One of the benefits of purchasing a franchise is acquiring the right to operate the business under the existing system, name and brand of the franchisor. However, you need to make sure that the name and brand associated with the franchise are protected by a federal trademark registration. In Item 13 of the Franchise Disclosure Document (FDD), the franchisor is required to disclose whether the primary trademark is federally registered with the U.S. Patent and Trademark Office and provide the registration numbers as well as other pertinent information. If the trademark is not federally registered, the franchisor is required to disclose that fact with the following statement:
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.
If this statement appears in the FDD, you should inquire as to the reasons why the trademark is not registered. In addition, it is also important to inquire whether there have been any claims of infringement over the course of the franchise’s operations and what the likelihood is of a brand change in the future. Not having a federally registered trademark could put the franchise more at risk for a brand change due to possible infringement claims and it is not uncommon for the franchise agreement to require the franchisee to be responsible for all of his or her own expenses associated with a brand change.
It is important to make sure that the brand is adequately protected as it is likely one of the main reasons you are purchasing the franchise. If the franchisor’s primary trademark is not federally registered, this does not necessarily mean that there are no legal rights associated with the mark, but federally registered trademarks receive more protection and so it is important that you look into the issue when deciding to purchase a franchise.
