Successful Franchising Key terms of an agreement

Pravin Anand

Lahore, 18th December 2007

Promises made

• Franchisors make promises – Of exclusivity within a certain territory– That the market is good and their system works –

good money to be made– That with a pre determined investment, even without

experience, there would be success– That they would continuously support the franchisee

in various ways

• On the force of this promise SMEs invest lifetime earnings

Franchisor - obligations

• An accurate and detailed operations manual – critical– Living document – changes– User friendly (ring notebooks with tabs)– Detailed – (..they never told me how to do it..) eg

Peanut butter sandwich– FAQs – should anticipate questions– Confidential and proprietary – licensed – Fair representation

• Link up like a computer network for latest updates to franchisee

Franchisor

• Protected IP– Registered (Patents and designs), used

Trademarks) or authored (copyrights)– Not infringing third party rights– Obligation to sue - cost

Franchisee: Trade marks

• Franchisee will not register mark in his own name. Registration creates strong rights

• That he would use the mark – basis of agreement & important to protect the mark

• Licensee would not vary the mark or offer poor quality goods/services– Quality control (specifications, samples, inspection of

inventory accounts processes)– Registered user (QC presumed)

• He would not export outside licensed territory

Copyright licensing

• Presumptions– Territory (if silent then India – relevant for

global licenses)– Duration (if silent then 5 years – relevant for

large repertoires of music films or books)– License lapses if right unused for one year

(unless contrary contract)

Franchisee

• Wont manufacture or sell competing goods in course of franchise

• Post termination– Will respect IP– Wont compete for a reasonable time – may not be

valid in some countries if no IP involved

• Maintain quality – even procure parts or goods from franchisor

• Not to hold an interest in a competitor – like a marriage

Franchisee

• To keep know how confidential– Physical access, IT, marking, employee contracts,

action taken against violators

• To contribute to advertising – get prior approvals (eg Walt Disney –elephant picture)

• Best efforts to sell goods – (T series and Prentice Hall)

• License improvements to licensor• Help enforce IP (local witnesses, complainant,

documents and logistics)

Giant Steps taken towards IP protection

Franchisee

• Not to transfer the franchisee

• Attend training programs

• Not to violate any law (Building laws (MCD) or AICTE rules)

Conclusion

• Good faith on both sides – critical for success

• Good systems and good contractual terms leave no ambiguity and disputes avoided

• Terms must be detailed but simple to follow and gone through as a part of training for successful implementation