Saudi ruling voiding franchise agreement highlights importance of trade mark ownership

A ruling by a Saudi commercial court has highlighted the risks of signing a franchise agreement before securing trade mark rights. According to a legal analysis published by Bird & Bird on 21 September 2026, the court ruled in favour of the franchisee and declared the agreement void after finding that the franchisor had granted rights it did not hold when the contract was signed. The case underlines the importance of verifying the legal rights underpinning a business, alongside assessing its operational and financial viability.

Why did the court declare the agreement void?

According to the published analysis, the court relied on the definition of a franchise in Article 1 of the Saudi Commercial Franchise Law, issued under Royal Decree No. M/22 of 1441 AH. In interpreting that definition, it held that the franchisor's ownership of the relevant trade mark at the time of signing was a necessary condition for granting the associated rights.

As the analysis explains, the dispute centred on the franchisor's agreement to grant rights it did not hold when the agreement was signed. The court therefore treated the issue not merely as a procedural shortcoming, but as a defect affecting the very basis of the contract, and ruled that it was void in favour of the franchisee.

The crucial point in time here is when the contract is entered into, rather than simply whatever status the trade mark may acquire later. The lesson drawn by the legal analysis is that securing rights before signing should be a clear priority, rather than assuming that the trade mark's status can be resolved after the relationship has begun.

The available source material does not name the parties or state the value of the payments in dispute. The significance of the case therefore lies in the legal reasoning adopted by the court, without attributing unpublished financial or operational details to it.

The statutory definition and the court's interpretation

Bird & Bird quotes the definition of a franchise as a right granted by a franchisor to a franchisee to conduct business on its own account, under a trade mark or trade name owned by the franchisor or licensed for its use. The definition includes the transfer of technical expertise and the specification of operating methods, in return for financial or non-financial consideration, excluding payments for goods or services.

An important distinction emerges here: the quoted definition also covers licensed use, whereas, according to the analysis, the court adopted a strict interpretation concerning the franchisor's ownership of the trade mark when the agreement was signed. It is therefore important to distinguish between the wording of the definition and the way the court applied it to the dispute before it.

Reporting this case does not mean that a new legislative amendment has been introduced, or that every arrangement based on a licence to use a trade mark is automatically void. The case concerns a specific ruling and judicial interpretation. The analysis warns that courts may adopt a strict approach when examining the rights one party grants to another.

For businesses planning to enter Saudi Arabia through franchising, the practical question is not simply whether a recognised brand exists. It also involves identifying who holds the rights to it and the basis on which the contracting party can grant associated rights. These matters require legal review tailored to the actual structure of the relationship.

Registration and disclosure before signing

The legal analysis recommends that franchisors seeking to enter the Saudi market ensure that their trade marks are registered before entering into agreements. It stresses the need to allow enough time to complete registration after submitting an application to the Saudi Authority for Intellectual Property, so that ownership is settled before signing.

The source does not specify a standard timeframe for completing registration. This recommendation therefore cannot be translated into a fixed timetable for all trade marks. Its message is nevertheless clear: intellectual property procedures should form part of the preparations for expansion, rather than being postponed until after contracts have been signed.

The analysis also emphasises franchisors' obligation to prepare a disclosure document and provide it to prospective franchisees. The information to be disclosed includes the trade marks used to identify the franchise business model, linking the review of rights to the review of the information investors receive before making their decision.

In practice, a pre-signing review should compare the trade mark information in the disclosure document with the rights covered by the agreement. This checks that the documents are consistent; it is not a substitute for verifying the legal status of the trade mark itself.

What does the case mean for franchisors and franchisees?

Bird & Bird concludes that granting a franchise without owning the trade mark may result in the agreement being declared void and the franchisee potentially recovering payments made under it. This possible consequence goes beyond delaying the opening of a business, as it affects the continuing contractual basis of the relationship.

For franchisors, the case reinforces the importance of completing trade mark and disclosure preparations before committing to expansion. For franchisees, it confirms that assessing an opportunity should include examining the legal rights involved, not just the appeal of the trading name.

Practical takeaway: Before signing a franchise agreement, verify ownership of the trade mark and the legal basis for granting rights to it. With help from a specialist legal adviser, check that these are consistent with the agreement and the disclosure document.