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Bulletin

Practical Tips for Maximizing the Value of Your Portfolio of Intangible Assets

Fasken
Reading Time 9 minute read
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Franchising Bulletin

In this increasingly technological world, the importance and value of the intangible assets (intellectual property rights, technology, trade secrets, customer lists, goodwill, know-how, etc.) of a constantly growing number of companies now far exceed the importance and value of their tangible assets (real estate, equipment, stock, etc.).

This is particularly true for any franchisor whose assets are composed, to a significant extent, of three key components:

  1. its franchise agreements and its other agreements with its franchisees;
  2. its know-how; and
  3. its intellectual property rights.

I have often written (and I will undoubtedly continue to do so) about the importance for any franchisor of having agreements that are complete and properly tailored to their industry, to their own business model and to their particular operating method, and of properly managing their agreements' portfolio. One important way of addressing that last point is to ensure that the agreements are duly signed by all parties in a timely manner and that any renewal or amendment is equally well documented.

This article will therefore deal with another of the key components of the value of any franchise network: its intellectual property rights and its confidential information.

Because that subject is both very broad and, on occasion, somewhat complex, I will limit my advice here to a few simple and practical tips that you can use to strengthen the protection of your intangible property and to maximize its value.

Your trade-marks

Trade-marks are the first category of intangible assets that comes to mind for any legal advisor consulted by a franchisor.

The franchisor's portfolio of trade-marks represents a significant component of the value of the franchise network. It is also a very important tool in any action taken against an unfair competitor, a delinquent franchisee or a former franchisee who is trying to make off with a part of the network's goodwill.

Some franchisors wrongly believe that trade-marks protect only their company's name and logo. Some also believe that the mere fact that their company uses a name or has registered a business, or company, name affords them adequate protection for the name, which is not the case.

Protection of a trade‑mark can derive from only two sources:

use of the mark in a particular geographic area (in which case protection is limited, as a rule, to that geographic area, unless it is shown that a sufficient number of consumers living elsewhere are familiar with the mark); or

registration in the Register of Trade-marks (Canada) (which can provide legal protection throughout Canada).

Although registering a trade-mark provides numerous significant benefits, it is not a mandatory formality. However, for franchisors (whose goal is to constantly expand their network into new markets), that registration is virtually essential, since unregistered trade-marks do not enjoy any protection in a market before they are used or otherwise recognized.

Many components other than a company's name and logo can also be registered and protected as trade-marks—for example, the names and logos of products or services, advertising and promotional slogans, and the names and logos of particular tools (such as software). Large franchisors have even succeeded in protecting the particular appearance of their points of sale (such as the shape of a restaurant), distinctive colours, a jingle that distinguishes them, and the shapes of containers or additions to containers, and so on, as trade-marks.

Today, we have even reached the point that certain distinctive odours (particularly in the perfume industry) could potentially be protected as trade‑marks. All that is missing now are particular tastes …

Although most franchisors have fewer than five registered trade-marks, some have dozens, and a few have more than a hundred.

It is also worth knowing that some decorative components of a franchised establishment (such as upholstery, a design on a wall, or an original carpet) can be protected, in Canada, under the Industrial Design Act, and, in the United States, by a design patent.

Here are some simple and practical tips regarding trade-marks:

With the help of your intellectual property lawyer identify all the distinctive components of your network and its marketing that may constitute trade-marks and make sure you protect them properly, in particular by registering them in the Register of Trade-Marks (Canada).

For your most important trade-marks, you can also register multiple variants (name in English, name in French, design only, design and colour, combined name and design, etc.); the effect of this would be to expand the combined level of protection.

Treat your portfolio of trade-marks as you do your investment portfolio: review it regularly and promptly make any necessary addition or change to keep it complete and up-to-date.

Make sure that anyone who uses any of your trade-marks has signed an agreement that meets the requirements set out in section 50 of the Trade-marks Act (Canada) in order to preserve their validity.

When any trade-mark (whether or not registered) is used, whether by you, a franchisee, or any other authorized person, make sure to include the appropriate indication that it is a trade‑mark that belongs to you.

Act quickly in the event that you have knowledge of any unauthorized use of any of your trade-marks (whether registered or not).

Mere failure to act against any unauthorized use of one of your trade‑marks could ultimately result in it losing its distinctiveness, which is essential for it to be protected.

Register your most important trade-marks (the ones that distinguish your network from its competitors) as quickly as possible in every country where you plan to expand your network over the next few years.

With only a few exceptions, trade-mark registrations are national: that is, trade-marks must be registered country by country, and registration in one country does not provide any protection in another country.    

In about one half of the cases in which I have advised franchisors on projects that involved expanding their networks into other countries, we have been faced with trade-marks previously registered by other people, whether or not well-intentioned.

That always raises delicate and often costly issues that need to be resolved, since the trade-marks registered by those other people sometimes need to be purchased.

Your documents, logos, designs, photographs, software, advertisements, videos, etc.

As I noted earlier, most franchisors are aware of the importance of trade‑marks.

However, many are much less familiar with copyright, and the result is that they underestimate its importance and scope.

In franchising, the scope of copyright is very broad.

It can cover all documents (both print and electronic), software, drawings, videos, advertisements (print, electronic, radio, and television), jingles, designs (including logos), menus, particular combinations of information (and specifically directories) and a number of other marketing tools used by franchisors.

Unlike the protection afforded by trade-marks, copyright protection is automatically international.

While it is possible to register copyright, registration is not a prerequisite for protection, which derives solely from the original creation of the work.

It is important to note, however, that, in most cases, the first owner of the copyright is the person who wrote or created the protected work. This means that when a franchisor assigns the task of producing a work that could be copyright protected to a services provider (such as a designer or an advertising agency), the first owner of the copyright may very well be the person retained by the franchisor, unless there is an agreement providing that copyright is assigned to the franchisor.

Here are some simple and practical tips regarding copyright:

With the help of your intellectual property lawyer, periodically identify all components of your network and its marketing that can be copyright protected.

Make sure that any agreement with a person whose services are retained to produce a document, software, design, photograph, or other work that could potentially be copyright protected includes a clause stipulating that any such copyright is assigned to the franchisor. Don't forget that, as a rule, you must obtain the consent of the individuals represented in the works, and it is strongly recommended that consent be obtained in writing.

Make sure that all works that could potentially be copyright protected include a clear indication (that is also internationally recognized) that the work is copyrighted and that you hold the copyright.

That indication consists of using the © symbol followed by the name of the copyright holder and the year of first publication of the work.

Your trade secrets and confidential information

One of the major limitations on copyright protection lies in the fact that copyright does not protect the ideas that a work contains; it protects only the visual or audible expression of those ideas.

For example, copyright will prevent the reproduction or distribution of an original operating manual, but not the implementation of the instructions, processes, or advice that it contains.

Generally speaking, the laws that protect intellectual property rights do not protect ideas and concepts.

Other than things that can be protected by a patent (mechanisms, equipment, tools, chemical formulas, etc.), the only way to protect the confidentiality of ideas, processes, business models, operating methods, concepts, recipes, and similar items, is to take the appropriate measures to preserve that confidentiality.

Once confidentiality is breached, the protection ends.

Here are some simple and practical tips for protecting trade secrets and confidential information:

Periodically identify all documents (in whatever form and on whatever medium they may be) relating to your network and to its operation and marketing that include a trade secret or confidential information of some nature.

Put in place the tools, both physical (safes, locked filing cabinets, restricted access rooms, etc.) and technological (secure access, passwords, tools to prevent printing, downloading or sending, etc.) to securely preserve all your confidential documents, confidential information, manufacturing secrets, trade secrets, confidential recipes, and so on.

Take all necessary measures to restrict any distribution of those documents, secrets and information to only those persons who genuinely need them for their work within the network.

Clearly state on all such documents, secrets and information that they are confidential and that any reproduction, copying or distribution without your express permission is prohibited.

However, avoid casting too wide a net by identifying all your documents, including those that contain only routine information or information that is public knowledge, as confidential. Doing so will limit the impact of the warning (the people concerned will then not be able to distinguish documents that are genuinely confidential from those that are not).

Obtain a signed confidentiality agreement, prepared by a professional with experience in this field, from any person who has access to any confidential document or information.

In the case of your franchisees, your franchise agreement should contain the appropriate clauses to properly protect your confidential information and documents.

Put in place tracking tools that enable you to recognize any confidential document and identify the source.

For example, for printed documents, it is possible to number each copy (ideally, on every page) in order to follow its trail (by recording every person who has or has access to each numbered copy).

Some more cunning franchisors also insert a few changes, extras or errors (which are recorded and retained), which are different in each copy, that enable them to recognize the original used for each instance of unauthorized copying, reproduction, distribution, transmission or sending.

For documents kept on electronic supports, there is also a whole range of technological tools that can be used to identify and track anyone who has or tries to gain access.

Your particular processes, equipment and tools

While this is much less common, it is always possible that certain components of a network of franchises may be inventions that can be protected under the Patent Act (Canada).

This may be the case for particular equipment, tools or accessories (for example, moulds).

For the last several years, some companies (including Amazon) have also managed to obtain patents for software-based and technological mechanisms.

This is therefore a possibility that should not be forgotten or underestimated, even if it is of more limited application.

These tips are not exhaustive and a consultation with a lawyer who specializes in this area can provide you with a number of other important tools for better protecting your intangible property.

Fasken has all the expertise and resources that are needed to assist you in properly protecting your intangible assets and maximizing their value, both in Canada and everywhere else in the world.

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