Trade Mark Due Diligence for Hong Kong Franchisees: Verify Brand Use Rights and Infringement Protection Before Signing

When entering Hong Kong’s franchise market, brand recognition matters. But a more fundamental question is: which brand assets can you legally use once you have paid? Signage, Chinese trading names, product packaging and promotional images may not all belong to the same company. Carrying out trade mark and related intellectual property checks before signing can help you avoid discovering, after fitting out your premises, that you must change the name, take down advertisements or even face an infringement claim.

1. Distinguish a Franchise Licence from Trade Mark Ownership

A franchise typically includes licences to use trade marks, operations manuals, trade secrets and know-how. It does not transfer ownership of the brand. Even if you pay an upfront franchise fee, you may use the relevant assets only within the territory, for the purposes and for the period specified in the agreement.

Hong Kong currently has no legislation specifically regulating franchising, nor any generally applicable statutory franchise disclosure document regime, franchise registration system or mandatory franchise code of conduct. This does not mean franchise arrangements are outside the law: contract formation and performance are governed by common law principles; misrepresentation may engage both common law and the Misrepresentation Ordinance; and brand use requires consideration of the Trade Marks Ordinance (Cap. 559), the Copyright Ordinance (Cap. 528) and common law principles governing passing off.

Do not therefore assume that verification is complete simply because the franchisor has not volunteered any documents. Make evidence of rights, disclosure of known disputes and confirmation of the scope of the licence written requirements before signing. A business registration certificate proves only the relevant business registration; it does not establish trade mark ownership.

2. Check Hong Kong Records, Not Just Overseas Certificates

Trade mark protection is territorial. Registration in mainland China or elsewhere does not mean a brand has registered trade mark protection in Hong Kong. Use the Hong Kong Intellectual Property Department’s trade mark records to check each of the following:

• Form of the mark: Are there corresponding records for the Chinese name, English name and logo? Do they match the versions you intend to use at your premises?
• Rights holder: Is the registered owner the company signing the agreement? If not, on what basis can that company authorise your use?
• Goods and services: Do the specific goods and services covered by the registration match what you intend to sell and provide? Do not rely solely on class numbers.
• Legal status: Is the mark registered or still under application? Are there any renewal issues, revocation or invalidity proceedings, or other matters requiring follow-up?

Keep the search date, records and the franchisor’s explanations. If you are contracting with a regional agent, request documents sufficient to demonstrate its authority to grant sublicences, and confirm the territory, duration and restrictions of the underlying licence.

An unregistered trade mark is not necessarily unprotected: a brand may rely on passing off proceedings to protect its goodwill. However, the evidence required differs from that for a registered trade mark. Finding a record for the same name does not, by itself, complete an infringement risk assessment. Refer significant concerns to an intellectual property lawyer.

3. Set Out Permitted Uses in a Schedule to the Agreement

The Intellectual Property Department’s practical guide for IP managers advises businesses to retain asset records and use trade marks consistently with their registered form. Prospective franchisees can use this as a basis for requesting a ‘brand assets and permitted uses schedule’, rather than accepting a vague contractual statement that they may ‘use the brand’.

The schedule should identify the trade mark images, registration details, licensor, relevant products and permitted channels of use. For example, can a logo approved for shop signage also be used on food delivery platforms, social media accounts, domain names and locally printed packaging? Can you add a district name or create promotional materials in traditional Chinese? Which changes require prior approval?

Promotional materials need separate checks. Photographs, illustrations, fonts or music supplied by the franchisor may be licensed from third parties, and those licences may not allow franchisees to modify them, use them in paid advertising or pass them to outsourced designers. Ask the franchisor to confirm permitted uses and restrictions, rather than relying on the label ‘official materials’.

Also specify who is responsible for approvals, what information must be submitted and the response deadline. Clarify copyright ownership of materials commissioned locally. This will support day-to-day operations and reduce disputes between brand standards and practical marketing needs.

4. Allocate Infringement and Rebranding Costs in Advance

A franchisor’s warranty that it has authority to grant the licence is a starting point, but it may not resolve the cash-flow problems that arise when a solicitor’s letter arrives. The agreement should set out notification procedures, who will defend a claim, who may settle it, and how legal fees, damages and remedial costs will be allocated.

Consider asking a lawyer to help negotiate the following protections:

• Confirmation from the franchisor that it has authority to grant the agreed rights, together with disclosure of known material disputes over those rights.
• Clear defence and indemnity arrangements if a third party brings a claim against a franchisee using the brand in an approved manner.
• An allocation of production, removal and reprinting costs if signage, packaging or promotional materials must be replaced.
• A period for remedying the problem if the core brand can no longer lawfully be used, along with conditions under which the franchisee may suspend relevant payments, terminate the agreement or seek a refund.

These are not statutory rights that franchisees automatically enjoy; they must be incorporated into the agreement. Check, too, whether liability caps, exclusions and indemnity provisions conflict with one another. Responsibility may also be allocated differently if the franchisee alters a logo without approval or uses it beyond the scope of the licence.

5. Assemble a Verifiable Document Pack Before Paying

Bring the due diligence findings together in a document pack: Hong Kong trade mark records, evidence of the chain of authorisation, a brand asset schedule, usage guidelines and written responses about known disputes. Oral promises made by sales staff should be confirmed by someone authorised to represent the contracting company, and important points should be incorporated into the agreement.

If documents remain outstanding, consider making completion of verification a condition precedent to substantial payments, with clear refund arrangements if that condition is not met. Your budget should also include searches, legal review and any necessary production of local materials, rather than just the franchise fee.

Practical takeaway: Before paying, establish clear answers to three questions: ‘Who has authority to grant the licence?’, ‘How may I use the assets?’ and ‘Who bears the cost if something goes wrong?’ If any answer is only verbal, obtain the supporting documents before committing.