level of service you require.

File A Trademark Application

When you’re relatively certain you have a valid name you can proceed with the trademark application. You may write and submit the application yourself online at www.uspto.gov through the Trademark Electronic Application System (TEAS) or you may choose to have a third party write and submit the application. Third parties include legal document preparation companies and trademark attorneys. You may also mail an application to the USPTO. This is not a preferred method and will result in a longer process time.

Determine Classes Of Goods And Services For Your Mark

Your trademark must be registered in each class of goods and services for which you plan to use the mark in commerce. Class numbers and definitions are standard internationally. The complete listing is available in the “Trademark Acceptable Identification of Goods and Services Manual,” which can be accessed and downloaded free of charge from the USPTO website.

It is imperative to register in all classes that you do business in. The classes define the breadth of your trademark and what you’re able to legally defend.

The USPTO website provides a summary of classes by short title. They note that: “These short titles are not an official part of the international classification. Their purpose is to provide a means to quickly identify the general content of numbered international classes. By their nature, these titles will not necessarily disclose the classification of specific items. The titles are not designed to be used for classification but only as information to assist in the identification of numbered classes.”

GOODS

1. Chemicals

2. Paints

3. Cosmetics and cleaning preparations

4. Lubricants and fuels

5. Pharmaceuticals

6. Metal goods

7. Machinery

8. Hand tools

9. Electrical and scientific apparatus

10. Medical apparatus

11. Environmental control apparatus

12. Vehicles

13. Firearms

14. Jewelry

15. Musical instruments

16. Paper goods and printed matter

17. Rubber goods

18. Leather goods

19. Non-metallic building