Intellectual Property Rights

• Author: William A. Finkelstein and Sherin Sakr
• Pages: 1-61

1

CHAPTER 1

Intellectual Property Rights

William A. Finkelstein and Sherin Sakr

Contents

1-1. Introduction: Intellectual Property and Franchising . . . . . . . . . . . . . . . . . . . 2

1-2. Types of Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

(a) Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

(b) Trade Dress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

(c) Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

(d) Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

(e) Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1-3. Setting Up the Intellectual Property Compliance Program . . . . . . . . . . . . . . 6

(a) Corporate Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

(b) Identifying Sources of Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

(c) Intellectual Property Assets Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

(d) Acquisition of Trademark Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

(e) Intellectual Property and Franchise Agreements . . . . . . . . . . . . . . . . . . 8

1-4. Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

(a) Creation and Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

(b) Searching and Clearance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

(c) Perfecting Trademark Rights: Registration . . . . . . . . . . . . . . . . . . . . . . . . 9

(d) Maintenance of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

(e) International Protection of Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . 11

(i) Considerations and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

(ii) European Community Trade Mark System . . . . . . . . . . . . . . . . . . 11

(iii) Madrid Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1-5. Enforcing Trademark Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

(a) Infringements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

(b) Opposition and Cancellation Proceedings . . . . . . . . . . . . . . . . . . . . . . . 12

(c) Cybersquatting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

(d) Enforcement Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

(e) Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1-6. Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

(a) Creation and Work for Hire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

(b) Registration and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

(c) Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

(d) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

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2 Franchise Law Compliance Manual

1-7. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Checklist 1-1: Intellectual Property Assets Inventory . . . . . . . . . . . . . . . . . . . . . 17

Checklist 1-2: Corporate Policies Impacting Trademarks . . . . . . . . . . . . . . . . . . 20

Checklist 1-3: Selection of New Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Checklist 1-4: Prior to Searching New Trademarks . . . . . . . . . . . . . . . . . . . . . . . 22

Checklist 1-5: Searching and Clearance of New Trademarks . . . . . . . . . . . . . . . 24

Checklist 1-6: Protection and Maintenance of Marks after Clearance

and Adoption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Checklist 1-7: “Bona Fide Intent” Requirements for U.S. Trademark

Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Checklist 1-8: Trademark Portfolio Management Systems . . . . . . . . . . . . . . . . . . 30

Checklist 1-9: Trade Dress Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Checklist 1-10: Policing Trademark Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Checklist 1-11: Policing Trademark Rights—Deciding Whether to

Litigate and/or Oppose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Checklist 1-12: Preparing for Trademark Enforcement . . . . . . . . . . . . . . . . . . . . 39

Checklist 1-13: Essential Trademark Provisions in Franchise Agreements . . . . 40

Checklist 1-14: Trademark Portfolio Acquisition—Due Diligence . . . . . . . . . . . 42

Checklist 1-15: International Protection of Trademarks . . . . . . . . . . . . . . . . . . . . 44

Form 1-1: Trademark Infringement Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Form 1-2: Prototype Contested Application Settlement Agreement . . . . . . . . . .48

Form 1-3: Sample Trademark-Relevant Provisions in a Franchising

Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Form 1-4: Sample Provisions—Asset Purchase Agreement . . . . . . . . . . . . . . . . . 56

Form 1-5: Sample Provisions—Stock Purchase Agreement. . . . . . . . . . . . . . . . . 57

Form 1-6: Blanket Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Form 1-7: Independent Contractor/Work for Hire/Assignment Agreement . . . . 60

1-1. Introduction: Intellectual Property

and Franchising

Intellectual property—primarily trademarks, trade names, trade dress, copy-

rights, patents, and trade secrets—is the cornerstone of the franchising concept.

This property is created not with bricks or computer chips but with the human

mind; it commonly includes brand names, logos, symbols, designs, slogans, artis-

tic and linguistic creations, inventions, know-how, formulas, recipes, and meth-

ods of doing business. Proprietary rights in this property will generally be

protected by law, but only under certain conditions and limitations. Moreover,

there are very fundamental differences between the various types of intellectual

property, giving rise to distinctively different legal relationships and requisites.

On the other hand, there are many common approaches to protecting intellectual

property that should be the focus of a corporate compliance program.

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Chapter 1 Intellectual Property Rights 3

Intellectual property rights are corporate proprietary assets with enormous

value to a franchise business. In almost every instance, the bundle of proprietary

rights developed by the franchisor and used by it and/or licensed to franchisees

for their use is the basis of the franchise system. It is often the reason why the

business succeeds or fails, and it is a prime factor in attracting franchisees and

others, namely, shareholders, to invest in the business. Put simply, the legal

exclusivity that intellectual property rights can afford the franchisor and its fran-

chisees quite often offers the competitive advantage that is essential to a success-

ful franchising business.

The impact of failing to manage a company’s intellectual property assets

properly, thoroughly, and creatively can be substantial. On the business side, it

can cause wasted investment, lost opportunity, or, worse yet, diminished or lost

profits; from the legal perspective, it may lead to uncertainty, expense, and sig-

nificant risks and burdens of litigation. Proper management of intellectual prop-

erty assets is a skill that should be a basic strategic objective of a franchise

business, for which the underpinning is an active and pervasive corporate com-

pliance program.

1-2. Types of I nt el lectual P roper ty

In a typical franchise business, trademark rights are most likely to be of para-

mount importance, followed by trade secret rights, which might cover methods of

doing business and technical know-how such as recipes and formulas. Copyright

rights will be implicated in works such as advertising and other promotional and

marketing materials, software, and websites, and can be very important with

respect to operations manuals. Occasionally, patents will be important. For exam-

ple, utility patents might cover a proprietary piece of machinery or a software-

based system, and design patents might cover a building design. Although the

focus of this chapter will be on trademarks, a brief discussion of the other types

of intellectual property is necessary as well.

(a) Tr ademarks

In most franchising situations, trademarks represent the single most dominant

element and the focal point of the franchise package. Trademarks can be any word

or symbol used to identify one’s goods or services and distinguish them from

those sold or offered by others. They can be designs, words, pictures, slogans,

colors, configurations, or three-dimensional manifestations of the site where the

business is located, or combinations of some of these, which sometimes is termed

“trade dress.” The essence of trademark law is the protection of consumers from

confusion between businesses as well as the protection of the franchisor’s good-

will, which can be defined as favorable consumer recognition—the invaluable

commercial magnetism of the mark that attracts new customers and keeps old

customers coming back.

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