Buying a franchise: check the right to use the brand

When you join a franchise network, you are not buying ownership of the brand. You receive rights to use it, as defined in your contract. Before paying the initial franchise fee, you therefore need to establish whether the party you are negotiating with can genuinely authorise you to use the name and logo. Familiar branding, an operating demonstration outlet or a persuasive sales presentation is not, on its own, proof of that authority.

1. Understand the rights you receive under Hungarian law

Hungary has no standalone act covering every aspect of franchising, but that does not mean franchise agreements are unregulated. Act V of 2013 on the Civil Code expressly recognises franchise agreements in Sections 6:376–6:381, under the Hungarian term jogbérleti szerződés. A central element is permission to use material protected by copyright and industrial property rights, together with protected know-how.

Trade marks are also governed by Act XI of 1997 on the Protection of Trade Marks and Geographical Indications. For EU trade marks, the EU Trade Mark Regulation also matters. Company names, domain names and trade marks are distinct legal categories: registering a company name or holding a web address is no substitute for checking trade mark protection.

Hungary has no generally mandatory franchise disclosure document or dedicated official register of franchisors. However, the Civil Code’s duties to cooperate and provide information when entering into a contract do apply. The European Code of Ethics for Franchising is a self-regulatory standard, not legislation. You should therefore not automatically treat a review period recommended by an industry body as a statutory waiting period applying to every agreement.

Practical implication: do not settle for an assurance that the franchisor “guarantees the brand”. Ask for documents that allow you to verify its authority.

2. Identify the trade marks, not just the brand name

Ask for an itemised list of the signs you will be licensed to use. It should include the word mark, figurative mark or logo, and any other distinct signs that will appear on your shopfront, packaging or advertising. For each one, request the registration number, the owner’s name and the geographical scope of protection.

You can check these details in the registers maintained by the Hungarian Intellectual Property Office, the European Union Intellectual Property Office and, where necessary, the World Intellectual Property Organization. Keep a dated record of your search results and update it before signing.

Look for answers to four questions:

• Does protection extend to Hungary? A national trade mark registered in another country does not, by itself, provide protection in Hungary.
• Is the trade mark registered, or is it still only an application? The outcome of a pending application cannot be taken for granted.
• Which goods and services does it cover? A matching brand name is not enough; the specification of goods and services must also fit your planned operations.
• What is the current legal status? Check the expiry date, renewal details and any available information about proceedings.

A register search is not a comprehensive legal due diligence exercise. Similar earlier marks, disputes over use or ongoing proceedings may require advice from a trade mark specialist. This is particularly important if the brand is new to the Hungarian market.

3. Trace the licensing chain

You will not necessarily be contracting with the trade mark owner. A master franchisee in Hungary may be bringing you into the network while a foreign company owns the brand. That is not inherently a problem, but the entire licensing chain must be verifiable.

Ask for documentary evidence showing that the local franchisor is entitled to grant you a sublicence. Commercial confidentiality may justify providing a redacted contract extract, but the identities of the relevant parties, the subject matter, territory and duration of the licence, and the right to sublicense must remain verifiable. Without these details, the document does not resolve the risk.

Compare the duration of the upstream licence with that of the agreement offered to you. If the upstream licence could expire earlier, ask on what legal basis you would be able to continue operating afterwards. An expected renewal is not the same as a secured right to use the brand.

For example, the local franchisor might promise a long-term relationship even though its own brand licence is due to expire soon. Verbal reassurance is not enough in that situation. You need a documented arrangement to ensure continuity, or clear contractual provisions addressing what happens if you can no longer operate.

4. Turn the evidence into contractual protection

Due diligence is useful only if its findings are reflected in the agreement. The trade mark list should form a clearly identifiable schedule, and the contract should specify where you may use the marks: on your shopfront, your own website, social media pages or local advertising.

In particular, clarify the following with a lawyer:

• What representations and commitments does the franchisor give regarding the validity and availability of the rights to use the brand?
• Who is responsible for renewing the trade marks and taking action against infringement?
• When must you be notified of a dispute or a threat to the licence?
• Who bears the cost of any compulsory rebranding, signage replacement or packaging changes?
• What remedies and termination rights do you have if the brand can no longer lawfully be used?

Do not assume that all fees will automatically be refundable in such circumstances. The legal consequences depend on the contract, the circumstances of the breach and the applicable law. It is therefore sensible to make any substantial upfront payment conditional on satisfactory evidence of the relevant rights, and to agree any repayment conditions in advance.

Practical takeaway: before paying, obtain the trade mark list, an up-to-date register check and evidence of the right to sublicense. If any of these is missing, clarify the licensing position first, before committing to an irreversible investment.