Franchisors and franchises need to register their brands as US trademarks even more vitally than do other businesses.
The existence of a franchise, in fact, depends upon registration of its trademarks with the US Patent and Trademark Office (USPTO). Without a registered trademark, a franchisor, simply, has nothing to license to a potential franchisor.
This Article discusses trademark registration generally. It will further specifically describe the requirement that franchisors register their trademarks with the USPTO early in the process of creating a franchise.
First, what is a franchise?
What Is a Franchise?
The term “franchise” refers to a business relationship in which one party, the franchisor, allows another person or business—the “franchisee”—to operate a business under the franchisor’s trade name in exchange for fees and operational guidance to varying degrees.
It is a license to operate a business under the franchisor’s name. It is a license to utilize the business name, product names, logos, and other trademarks and copyrights owned (or further licensed) by the franchisor.
The Federal Definition
Franchises are regulated by the Federal Trade Commission (FTC) by way of its “FTC Franchise Rule.”
The FTC Franchise Rules defines a franchise as a business arrangement in which the franchisor:
- Promises to provide a trademark or other commercial symbol;
- Promises to exercise “significant” control or to provide “significant” assistance in the operation of the business; and
- Requires a minimum payment of at least $500 during the first 6 months of operation.
Michigan law also provides its own definition of a franchise. Under Michigan law, a franchise is a contract or agreement between 2 or more persons to whom the following apply:
- A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor.
- A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate.
- The franchisee is required to pay, directly or indirectly, a franchise fee.
The “franchisor,” obviously, is the party providing the license of use and the significant assistance.
The “franchisee” is the party on the other end of the deal. That is, a franchisee pays a fee and receives both the license of use and significant assistance. (Or control, as the case may be.)
What Rules Must Franchisors and Franchises Follow?
A Michigan-based franchisor and franchise must, therefore, follow the rules codified in both Federal law and in state law.
Federal Rules for Franchisors
The FTC requires, in particular, a franchisor to provide prospective franchisees with a disclosure document. This document details:
- The franchisor’s financial information,
- parent companies or predecessor companies,
- affiliates, business experience,
- ongoing litigation,
- bankruptcy history,
- initial and other fees required,
- the franchisee’s required initial investment,
- required and alternate suppliers,
- restrictions on product and services sourcing,
- the franchisee’s own other obligations (such as site location),
- territorial restrictions,
- and more—including trademark use.
Federal law requires, in short, that a franchisor must furnish prospective franchisees with sufficient information to make an informed decision to sign the ultimate franchise agreement. (This is the contract under which the business relationship is formed and later governed.)
Michigan State Franchise Law
Michigan law requires franchisors to disclose similar information to prospective franchisees. It also enforces various restrictions and protections related to the sale of franchise businesses. Michigan also requires the use of an escrow agent for the escrow of the franchisee’s initial investment amount if the franchisor’s total net worth is less a certain amount.
In addition, a further requirement for franchisors is implicit in the definition of a franchise itself, as well as pursuant to FTC disclosure requirements.
These are the rules governing trademark registration in the United States.
What Is US Trademark Registration?
US Trademark registration is a certification of the exclusive right of use of a business or product trade name, logo, slogan, or other mark identifying you as the source of a product or service sold in interstate commerce.
That is, a trademark is a “source identifier.” When a US consumer sees your name or logo in advertising or on franchise signage, she knows that your business is the source of the product or service.
The consumer is not confused as to who is selling that product or service because that identifying name, logo, or slogan has been registered with the USPTO.
The name or logo is displayed along with the ® “registered trademark” symbol. The consumer has confidence that he or she is buying what they mean to buy from the company they mean to buy it from.
Or, in this case, the franchisee to whom you, the franchisor, have licensed the use of the trademark. It is a legal grant of exclusive use in relation to your particular restaurant, coffee house, retail store, or other franchise operation.
What Are the Benefits of US Trademark Registration?
Anyone using the trademark without a signed franchise agreement license will be infringing upon your registered trademark. Your franchise will have the right to sue for infringement in Federal Court, to enjoin the infringer from using the mark, and obtain order destroying infringing inventory and product—and, on occasion, for money damages.
Trademark registration is a powerful tool protecting the brand identify of any business.
For a franchisor and a franchise, it is essential.
This is true not simply on a practical level. That is, it is not true simply on the “What are you licensing if you don’t own your trademark or copyright?” level.
It is, as noted above, a requirement of the FTC Rule and Michigan law that you own your trademarks, copyrights, and other intellectual properties in order to enter into a franchise agreement.
How Can Franchisors Register their Trademarks?
A franchisor can register a trademark for the franchise name, its logo, its slogan, and all of its other “source indicators” the same way any other business owner in the U.S. does.
Accomplish this with the filing of a trademark registration application with the USPTO.
However, is it that easy?
Of course not. Like most legal processes more complicated than applying for a fishing license, the trademark registration process is essentially adversarial.
A USPTO Examiner will review your application for accuracy. This Examiner will reject your trademark registration application if it fails to meet the required eligibility criteria.
Even if the Examiner does approve the application forward, the next step in the process is a public review period during which third-party trademark owners and other parties in interest may oppose your application.
In short, there is plenty of room for expensive and heavy-duty litigation within the US trademark registration process.
A franchisor’s best tactic for avoiding litigation is to retain an experienced Michigan trademark attorney to assist with registration from the get-go.
What Will a Detroit, Michigan Trademark Lawyer Do?
First and foremost, a Metro Detroit trademark attorney will perform an extensive pre-application clearance search to ensure that the proposed franchise trademark is not already registered or in use anywhere else in the U.S.
Once cleared, your trademark lawyer will draft your franchise trademark registration applications properly.
A trademark registered for use by third parties other than its franchisor or owner is a special animal that must be properly drafted, described, and prosecuted.
A good trademark lawyer will respond to Office Action refusal and other opposition to your franchise name registration.
What Are the Trademark Registration Requirements?
To register your franchise name as a US trademark, it must, first and foremost, meet the registration eligibility criteria.
What are these requirements?
To register, a trademark must, among other things:
- Be unique enough to specifically identify the applicant as the source of service or product sold under the franchise name or logo;
- Not be likely to confuse consumers relative to a prior registered name or logo;
- Not be merely descriptive of the product or service described in the application;
- Not utilize a term or image forbidden by the US Trademark Act (“Lanham Act”), such a geographic place-name or the US Flag.
Your franchise name needs to be a strong trademark.
Is “Joe’s Hamburgers” particularly strong, do you think? Or does it merely pair a very common U.S. name with generic product term? (The latter choice is the correct answer.)
Is “The Detroit Milkshake Company” a strong trademark? Or does it merely pair a geographic place-name with a product type description and the unregistrable word “company?”
Again, the latter choice is the correct answer.
Franchisors, if you aren’t sure whether your business name is strong enough to register as a trademark, consult an experienced Michigan trademark to discuss before investing any capital whatsoever in the further development of your franchise.
Let a Metro Detroit, Michigan Trademark Attorney Help You
The launch of a new franchise is a serious undertaking. Branding is, or should be, the preeminent concern of prospective franchisors.
Without a registered trademark and an enforceable brand, your business will not make the leap into franchising.
Before investing in other start-up costs, including domain names and inventory, prospective franchisors should always consult a trademark registration attorney. There is no point expending start-up capital if the franchise name is not a strong trademark.
Noble Path Trademark Law is a boutique US law practice located in Metro Detroit and assisting entrepreneurs, solopreneurs, artists, musicians, start-ups, and larger enterprises with robust intellectual property portfolios, and others in all industries with trademark registration, trademark renewal, trademark monitoring, and Office Action refusal response matters.
You don’t need to hire a lawyer down the street just because she is down the street. Trademark law is a Federal practice area. We represent clients across all 50 states—and globally—for US trademark registration and renewal matters.
We offer virtual consultations, premium customer service, and the expertise you need to maximize your odds of trademark registration success.
Additionally, we also have nearly 20 years of experience representing Michigan bankruptcy clients and business clients, including franchise agreement and franchise disclosure drafting.