Franchising a Hong Kong Business: How to Check Sublicensing Rights for Training Materials, Images and Software

Opening an existing business to franchising means more than replicating premises and processes. It also involves giving another operator access to training materials, promotional images and operational software. But does buying these resources, or paying to have them produced, entitle head office to let franchisees use them? Franchisees are generally independent operators, not branches or employees of head office. Before formally recruiting franchisees, carry out a sublicensing review of third-party content and software.

1. Distinguish between holding files and holding usage rights

The Hong Kong Trade and Industry Department’s business start-up guidance notes that franchising involves technology transfer and intellectual property, with the relationship between the parties governed by contract. Head office therefore needs to establish not only whether its operating model can be replicated, but also whether the resources it supplies can lawfully be copied.

Hong Kong has no dedicated franchising legislation, nor a general franchise filing requirement or statutory pre-contract disclosure regime. The filing and disclosure requirements under mainland China’s Regulations on the Administration of Commercial Franchises are not general rules for domestic franchising in Hong Kong. However, the absence of dedicated legislation does not mean third-party assets can be freely reused: the scope of a licence is governed by general contract law, while training materials, photographs, videos and computer programs may also be protected under the Copyright Ordinance (Cap. 528).

Paying for a work does not necessarily give you copyright in it; obtaining usage rights does not necessarily give you the right to sublicense it. For commissioned photographs, outsourced videos and purchased software, check the actual contract rather than relying solely on an invoice.

2. Create a rights register for franchise use

Start with what franchisees will actually receive, listing each set of training materials, product photographs, fonts, promotional templates, music, videos and software. Do not limit the review to the folders head office plans to hand over. Check images embedded in training materials, video soundtracks and fonts used in design files too.

For each item, record at least:

• Source and rights holder: Who created it, who licensed it, and whether a copy of the contract or licence terms is available.
• Permitted users: Whether use is restricted to head office or a named company, or also covers independent franchisees.
• Uses and channels: Whether in-store display, training, online promotion, modification or reproduction is permitted.
• Scope and duration: Territory, number of outlets or accounts, licence term and renewal arrangements.
• Restrictions on sharing: Whether source files can be supplied to franchisees, or only finished materials.

For example, permission for head office to use an image on the brand website does not mean a franchisee can download it and post it on its own social media accounts. A design agency’s delivery of editable files does not mean the fonts within them can be installed on every franchise outlet’s computers. Mark items whose terms cannot be found as ‘pending confirmation’, rather than assuming they are approved.

3. Choose sublicensing, direct licensing or replacement

Once the register is complete, choose a workable arrangement for each item rather than simply asking every supplier to ‘allow franchise use’.

Head office obtains sublicensing rights: This suits centrally distributed training or promotional materials. Written permission should specify that independent franchisees may use them, the permitted channels, whether modification is allowed, and whether new franchise outlets must be reported or paid for separately.

Franchisees obtain licences directly: This suits software charged per account, device or outlet. Head office can co-ordinate procurement, but should not assume that all franchisees can share a single head office account. Confirm who enters into the contract, who pays, and whether franchisees can obtain technical support independently.

Replace assets with unclear rights: If the original supplier does not permit sublicensing, or the source of the material cannot be verified, replace it with resources carrying suitable terms or commission new work. When commissioning replacements, agree copyright ownership and franchise usage rights in advance to avoid repeating the same gap.

During the pilot stage, staff can act as a simulated franchise outlet, receiving training materials and activating software in the permitted manner. The point is not simply to test whether they can log in successfully, but to establish whether the process relies on head-office-only accounts, unauthorised copying or licences available only to company-owned outlets.

4. Build licence restrictions into handover procedures and contracts

A franchise agreement cannot grant rights that head office does not hold. Obtain permission from the relevant rights holders first, then have a lawyer clearly define the rights that can be granted to franchisees, checking these against the operations manual and handover checklist.

The contract should specify which resources are included in the franchise fee, which require separate subscription payments, who is responsible for renewals, and how additional accounts or outlets will be charged. Materials that cannot be modified or passed on, or that may only be used through specified channels, should be clearly labelled when supplied. Do not leave these restrictions buried in supplier terms.

Plan ahead for licence expiry, suppliers discontinuing services and rights disputes: who will notify franchisees, when use must stop, who will provide replacements, and how replacement costs will be allocated. For software that directly affects checkout functions or day-to-day operations, also confirm data export capabilities and legally usable fallback options.

Finally, appoint someone at head office to retain permission documents, renewal records and copies of the versions supplied. Whenever new materials are added to training resources or systems, complete the rights review before distributing them, so that the same problems do not recur as the network expands.

Practical takeaway: Before recruiting franchisees, select one set of training materials, one set of promotional assets and one core software product. For each, answer: ‘Who has the authority to license it? How may franchisees use it? When does the licence expire? What happens if it ceases to apply?’ Where the answers are unclear, obtain the missing permissions or replace the item before including it in the resources supplied to franchisees.