Trade mark protection before launching a franchise: a practical guide

The name of a successful Hungarian business is not necessarily ready for use by other entrepreneurs. Before building a franchise network, you need to establish who holds the rights to the brand, what the protection covers and on what terms others may use it. This is more than an administrative exercise: a late change of name could disrupt every franchisee’s business.

1. Draw up an inventory of brand-related rights

Start by listing what you intend to license: the business name, logo, product names, slogan and the distinctive appearance of your outlets. These do not all enjoy the same legal protection, so do not treat them as a single package that can automatically be licensed to others.

Registering a company name and securing a domain name do not, in themselves, provide trade mark protection. Even if you have traded under a name for years, someone else may hold earlier rights that prevent your intended use or expansion.

Create a simple register covering:

• the name or sign you intend to license;
• the applicant or registered rights holder;
• the application or registration number and its status;
• the geographical scope of protection and the goods and services covered;
• related agreements, deadlines and responsible individuals.

Check the rights to use graphic designs separately. Paying for a logo to be created does not necessarily give you all the usage rights you need. Your agreement with the designer must also adequately cover use by franchisees.

2. Check whether the name can actually be protected

In Hungary, the principal rules governing trade marks are set out in Act XI of 1997 on the Protection of Trade Marks and Geographical Indications. The Hungarian Intellectual Property Office handles national trade mark applications. Protection in Hungary may also be provided by an EU trade mark registered with the European Union Intellectual Property Office.

Commission a trade mark search before filing an application. Do not look only for identical names: similarities in sound, spelling or meaning can also matter, particularly where the goods or services are closely related. A search reduces the risk, but it does not guarantee that no one will raise an objection later.

Tailor the specification of goods and services to your current and planned activities. Protection chosen for café services does not automatically mean that every own-brand packaged product will also be adequately protected. The precise wording always matters, not just the class numbers.

An overly descriptive name may lack distinctiveness. If the name merely describes what you offer and where, consider whether a stronger brand name would be a better option before recruiting franchisees. This is usually easier to manage than rebranding several operating franchise businesses later.

3. Establish who can authorise use

It is common for a trade mark to be held in the founder’s personal name while the company intends to enter into the franchise agreement. This is not necessarily an obstacle, but the chain of rights must be properly documented.

There are two main options: transfer the rights to the appropriate company, or put a licence in place that allows the company to grant franchisees permission to use the mark. Choosing the right approach may require legal and tax advice.

Do not settle for the explanation that ‘all the companies belong to the same owner’. Companies are separate legal entities. A change of ownership, inheritance or dispute can quickly expose the weaknesses of undocumented arrangements.

Plan for continuity of rights as well. What happens if the trade mark owner sells the rights, or the licence granted to the franchisor ends? To protect the franchise network, the rights granted to a franchisee must not depend on underlying rights that are uncertain or expire sooner.

4. Align brand use with the franchise agreement

Hungary has no separate, comprehensive franchise act, but franchising is not unregulated. Act V of 2013, the Civil Code, expressly recognises franchise agreements. General contract rules and applicable competition law provisions also apply.

There is no general franchise-specific requirement to register a network with an authority or provide a pre-contractual disclosure document in a prescribed format. This does not, however, remove the duties to cooperate and provide information when entering into a contract. Do not therefore present a pending trade mark application as protection already secured. An industry code of ethics is not legislation either; whether it is binding depends on the relevant membership or contractual commitments.

The brand-use provisions should cover at least:

• which names and signs may be used, for which activities and for how long;
• the required visual presentation and any prior approvals;
• who may manage local domain names and social media accounts;
• how quality will be monitored and improper use corrected;
• what happens to signage, packaging and online channels when a franchisee leaves.

Have territorial and online sales restrictions reviewed separately for competition law compliance: trade mark protection does not automatically make every restriction permissible.

5. Appoint someone to maintain protection

Registration is not a one-off task that can simply be filed away. Keep a diary of renewal deadlines, retain evidence of genuine use and establish a process for spotting confusingly similar names and signs. Prolonged non-use can put continued protection at risk.

Franchisees should know whom to contact if they spot a copycat business or a suspicious online advert. They should not take uncoordinated legal action: first document the situation, then assess the options with a specialist.

Practical takeaway: before recruiting franchisees, make sure you have an up-to-date inventory of rights, have checked your trade mark position and have clear authority to license use. Promise prospective franchisees only those brand-use rights you can genuinely provide.