ROLE OF IPR IN A FRANCHISE BUSINESS IN INDIA

Intellectual Property Rights (IPRs) are valuable assets of a business that aims at not only in contributing to the general profitability of a business but also aids in the advancement and innovation in technological sectors of every country. After India became a signatory to the WTO TRIPS Agreement, the IPR laws of the country were amended to make them more consistent and fit globally. And the amendments are turning out to have positive changes in the IP regime of the country.

Business Sep 11, 2021 0 Add to Reading List

ROLE OF IPR IN A FRANCHISE BUSINESS IN INDIA

Introduction:

Intellectual Property Rights (IPRs) are valuable assets of a business that aims at not only in contributing to the general profitability of a business but also aids in the advancement and innovation in technological sectors of every country. After India became a signatory to the WTO TRIPS Agreement, the IPR laws of the country were amended to make them more consistent and fit globally. And the amendments are turning out to have positive changes in the IP regime of the country.

A Franchise is a form of licensing arrangement between a franchisee and franchisor which grants the franchisee, through the means of the agreement, access to use the proprietary knowledge, processes, and other intellectual property rights of the franchisor, and to practice trade of the franchisor under the trade name of the franchise. Several intellectual property rights like trademarks, trade secrets, patents, copyrights etc can be exploited in a franchise agreement. A franchise agreement is based on a mutually beneficial relationship between both the parties i.e. the franchisor and franchisee. The franchisor through the agreement, seeks to expand its business and brand name beyond its territorial borders. On the other hand, the franchisee gets an intangible profitable return by using the existing brand’s reputation of the franchisor while remitting fees to the franchisor.

Protection of IPR in a franchise business

In India there is no specific law which governs the intellectual property in franchising business and related areas. There are different laws which govern various aspects of intellectual property, which indirectly covers the franchising related concerns as well.

Trademarks

Trademarks are an essential intellectual property tool especially in a business enterprise. A trademark comprises of logos, designs, drawings, symbols, taglines, numbers, three-dimensional features, or a combination of any of these, and distinguishes the goods and services of one company from those of another. In a Franchise agreement, usually, the franchisor gives the license to the use of its trademark to the franchisee who in turn pays a fee or royalty for such use. Generally, s trademark registered in the name of proprietor shall be used by him only. However, Section 48 of the Act, provides for use of trademark by, other than the registered proprietor, a registered user. A franchise of any business shall register themselves as a registered user, for using the trademark.

As provided under section 54, any franchise shall not have the right of assignment or transmission of their any right as registered user to any other person. The franchisor and franchisee has to make sure that the brand and goodwill associated with the trademark is not diluted in any manner due to any actions or omissions of the franchisee.

Trade Secrets

Trade secrets are confidential in nature. For any information to be classified as a trade secret, it must possess some commercial value and certain reasonable steps should be taken to protect such information from public access.

A franchise agreement usually involves the transfer of valuable confidential information to the franchisee and thus it becomes necessary to protect such information from general public to ensure that the franchisor is not deprived of the benefits of its creations. The trade secrets of the franchisor could be financial or technical details, business plans, implementation strategies, distribution techniques, operation manuals, pricing technique, recipes, customer lists, chemical formula etc. Like other intellectual property rights including trademarks and patents, trade secrets are not territorial in nature and do not require registrations, or renewals to be protected. However, if they get into the public domain, they lose their protection. Therefore, appropriate measures should be taken for its protection.

Copyrights

A copyright is a legal protection and confers an exclusive and assignable right to the original creator of various kinds of expressions, be it literary, Musical, Artistic or Cinematographic works or adaptations of any of these. Copyrightable works in a franchise agreement include literary works like operation manuals, recipes, source codes; musical, audio-visuals and sound recordings like radio jingles and television commercials, template plans and designs of the franchised buildings etc. Just like Trademarks, Copyright registration is also important in obtaining protection in the jurisdiction of the franchisee. It is important for franchisors to register their copyrighted materials as per the jurisdiction of the franchisee to obtain better protection.

In order to be identified as its franchise, any franchise would mandatorily require the right to use the copyright of the parent business. Section 18 of the Copyright Act provides for assignment of the copyright to another.

Section 30 of the franchise agreement mandates the franchisee to obtain a license from the original copyright owner in order to use the copyright in his business. Section 30A specifies that the provisions of the section 19 and 19A regarding assignment is also applicable to it.

Patents

A patent is an exclusive intellectual property right granted to an inventor over his/her patentable invention for a specified period of time. Some franchisors are in possession of certain inventions that are patented and are licensed to franchisees in a franchise agreement. These inventions might include business methods, computer software application, and equipment hardware. An assignment of a patent or any other interest in a patent is only valid when it is reduced to writing and the agreement between the parties contains a document containing all the terms and conditions regarding their rights and obligations, according to section 68 of the Patent Act.

Designs:

Designs like the shape, configuration, pattern, or composition of lines or colors applied to any article by an industrial process, whether in two or three dimensional forms (or both), that appeals the eye might be protected as a design under the Designs Act.

The registered proprietor of the design has copyright in the design for ten years from the date of registration, when the design is registered under section 11 of the Act, subject to the requirements of the Act. The franchisee must utilize the exact same design as the original company; otherwise, there will be issues and legal action.

AAYUSHI CHOPRA

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