Item 13 requires disclosure of and certain information about the primary marks that the franchisee will use to identify the franchised business. These means that you do not have to disclose every trademark that you own. Our best practice recommendation is to keep it simple and clean with just your principal mark and your logo being disclosed in the FDD.
Technically speaking, you do not need a federal trademark to franchise. However, it is a massive mistake not to have a federal trademark. Certain states will require a special registration if you don’t have a federally registered trademark. At the end of the day, franchising is a licensing agreement, and the trademark is at the heart of what you are licensing.
An issue that comes up infrequently but is worth noting is whether the prospect or the franchisor should investigate the area where this prospect is considering to ensure that no one is using your trade name. If someone is using the name in that area, you should discuss with us about sending a cease-and-desist letter. If the user has superior rights to the name because its use predated your federal trademark registration, your franchisee will not have rights to the name in their locality. This user can not only continue to use that name in that area, but they can exclude others, including your future franchisee.
Sample Item 13
ITEM 13: TRADEMARKS
We grant you the right to operate a shop under the name “Belmont Muffler Shop.” You may also use our other current or future trademarks to operate your shop. By “trademark,” we mean trade names, trademarks, service marks, and logos used to identify your shop. We registered the trademark on the United States Patent and Trademark Office principal register on May 11, 1993, as Number 379286.
You must follow our rules when you use these marks. You cannot use a name or mark as part of a corporate name or with modifying words, designs, or symbols, except for those which we license to you. You may not use Belmont’s registered name in connection with the sale of any unauthorized product or service, or in a manner that we have not authorized in writing.
On June 4, 2003, the United States Patent and Trademark Office rejected Belmont’s application to register the mark “Super Mufflers” because the mark was found to be confusingly similar to a previously registered mark.
Our inability to register this mark on the federal level permits others to establish rights to use the Super Mufflers mark. Such use of the Super Mufflers mark does not occur in areas where our franchisees are operating or advertising under the mark, or in the natural zone of expansion for Belmont’s shops. In addition, others outside the Belmont system who use the Super Mufflers mark must act in good faith and without actual knowledge of our prior use of the mark. However, if others establish rights to use the Super Mufflers mark, we may not be able to expand into these areas using that mark.
No agreements limit our right to use or license the use of Belmont’s trademarks.
You must notify us immediately when you learn about an infringement of, or challenge to, your use of our trademark. We will take the action we think appropriate. While we are not required to defend you against a claim against your use of our trademark, we will reimburse you for your liability and reasonable costs in connection with defending our trademark. To receive reimbursement, you must have notified us immediately when you learned about the alleged infringement or challenge.
You must modify or discontinue the use of a trademark if we modify or discontinue using it. If this happens, we will reimburse you for your tangible costs of compliance (for example, changing signs). You must not directly or indirectly contest our right to our trademarks, trade secrets, or business techniques that are part of our business.
Richard R. Roe is currently doing business as Belmont Muffler Shoppe at 4231 Main Street, Reno, Nevada. We believe that this is an infringing use of our federally registered trademark “Belmont Muffler Shop,” and we have filed an action to enjoin Mr. Roe and to recover damages. If the court holds that Mr. Roe’s use is not infringing, Belmont may not be able to use Belmont’s trademark in Mr. Roe’s immediate area. (Belmont Muffler Shop v. Belmont Muffler Shoppe, No. 8899 (D. Nev. Filed April 15, 2006).
This is a sample section from a fictional FDD for Belmont Muffler Shops that was prepared by the Federal Trade Commission as a compliance guide for franchisors preparing their FDD. These are used to provide an idea of what these items may look like in an FDD, but keep in mind, your FDD will most likely vary significantly from these examples.
See Tom Spadea’s article in the Franchise Dictionary Magazine “Is Your Brand Name Really Yours?”