Intellectual property of the franchise formula

Intellectual property: the heart of the formula

At its core, a franchise formula is a collection of intellectual property rights and know-how that the franchisor licenses to the franchisee. The brand, trade name, corporate identity, formula concept, working methods, and recipes or methodology together constitute the identity and value of the formula. Anyone who fails to properly establish, protect, and license these rights runs the risk that the formula will be imitated, that a departing franchisee will take the know-how with them, or that ambiguity will arise regarding ownership. Good IP protection is therefore not an afterthought, but the foundation of the formula.

Who do we work for?

We assist franchisors who wish to protect, register, and license their formula, and franchisees who want to know what usage rights they hold and what happens to those rights upon termination of the agreement. Additionally, we advise on infringement and enforcement, disputes regarding know-how and confidentiality, and the IP aspects of the transfer and international rollout of the formula.

Trademark and trade name

The trademark is typically the most visible and valuable intellectual property right of a formula. Protection is provided through registration as a Benelux trademark with the BBIE, as a Union trademark with the EUIPO, or internationally via the WIPO Madrid System. The trade name, the name under which the business is conducted, enjoys protection under the Trade Name Act, even without registration. In franchising, it is important that the trademark is registered in the name of the franchisor and licensed, so that the franchisor retains control and the franchisee does not build up any independent claims to the trademark.

Know-how and confidentiality

A large part of the value of a franchise formula lies in know-how: the proven working methods, procedures, recipes, supplier knowledge, and commercial insights passed on in the manual and training. Unlike a brand, know-how cannot be registered; protection is provided through confidentiality obligations and, where applicable, through the protection of trade secrets under the Trade Secrets Protection Act. Watertight confidentiality and non-compete agreements are essential to prevent know-how from leaking away, especially upon the departure of a franchisee.

License and usage rights

The franchisee does not acquire ownership of the intellectual property, but a right of use (license) for the duration of the agreement and within the limits of the franchise formula. The license regulates what the franchisee may and may not do with the trademark, trade name, and corporate identity. Importantly, the license terminates upon the termination of the franchise agreement: the departing franchisee must cease using the trademark, trade name, and corporate identity and may not use the know-how for a competing enterprise, within the limits of the non-compete clause.

Protection at the end of the agreement

The termination of the franchise relationship is a vulnerable moment for the intellectual property of the formula. The departing franchisee must immediately cease using the trademark, trade name, and corporate identity, remove formula-specific expressions, and keep the know-how confidential. At the same time, he is released from the non-compete clause after a maximum of one year (Article 7:920 paragraph 2 of the Dutch Civil Code). The settlement of intellectual property upon termination requires a comprehensive arrangement and, in the event of a violation, swift enforcement, for example through summary proceedings.

Enforcement and infringement

When a third party imitates the formula, or a departing franchisee continues to use the brand or know-how, swift enforcement is required. A trademark holder can take action against infringement by means of a cease and desist letter and, if necessary, summary proceedings with claims for injunction, rectification, and damages. Similar avenues are available in the event of a breach of confidentiality or trade secrets. We advise on the enforcement strategy and conduct the proceedings where necessary.

Our working method

For franchisors, we map out the IP position, arrange the registration and protection of trademarks and trade names, and draft comprehensive licensing, confidentiality, and non-compete agreements. For franchisees, we clarify usage rights and obligations upon termination. In the event of infringement or a dispute, we determine the most effective enforcement course, acting quickly where necessary.

What is covered by the franchise formula?

Since the Franchise Act (Articles 7:911 through 7:922 of the Dutch Civil Code), the franchise formula has been legally defined. Article 7:911, paragraph 2, sub a of the Civil Code stipulates that a franchise formula must consist of at least a trademark, design or trade name, corporate identity, or drawing, and additionally know-how: practical information not protected by an intellectual property right that is secret, substantial, and identified. The IP and know-how are therefore not a secondary matter, but the legal heart of the formula. Anyone who fails to clearly define these components risks it being unclear exactly what is being licensed and, in the worst-case scenario, whether a franchise actually exists legally. Our lawyers and in-house counsel assess whether the IP layer of your formula meets these legal requirements, whether you are an international group or the baker on the corner looking to roll out a second branch via franchising.

Copyright, designs and domain names

Trademarks and trade names are not the only intellectual property rights within a franchise system. The corporate identity, interior design, photography, manual texts, software, and website layout can all be covered by copyright, which arises automatically without registration. Additionally, product design or store layout can be protected as a design via a Benelux or Community design. Furthermore, domain names and social media accounts are part of the franchise system's identity. In practice, it is precisely on these points that things often go wrong: the website is built by an external agency that retains the copyright, or a franchisee registers a domain name containing the brand name themselves. We ensure that all these rights are transferred to the franchisor or contractually assigned, and that use by franchisees is regulated via the license.

Place IP in a separate company

For franchisors, it is advisable to house the intellectual property of the franchise formula in a separate company, such as a holding company or a dedicated IP company, separate from the risk-bearing operating company. This ensures that the brand, trade name, and other rights remain protected if the operating company faces financial difficulties or goes bankrupt; otherwise, these rights could fall into the bankruptcy estate and be liquidated by the trustee. The IP company subsequently licenses the brand to the operating company and the franchisees. Setting up such a structure touches upon corporate law, contract law, and taxation; our mixed teams of lawyers and in-house counsel provide comprehensive support throughout the process. Importantly, this is not limited to large chains: even a small franchise formula benefits from a simple, robust structure.

IP in connection with transfer, sale and international rollout

As soon as the formula is sold, a franchisee transfers their business, or the formula crosses borders, intellectual property (IP) once again takes center stage. When selling a franchisee business, it must be clear that the buyer acquires only the operations and goodwill, and not the underlying IP rights, which remain with the franchisor. In the case of international rollout via a master franchise or international franchise organizations , the trademark must be registered per country or region, and the licensing chain must be continuous. A good franchise agreement establishes these IP aspects in advance, in conjunction with the non-compete clause that protects know-how after departure.

Part of Franchise Legal Advice

The protection of intellectual property is one of the pillars of our broader Franchise Legal Advice. IP does not stand alone: ​​it is linked to the pre-contractual duty of information, the content of the franchise agreement, the non-compete and confidentiality clauses, and the settlement upon termination. Therefore, our lawyers and in-house counsel always review the entire file, from initial trademark registration to enforcement in cases of infringement, and from the international group to the local entrepreneur looking to grow their franchise.