Buying a franchise: check the rights to the trade mark

When you buy a franchise, you join a network whose shared brand helps customers recognise what it offers. But a well-known name is not the same as a secure right to use it. Before investing in signage, fit-out and local marketing, you need to check both the rights behind the name and what your own agreement actually permits.

1. Check who owns the rights

Start by asking the franchisor to identify which trade marks are included in the offer. These might include the customer-facing business name, a logo or specific names for products and services. Ask for registration numbers, details of the rights holders, the geographical scope of protection and the goods or services covered by the registrations.

A registered company name or a purchased domain name is not, in itself, proof that the same name is protected as a registered trade mark. You should therefore distinguish between the company's identity, its online addresses and the trade mark rights you will be allowed to use.

Check the information in the relevant registers. The Swedish Intellectual Property Office, PRV, handles Swedish trade mark registrations. EU trade marks are registered with EUIPO and are also valid in Sweden. International registrations may also provide protection in Sweden, depending on the territories they cover.

In particular, check:

• that the registered owner matches the information supplied by the franchisor;
• that the protection covers the business activities you intend to carry out;
• whether the trade mark is registered or merely the subject of an application;
• whether the registration is still valid.

Trade mark protection can also arise through established use and recognition in the market. If the franchisor bases its offer on rights of this kind, ask for supporting evidence and have it assessed by a lawyer with trade mark expertise. A lack of registration does not automatically mean there are no rights, but it calls for a different type of review.

2. Trace the licensing chain through to your business

The franchisor does not have to own the trade mark itself. The owner may be another company within the same group or an overseas rights holder that has granted rights to a Swedish master franchisee. What matters is that the party signing the agreement with you is actually entitled to grant you the promised right to use the trade mark.

Ask for documentation showing the full chain from the rights holder to your business. If the underlying agreements are confidential, relevant extracts or written confirmation from the rights holder may help establish that authority. The documentation must be sufficient for a meaningful legal assessment.

Ask explicitly whether the franchisor is entitled to sublicense the rights, for which activities and for how long. Also investigate what happens to your right to use the trade mark if the agreement between the trade mark owner and the franchisor ends.

A significant warning sign is a franchise agreement promising you a longer period of use than the franchisor can demonstrate under its own licence. A verbal assurance that the licence is usually renewed does not resolve that uncertainty. Insist on a documented solution before committing capital to the brand.

3. Check the information against Swedish law and the agreement

Sweden has no comprehensive franchise-specific law, but the Act (2006:484) on Franchisors' Disclosure Obligations requires franchisors to provide clear, comprehensible written information in good time before the franchise agreement is signed. This information must include details of the intellectual property rights to be licensed to the franchisee.

This means that checking trade mark rights is not simply an optional due diligence step. You must receive information about the rights before entering into the agreement. However, the disclosure obligation does not guarantee that the protection is adequate or that the contractual terms are favourable.

The Swedish Trade Marks Act (2010:1877) and, for EU trade marks, the EU Trade Mark Regulation are central to trade mark protection itself. The Swedish Contracts Act and general principles of contract law are relevant to the parties' agreement. The disclosure legislation therefore does not replace a review of the licence terms.

Compare the pre-contractual information with the agreement and ask for clear answers to the following:

• Which names, logos and other distinctive signs may your business use?
• Does permission cover signage, printed materials, websites and social media?
• May you create local materials, and who must approve them?
• Are there specific restrictions on digital advertising or domain names?

A general right to use “the network's trade mark” can leave important practical questions unanswered. Make sure the scope is clearly defined and that the rules on use are workable in your day-to-day business.

4. Agree what happens if the rights are challenged

Even a trade mark you have checked can face an opposition or dispute. The agreement should therefore specify whom you should contact if someone demands that you stop using the name, who will handle the matter and who will bear the costs.

Also ask the franchisor to clarify its responsibility if the promised right to use the trade mark does not exist or is lost. Negotiate how any necessary action will be handled, such as replacing signage, revising local materials or temporarily suspending marketing. Do not assume that you will automatically be compensated for every resulting cost.

Finally, carry out a simple stress test: if you were no longer allowed to use the name from next month, what would have to change in your business, and who would pay? The answer shows how much of the risk rests with you.

Practical conclusion: Do not commit capital to the brand until you have checked who holds the rights, whether the franchisor is entitled to license the trade mark to you, and what protection your agreement provides if your right to use it is lost.