Buying a Franchise: Check Trade Mark Rights Before You Commit

A well-known brand can make it easier to get started within a franchise network. However, its commercial value is of little help if the franchisor cannot validly grant you the necessary rights to use it. Before paying for shop signage, premises fit-out and local advertising, you should therefore check: which names and logos may you use, who owns them, and what happens if those rights are lost?

1. Identify the trade marks you will actually use

Start with the specific names and logos your future business will use, rather than the marketing promises. The business name, logo and product names may belong to different owners or have different forms of protection. A word mark and a stylised logo are not automatically covered by the same trade mark right either.

Ask for an up-to-date trade mark schedule. For each key mark, it should include at least:

• the exact wording or image;
• the registration number and relevant trade mark office;
• the registered owner;
• the territory covered;
• the goods and services covered;
• the current register status and upcoming renewals.

For a business based in Germany, the relevant rights will generally be German trade marks, EU trade marks or international registrations providing protection in Germany. A trade mark protected only abroad does not automatically provide protection for your German business.

Cross-check the information against the registers of the German Patent and Trade Mark Office, the European Union Intellectual Property Office and, where relevant, the World Intellectual Property Organization. Check whether a trade mark has merely been applied for or has already been registered. An application does not guarantee registration.

A register extract alone will not answer every question, however. Specialist advice may be needed to establish whether earlier third-party rights pose an obstacle or whether a trade mark is vulnerable to legal challenge. An entry in the commercial register or a registered domain name is no substitute for trade mark checks either.

2. Verify the franchisor’s authority to grant rights

The franchisor does not have to own the trade mark itself. It might, for example, belong to another company within the same corporate group. What matters in that case is whether there is a verifiable chain of licences extending to you.

Ask for evidence that the franchisor is entitled not only to use the trade mark itself, but also to authorise your agreed use. A licence for the franchisor’s own use does not necessarily include the right to grant sublicences to franchisees.

Ask specific questions:

• Who owns the trade mark, who is the licensee, and who will be your contractual counterparty?
• Is sublicensing expressly permitted?
• Does the underlying licence cover Germany and the services you intend to provide?
• How long does it last, and in what circumstances can it end?
• What happens to your right to use the trade mark if that licence ends?

Request suitable evidence, such as relevant extracts from the agreements or reliable confirmation from the rights holder. Confidential commercial terms can be redacted, but the crucial authority to grant rights should remain verifiable. A simple statement that all the companies belong to the same group is not a sufficient basis for your checks.

3. Define the scope of use precisely in the agreement

Germany has no dedicated franchise statute and no state approval scheme for franchise systems. Trade mark rights are governed principally by the German Trade Mark Act and, for EU trade marks, the EU Trade Mark Regulation. Contractual grants of rights to use trade marks are also subject to the general rules of the German Civil Code (BGB). Standard contract terms are subject to review under sections 305 to 310 BGB, particularly the transparency requirement and the prohibition on terms that place the other party at an unreasonable disadvantage.

There is also no specific statutory franchise disclosure regime requiring a standard prospectus. However, pre-contractual duties to have regard to the other party’s interests and to disclose relevant information apply during negotiations, notably under sections 311(2) and 241(2) BGB. Known problems with trade mark rights that are material to the decision to join may therefore need to be disclosed. The European Code of Ethics for Franchising, by contrast, is not legislation.

The agreement should clearly identify the licensed names and logos, preferably in a schedule. Also clarify the permitted uses: external signage, business stationery, packaging, local websites, social media and advertisements. Brand guidelines should specify which designs are permitted and when approval is required.

Check expressly whether your right to use the trade marks is secured for the full agreed term of the contract. A blanket reference to third-party rights that can change at any time leaves a crucial foundation of your investment uncertain.

4. Protect yourself financially if the brand becomes unavailable

Even carefully checked trade mark rights can later become the subject of disputes. Agree in advance who must be notified if you receive a formal cease-and-desist letter concerning use of the trade mark in accordance with the agreement, who will co-ordinate the legal defence, and who will bear the costs.

Also agree a clear procedure for the event that the existing trade mark can no longer be used. This should cover possible replacement names or logos, implementation deadlines and the allocation of costs for new signage, packaging and promotional materials. Clarify what rights you should have if your use is substantially restricted, for example in relation to fees or termination of the agreement. Do not assume, without checking, that such rights arise automatically.

Practical takeaway: Before signing, make sure three things align: the register records, the unbroken chain of rights authorising your use, and the specific contractual commitment. Have any unresolved questions reviewed by a legal adviser before committing to brand-specific expenditure.