Franchising in Hong Kong: Essential Trade Mark Ownership and Usage Checks Before Licensing

A successful business is not necessarily ready to let franchisees use its brand. The Chinese trading name may belong to the founder, the logo may have been created by a freelance designer, and the online shop may use a different name altogether. Before building a franchise network in Hong Kong, businesses should check their trade mark licensing position to ensure they have the right to grant licences and that franchisees understand how they may use the brand.

1. Establish who actually owns the brand

Do not rely solely on the shop sign or business registration certificate. Company registration, business registration and trade mark registration are separate systems. Permission to use a company name does not give you exclusive trade mark rights to that name.

Start by preparing a brand asset register covering the Chinese name, English name, logos and any combinations actually used on products, packaging and online promotional materials. For each asset, record:

• The version in use and records of its first use.
• The registration or application number, relevant territories and current status.
• The registered owner, renewal arrangements and supporting documents.
• Any existing licences, assignments, security interests or disputes.

In particular, check whether the trade mark owner is the company that will sign the franchise agreement. If the mark belongs to the founder or another group company, the contracting company should first obtain appropriate authorisation and confirm whether it may sublicense the mark to franchisees. An informal understanding within the group is no substitute for clear documentation of rights.

Logo designs may also involve copyright. Paying a design fee should not be taken to mean that you have acquired all copyright in the work. Check the commissioning terms and any written assignment documents to avoid a situation where a trade mark application has been filed but ownership of the design remains unresolved.

2. Check the scope of protection in Hong Kong, not just the registration certificate

Trade mark registration in Hong Kong is principally governed by the Trade Marks Ordinance (Cap. 559) and administered by the Trade Marks Registry of the Intellectual Property Department. Trade mark protection is territorial: registration in mainland China or elsewhere does not provide registered protection in Hong Kong.

When searching the register, check not only the status of your own applications or registrations but also whether identical or similar earlier trade marks exist. Searches should go beyond exact matches for the trading name. Similar lettering, pronunciation, translations and images may also require professional assessment.

Next, compare the goods or services covered by existing registrations with everything the franchise outlets will offer. Restaurant services and branded packaged food, for example, may require different protection. A class number alone is not enough to establish that every activity under the brand is covered.

A trade mark with an application still pending should not be described publicly as registered. If registration of the core brand is not yet complete, assess the risks of opposition, refusal or a potential name change before deciding whether to recruit franchisees. In appropriate circumstances, unregistered marks may be protected through a common law passing-off action. However, the evidential requirements differ from those for registered trade mark infringement, so this should not be treated as an equivalent alternative.

3. Define the scope of the licence in the franchise agreement

Once ownership has been confirmed, do not simply state that the franchisee ‘may use the brand’. Define the licence precisely. A schedule to the agreement should identify the permitted versions of the trade marks, their relevant numbers and the goods or services for which they may be used.

Address the following points as well:

• Channels of use: Does the licence cover shop signs, food delivery platforms, social media, online shops and packaging?
• Territory and exclusivity: Is use limited to a specified address? How will online sales work alongside territorial protection? A right to use a trade mark does not automatically confer territorial exclusivity.
• Alterations and approvals: May franchisees add a local place name, change colours or create their own promotional materials? Who must approve these changes?
• Sublicensing: May franchisees allow associated companies or other operators to use the brand?
• Maintenance and infringement: Who is responsible for renewals, monitoring infringement, gathering evidence and deciding whether to take legal action?

Agree exit arrangements in advance, including when brand use must stop, removal of signage, disposal of remaining packaging, and procedures for transferring domain names and social media accounts. If a franchisee creates an account, the franchisor is not necessarily entitled or able to take it over directly. Clarify the registered account holder, administrative permissions and platform rules before the outlet opens.

4. Distinguish Hong Kong’s franchising rules from trade mark obligations

Hong Kong has no legislation specifically governing franchising, nor a general statutory franchise disclosure, registration or mandatory cooling-off regime. The requirements concerning directly operated outlets, filing and pre-contract disclosure under mainland China’s Regulations on the Administration of Commercial Franchises do not apply directly to arrangements confined to Hong Kong. Expansion into mainland China requires a separate assessment.

The absence of a dedicated regime does not mean brand licensing is unregulated. Franchise agreements are subject to common law contract principles and applicable legislation, including the Misrepresentation Ordinance. Trade marks and design materials may fall under the Trade Marks Ordinance and the Copyright Ordinance. Hong Kong also has a Competition Ordinance: the fact that an agreement involves brand licensing does not mean all territorial or sales restrictions are lawful.

Claims made during recruitment, such as ‘Hong Kong-registered brand’, ‘exclusive use’ or ‘full brand rights’, must therefore match the documentation. If there are incomplete assignments, pending applications or existing disputes, seek advice from a Hong Kong lawyer on their effect on the proposed licence. Do not leave the paperwork to be resolved after collecting franchise fees.

Practical summary: Before recruiting franchisees, prepare a brand asset register, evidence of ownership and a schedule defining the scope of the licence. If you still cannot confirm who owns a core brand asset, who may license it and how it may be used, resolve those gaps before franchisees commit money to signage, fit-outs and promotion.