Buying a Franchise in Saudi Arabia: Who Bears Responsibility for Intellectual Property Claims?

A franchisor may require you to use advertising images, operational software or a particular design, only for you to receive a claim from a third party alleging that this use infringes their rights. Asking who owns the trade mark is not enough: you also need to know who will manage the claim, who will pay the defence costs and how your outlet will keep operating. This is an important review before entering the Saudi franchise market, because the allocation of responsibility should be clear before a problem arises.

Understand what the agreement must cover

Franchising in Saudi Arabia is governed by the Commercial Franchise Law and its Implementing Regulations. The law applies to any franchise agreement performed within the Kingdom. The agreement’s required content includes a statement of the franchisee’s rights to use trade marks and other intellectual property associated with the franchise business, as well as the parties’ obligations in the event of infringement of those rights and the resulting compensation.

This requirement does not mean that every loss you suffer automatically becomes the franchisor’s responsibility. You need to examine the wording that defines the scope of the obligation, the circumstances it covers and its exclusions, taking account of applicable legal provisions. Ask a Saudi lawyer to assess the drafting, rather than relying on a general statement such as ‘both parties undertake to protect intellectual property’.

The franchisor must also provide the disclosure document at least fourteen days before the agreement is signed or any payment relating to the franchise is made, whichever occurs first. Make this risk part of your due diligence before signing or paying, and ask for an explanation of any inconsistency between the disclosure document and the agreement. Do not treat receipt of the document as a substitute for clearly agreeing how responsibilities will be allocated.

Define the scope of your permitted use

Start with a practical list of everything the outlet will use at the franchisor’s direction: the trade mark, logo, images, videos, packaging designs, training content and software. The franchisor may not own all these assets; some may be licensed from third parties.

For each key asset, request written answers to three questions: is your outlet entitled to use it? Through which channels and for what purposes? And will that right remain in place for as long as the outlet needs it? Permission to use an image in-store may differ from permission to use it in a paid advertisement, while particular software may require a separate licence in the business’s name.

Divide uses into three categories:

• Materials the franchisor supplies and requires you to use without alteration.
• Materials you produce locally and then obtain the franchisor’s approval for.
• Materials you choose independently, outside the approved guidelines.

This distinction helps when negotiating responsibility. A franchisor’s approval of the marketing presentation of locally produced material does not necessarily mean it has checked the licences for the images or music used. Ask explicitly what the approval covers, who keeps evidence of permission to use the material, and who monitors licence expiry and renewal.

Test the defence and indemnity clause against a realistic example

Suppose you use an image supplied by the franchisor as part of a compulsory campaign, and the photographer then demands that you stop the advertisement and pay compensation. Read the agreement as though the claim had arrived today: does the franchisor’s obligation cover a claim made directly against you? Does it cover defending the claim, or only compensation awarded in a final judgment?

Discuss the following provisions before signing:

• Notification: Who should receive the claim, by what method and within what contractual deadline?
• Conduct of the defence: Who chooses the lawyer, who gives instructions and how will you be kept informed about the case?
• Costs: Are legal fees, expert fees and settlement costs covered, or only specified amounts?
• Settlement: Can either party accept a settlement requiring the other to pay or stop using the material without that party’s consent?
• Exclusions: What happens if an employee alters the material or uses it outside the permitted scope?

Also review any general liability cap or exclusion of losses elsewhere in the agreement. An indemnity clause may appear broad, only to be significantly narrowed by another provision. Ask how a claim received after the agreement ends will be handled if it concerns previously authorised use. These are matters for negotiation and legal review, not automatic statutory guarantees in every case.

Link protection to continued operation of the outlet

Even if compensation is resolved later, you may need to stop an advertisement, replace packaging or disable an operational tool immediately. Ask for a contractual process for dealing with the disputed use, including provision of a suitable alternative, responsibility for approving and paying for it, and the expected implementation timeframe.

For example, if packaging supplied by the franchisor must be replaced, who pays for unusable stock and new printing? If software cannot be used, who provides a temporary alternative? Do not assume that the indemnity clause covers these expenses unless its wording is clear. Discuss how operational obligations linked to the unavailable tool will be handled during that period, without assuming you can unilaterally stop paying fees or disregard instructions.

Keep a record of approved materials, the dates you received them, approvals and available licences. If a claim arrives, preserve the documents, notify the party specified in the agreement and consult a lawyer before admitting liability or signing a settlement.

Practical takeaway: Do not buy the right to use the assets alone. Make sure you have written answers to three questions: who will defend you, who will bear the costs, and how will your outlet keep operating if that use is challenged?