I have emphasized the importance of trademarks repeatedly. In short, owning (and controlling) the brand is essential on the franchise's journey. This is one of the many reasons why California cannabis companies can not franchise.
The acquisition of the brand is not the only thing you need to consider during this process. An important area, but often neglected, is the one that technically owns the brand. To bridge the gap, I want to review several brand ownership strategies, as well as the disadvantages of certain approaches.
Limitations of a Franchisor Owner of the Mark
From a legal point of view, a brand is an asset. While this may seem like a legal nuance, it becomes a big problem if the franchisor finds himself in the middle of a lawsuit. Regardless of whether the lawsuit involves franchising, as long as the franchisor personally owns the mark, it is an asset that can be put into settlement.
The other challenge I see with the personal property of the marks is when several people collectively own the marks or when the marks belong to distinct individuals. In the end, this creates a disorderly and disorganized appropriation strategy. Not only are brands still subject to personal pursuits, but they also create problems when the business grows or individuals want to leave the franchise.
Creation of a holding company for trademarks
To ensure the greatest protection for your brands, I advocate the creation of a holding company to hold the brands. The holding company then issues the franchise licenses. The holding company would also be the legal owner of any operating manual, proprietary product or other intellectual property requiring protection.
In this way, if the franchisor is sued, the marks are not in danger. The holding company holds the asset.
Having an affiliated store owns the trademarks
The third option does not offer as much protection as a holding company, but can be a profitable route if necessary. Here you have one of your affiliate stores being the legal owner of the brands and operating manuals. They then authorize the use of trademarks in other franchise sites.
Choosing the best option
In the end, the question comes down to how much you want to spend to protect your trademarks and what is the perceived risk. Creating a clean option such as the holding company not only protects the brands, but also makes it all easier if the franchise was to be sold down the line.
Brand property strategy is just one of the many neglected protections when forming your franchise. That's why it's essential to partner with an experienced franchise attorney right from the start.
As a seasoned franchise lawyer and co-owner of the PLAYLive Nation franchise, I bring a comprehensive approach to everything from franchise formation to creating the best legal foundation for growth long-term. If you are in the planning stages of creating a franchise or curious if your business is in shape, contact me today.