Intellectual Property and Franchises (How to Protect Your Brand Legally)

Intellectual property is a crucial asset for any business, particularly for franchisors, as it helps establish and protect their brand identity. Among these assets, the trademark stands out as the most significant. While many entrepreneurs start with a name that describes exactly what they do, it’s important to realize that this isn’t always the best approach when choosing a trademark.

“Many entrepreneurs pick a very descriptive name because they want the world to just know what they do,” said Tom Spadea, a franchise attorney with Spadea Lignana. “And although this might sound very counterintuitive, that is the opposite of a strong trademark.” 

When people ask if they can use their name as a trademark, the real question should be, “Can I stop others from using the same name nationwide?” Your name serves as the starting point of your brand identity, and as soon as you start using your name in business, you’ve established a common law trademark. Registering it federally just makes it official, but it doesn’t guarantee you exclusive rights everywhere. If someone else started using a similar name before you, they might still be able to keep using it. It’s not just about using the name; it’s about having the power to stop others from doing so.

Protecting Trademarks and Brand Identity Throughout the Franchising Process

Although protecting your intellectual property starts with your trademark, the knowledge, know-how and teaching that go into your business are just as important. 

“It’s not just the words in your contract that protect you,” Spadea said. “It’s the action of your corporate team and the founders.”

Protecting the "secret sauce" of your business processes — how you market your brand, find clients, price jobs, create recipes or sign up members at your gym — is very important. If you share too much of your process — by posting it online, for example — you risk making it fair game for anyone else to use, including former employees and competitors.

“If you post that on the internet, or do a YouTube video and you share that with the world because you think that’s going to help you sell franchises, you’re basically giving away your intellectual property,” Spadea said. “So you need to treat your secrets with a level of importance if you want them to be respected.”

Protecting Intellectual Property in Franchise Agreements

Another way franchisors can ensure the protection of their intellectual property is by strategically structuring their franchise agreements and emphasizing the importance of safeguarding their trademarks, trade secrets and proprietary processes. Drawing an analogy to the U.S. legislative system, Spadea says that the franchise agreement serves as the Constitution, setting the foundational framework and course for the franchise relationship. This agreement remains relatively stable and doesn’t change frequently. However, within this framework, franchisors can include clauses that specifically address the protection of intellectual property rights. 

“You’re protecting your intellectual property at a very high level,” said Spadea. “There’s also a movement away from enforceability of noncompetition agreements in a lot of states and nationwide. That’s the way that the law is moving. It actually makes protecting your intellectual property that much more important.” 

Additionally, operational manuals — which serve as the operational laws of the franchise system — can be integrated into the agreement as legally binding documents. This ensures that proprietary information and trade secrets are legally protected and enforceable.

The Mistake of Ignoring Trademark Protection

Another common mistake franchisors make is failing to adequately protect their trademark. They focus on coming up with a brand name and a unique business model, but they fail to take the necessary steps of ensuring they can’t be used by competitors. 

“That’s a very common mistake of new brands,” said Spadea. “They don’t take it seriously. They don’t realize that the reason private equity is paying super high multiples for existing franchise systems is based on the strength of their intellectual property.” 

The Importance of Trademark Searches 

Before launching a franchise, it’s crucial to conduct a thorough trademark search. This goes beyond simply checking federal databases; it requires a deep dive into state LLC and corporation databases, as well as extensive Google searches to ensure the name’s uniqueness in commerce. 

“You should meet with a lawyer,” Spadea said. “And you shouldn’t just do it yourself. There are so many trademarks and there are so many names out there that there’s a good chance that nothing ever comes back perfectly clean. So you have to really spend the time and energy on understanding the contours of what that name is going to look like.” 

It’s common for trademark searches to reveal some conflicts, which means it takes careful consideration and even a willingness to change your business name if necessary. Choosing a strong, nationally scalable name is essential for building a successful franchise brand and generating long-term wealth. While founders may have an emotional attachment to the current business name, they should prioritize the best interests of the franchise in the long run. 

“People don’t buy your franchise [just] because of your name,” Spadea said. “They understand you’re the one who’s going to put the value behind that name. And if you’re just at the beginning of your franchise process, that value doesn’t exist yet. So pick a vehicle that’s going to be way stronger in the long run.” 

From trademark protection to safeguarding proprietary methods and conducting thorough searches, prioritizing intellectual property in franchise agreements is crucial for long-term success and brand integrity.

For more information on the legal aspects of franchising, check out these related articles: 

• The Key Legal Terms You Need to Know in Franchising
• What Are the Legal Risks of Owning a Franchise Business?
• Bankruptcy: Implications for Franchisors