Proprietary Rights

• Author: Steven M. Goldman, H. Bret Lowell.
• Pages: 1-54

CHAPTER 1

Proprietary Rights

William A. Finkelstein and Anthony M. Stiegler

Contents

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

Setting Up the Intellectual Property Compliance Program. . . . . . . . . . . . . . . . . 3

Corporate Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Identifying Sources of Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Intellectual Property Assets Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Types of Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Creation and Selection of Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Searching and Clearance of Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Perfecting Trademark Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Maintenance of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Trade Dress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Enforcing Trademark Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Franchise Agreement Trademark Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Acquisitions of Trademark Portfolios. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

International Protection of Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Checklist No. 1-1: Intellectual Property Assets Inventory . . . . . . . . . . . . . . . . 12

Checklist No. 1-2: Corporate Policies Impacting Trademarks . . . . . . . . . . . . . 15

Checklist No. 1-3: Selection of New Trademarks. . . . . . . . . . . . . . . . . . . . . . . 16

Checklist No. 1-4: Prior to Searching New Trademarks. . . . . . . . . . . . . . . . . . 17

Checklist No. 1-5: Searching and Clearance of New Trademarks . . . . . . . . . . 18

Checklist No. 1-6: Protection and Maintenance of Marks after

Clearance and Adoption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Checklist No. 1-7: “Bona Fide Intent” Requirements for

U.S. Trademark Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Checklist No. 1-8: Portfolio Management Systems . . . . . . . . . . . . . . . . . . . . . 24

Checklist No. 1-9: Trade Dress Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Checklist No. 1-10: Policing Trademark Rights . . . . . . . . . . . . . . . . . . . . . . . . 27

Checklist No. 1-11: Policing Trademark Rights—Deciding Whether

to Litigate and/or Oppose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

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Checklist No. 1-12: Preparing for Trademark Enforcement . . . . . . . . . . . . . . . 33

Checklist No. 1-13: Essential Trademark Provisions in Franchise

Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Checklist No. 1-14: Trademark Portfolio Acquisition—Due Diligence . . . . . . 36

Checklist No. 1-15: International Protection of Trademarks . . . . . . . . . . . . . . 38

Form No. 1-1: Trademark Infringement Report . . . . . . . . . . . . . . . . . . . . . . . . 41

Form No. 1-2: Prototype Contested Application Settlement Agreement . . . . . 42

Form No. 1-3: Sample Trademark-Relevant Provisions in a Franchising

Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Form No. 1-4: Sample Provisions Asset Purchase Agreement . . . . . . . . . . . . . 50

Form No. 1-5: Sample Provisions Stock Purchase Agreement. . . . . . . . . . . . . 51

Form No. 1-6: Blanket Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Introduction: Intellectual

Property and Franchising

Intellectual property—primarily trademarks, trade names, copyrights, 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 com-

monly includes names, symbols, designs, artistic creations, inventions, formulas,

and methods 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 themes and approaches to protecting

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

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. Quite 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 suc-

cessful 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, uncertainty, expense, and significant risks and

burdens of litigation. Proper management of intellectual property 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 compliance program.

2 The Franchise Law Compliance Manual

Setting Up the Intellectual

Property Compliance Program

Corporate Commitment

The foundation for the program is having company management’s belief in and

recognition that intellectual property is important for the success of the business

and then translating that into an ongoing commitment to a legal compliance pro-

gram. Clearly, if the policies are put in a drawer and the procedures are given lip

service only or ignored, the program will be ineffective. Management must force-

fully communicate to every employee, franchisee, agency, and all others involved

in the business that compliance with all policies and procedures, as well as total

cooperation with counsel, who has a lead role in their execution, is essential.

Thus, for example, use of a trademark without proper legal clearance can be a

disaster; even an apparently routine matter like legal review of materials is ren-

dered ineffective if items are submitted at the last minute with no time for ade-

quate scrutiny or corrections. Management must buttress the commitment by

allocating sufficient financial resources and manpower, either inside or outside

counsel, or both, to ensure proper execution of the compliance program.

Identifying Sources of Conflict

The focus of the legal function within the corporate framework is to put the intel-

lectual property assets into a position where their value can be exploited and

maximized by the business free from (1) legal challenge by others and (2) injuri-

ous actions by others, that is, adverse registration or use. This goal can be

achieved by implementing a corporate compliance program that anticipates the

sources of litigation conflict. Generally, these fall into two categories. First, the

company needs to be able to successfully defend its right to obtain, register, and

use its own intellectual property assets. Second, the company’s assets must be

protected by the ability to take successful legal action against others who infringe

rights, pirate assets, or seek to register adverse rights. Litigation arising in both

categories, therefore, regularly reflects a common genesis: a failure to adequately

or properly develop, maintain, and enforce strong, protectable rights. Unfortu-

nately, this often is a result of an earlier failure to diligently implement an inter-

nal compliance program.

Intellectual Property Assets Inventory

The first step in determining the need for, or the current status of, a corporate

compliance program is conducting an extensive and thorough inventory of the

company’s intellectual property assets (see Checklist No. 1-1). All assets in use

must be identified and then compared with existing protection to isolate gaps or

insufficiencies in such protection as well as underutilized or abandoned assets.

Chapter 1 Proprietary Rights 3