Franchising an Existing Business: A Guide to Trade Mark Rights and Licensing

Your existing business name and logo are valuable assets that help franchisees earn customers’ trust. However, having used them for years in your own business does not necessarily mean you can safely authorise franchisees to use them. Before building a franchise network, establish who owns the rights, what can be used and on what terms. This article focuses on the trade mark checks and licensing arrangements to put in place before recruiting franchisees in Japan.

1. Take stock of your names and logos, and identify the rights holders

Start by taking stock of the branding you actually use, rather than drafting contract clauses. Look beyond the name on your signage to include logos, product brands, service names, packaging, uniforms and booking screens. Even where the business name is the same, listing the word-only version separately from a logo combining words and graphics helps prevent omissions.

Your inventory should include at least the following:

• Names and images used, and where they appear
• Whether trade mark applications or registrations exist, and their numbers
• The named applicant or registered trade mark owner
• The designated goods and services, and how these relate to the actual business
• Whether the rights remain in force, and who manages renewals
• The agreements that provide authority to permit franchisees to use the marks

In Japan, trade mark rights arise through registration under the Trade Mark Act. Registering a company name or obtaining a domain name is not a substitute for trade mark registration. Nor does a registration necessarily provide rights across all goods and services.

Take particular care where a trade mark is held in the founder’s personal name or by another company. The franchisor may be entitled to use it without having authority to license its use to franchisees. Check any assignment or licence agreements and secure the necessary authority. For logos commissioned from a design agency, also check copyright ownership and permission to make alterations, separately from trade mark rights.

2. Include planned business activities in your checks

A name that has caused no problems at your existing outlet may be used in more ways as the franchise network grows. If you plan to offer takeaway products, retail goods or online sales alongside your in-store services, include these activities in your trade mark review.

For example, if franchisees will sell packaged food bearing a restaurant’s name, you need to distinguish between using that name for the provision of food and drink and using it as a product brand. Do not assume that an existing registration is sufficient simply because the name is the same.

Trade mark searches should cover not only identical wording but also marks that look or sound similar. Use official sources such as the Japan Platform for Patent Information (J-PlatPat) for preliminary searches, and consult a Japanese patent attorney about similarity and the scope of protection. Unregistered branding may also raise issues under the Unfair Competition Prevention Act, so registration records alone cannot establish that a mark is safe to use.

A mark with no application filed, a pending application and a registered mark are three different situations. Rather than telling prospective franchisees simply that you have ‘secured the trade mark’, explain its current status and any unresolved issues. Avoid asking franchisees to place large orders for signage or packaging while ownership or licensing rights remain unclear.

3. Define the scope of the licence in the contract

Permission to use trade marks is one of the foundations of a franchise system. However, a single clause stating that franchisees ‘may use the franchisor’s brand’ does not clearly identify either the marks covered or the permitted uses.

Identify the licensed marks in a schedule or similar document, and specify the outlets, goods and services, media and period covered. Consider not just shopfront signage but also individual outlets’ websites, social media accounts, recruitment advertising and participation in local events. For domain names and accounts containing the outlet’s name, decide who will register and manage them.

Clear boundaries make day-to-day decisions easier. Specify, for example:

• When franchisees may use files supplied by the franchisor without alteration
• When they may add only the outlet’s name or address
• When prior approval is required to display the mark alongside another company’s brand
• When use on a franchisee’s own products is prohibited
• When franchisees must not authorise third parties to use the mark

Also explain whether payment for brand use is included in the royalty or charged separately. If additional reviews or design work incur charges, make clear when those charges arise and who pays them.

A registered trade mark does not, in itself, give a franchisee exclusive rights within a trading area. A trade mark licence and a promise of territorial exclusivity are separate matters. Explain the distinction so that prospective franchisees do not confuse the two.

4. Test brand guidelines and approval procedures in an operating outlet

Once the contract defines the permitted uses, turn those rules into brand guidelines that support everyday decisions. Use examples of permitted and prohibited uses to explain logo proportions, colours, clear space, minimum sizes and acceptable backgrounds. An abstract instruction to ‘protect the brand image’ leaves both franchisees and designers struggling to judge what is acceptable.

Provide a single source for official brand files and use version control to prevent outdated files being used by mistake. Organising the resources so that outlet staff can select an intended use and find the relevant files and checks will help reduce enquiries.

The approval procedure should specify what to submit, where to send it, expected response times and how revisions will be requested. Advertising and opening preparations should not stall because the franchisor has failed to respond. A practical approach is to increase the range of standard materials that need no approval and review only exceptions.

Before recruiting franchisees, test the process at a company-owned outlet using tasks such as ordering signage, preparing recruitment adverts and publishing social media posts. Check whether the person producing the material can proceed correctly without asking the founder directly, and whether the approver can reach a clear decision. Also establish a contact point for third-party allegations of infringement and a procedure for retaining records.

5. Explain the arrangements in light of Japan’s disclosure and competition rules

Japan has no single comprehensive law governing all franchises, nor a franchise-specific registration scheme applying to franchisors and franchisees. However, Article 11 of the Act on the Promotion of Small and Medium-sized Retail Business requires franchisors operating a ‘specified chain business’ under that Act to provide written information and explanations before a contract is signed.

Whether a business falls within this category depends on factors including whether it primarily serves small and medium-sized retailers; provides ongoing supplies of goods or arranges sales, together with management guidance, under standardised contracts; and requires the use of specified trade marks or similar branding and payment on joining. Licensing a trade mark alone does not bring a business within the category, and a restaurant franchise is not automatically covered simply because it operates in food service.

Even where that Act does not apply, the Antimonopoly Act does. The Japan Fair Trade Commission’s guidelines on franchise systems under the Antimonopoly Act explain that restrictions needed to maintain a consistent brand image, for example, are not automatically problematic. However, unfair disadvantages or restrictions that go beyond what is necessary may raise concerns. Do not use brand protection to justify unrelated restrictions.

Trade mark licensing also involves the Trade Mark Act, while contractual relationships are governed by legislation including the Civil Code. A useful division of responsibilities is to consult a Japanese patent attorney on the scope of trade mark rights and a lawyer on franchise agreements and disclosure arrangements.

Practical takeaway: Before recruiting franchisees, prepare an inventory of rights, define the scope of permitted use, and establish brand guidelines and approval procedures. Then test them in a company-owned outlet. Protecting a brand is not about adding more prohibitions: it is about enabling franchisees to use it correctly and confidently.