A trademark is one of the elements of the definition of a franchise. Every franchise includes the grant of a right to use the franchisor’s trademark or to sell goods or services associated with that mark. Federal trademark registration is important for franchisors both to protect their brands and to avoid unnecessary problems under some state business opportunities laws.
Trade secrecy is also central to franchising. Every franchisor protects the operational methods and techniques of its franchise system through trade secrecy. Operating manuals, for example, are typically confidential.
The contents of the franchisor’s operating manuals and the advertising that the franchisor provides are protected by copyright law.
Trademarks, trade secrets and copyrights constitute three of the four subjects of intellectual property law. The fourth is patents, which are inventions.
A franchisor must disclose to prospective franchisees in Items 13 and 14 of the FDD the intellectual property it licenses to franchisees.
Trademarks
Trademarks come into play in connection with marketing issues. What do you call your product or service? Will customers readily recognize the brand and distinguish it from competing products? A trademark identifies the source of goods or services. Trademark rights can exist not only in a word or logo, but also a slogan, a package design or the overall impression of a store design, as in a franchise system.
In the U.S., trademark protection arises simply from the commercial use of a trademark, provided that the mark does not infringe on the preexisting trademark rights of another person and provided that it meets certain other criteria, such as not being merely descriptive. Registration of a trademark at the Federal Patent and Trademark Office gives the trademark owner certain advantages, including the fact that registration puts the world on notice of the owner’s rights. A person who is using a trademark that is not registered may notify the public that such person claims rights in the mark by placing the designation “™” (the letters “TM”, for “trademark”) alongside the mark. A mark that is used in conjunction with services rather than goods is called a “service mark”. For service marks, either the “TM” or “SM” designation will serve the same purpose equally well. Once the mark is registered, the owner may place the designation “®” (the letter “R” in a circle) beside the mark.
Federal trademark registration lasts for ten years as long as the proper interim filings are made. Registration may be renewed indefinitely, as long as the owner can prove continued use of the trademark in interstate or international commerce.
Copyrights
Copyright law protects original, creative expression in the tangible form of books, films, music and other works of art. In the commercial area, copyrights protect advertising materials, trade publications, label designs, operations manuals and photographs. Copyrights also protect computer software and databases. Works are protected from the moment they are created in tangible form, regardless of whether the author files with the U.S. Copyright Office or places a copyright notice on the work. Although federal copyright registration is not a prerequisite to copyright protection in the U.S., registration is necessary before the copyright owner can bring a lawsuit for infringement. In practice, most software is seldom registered in the U.S. Copyright Office.
Under Section 106 of the Copyright Act, the owner of a copyright has the exclusive rights to do the following:
- Make copies of the work.
- Prepare derivative works based on the work.
- Distribute copies of the work publicly.
- Perform the work publicly.
- Display the work publicly.
Copyright law protects the expression, not the idea. In this sense, copyright law differs from patent and trade secret law.
Copyrights in the U.S. generally last for the life of the author plus seventy years. When a work is created by an employee in the course of his or her employment, it is generally considered to be a work made “for hire”. Copyright protection for a work made for hire lasts ninety-five years from publication or one hundred twenty years from creation, whichever is shorter.
Patents
Patents protect rights in inventions. U.S. law grants the inventor a monopoly on the rights to the invention for twenty years. This limited-term monopoly is intended to encourage inventors to file for patent protection, thereby publishing their inventions and promoting further invention. Patents are published once they are issued. The fact that patents are published distinguishes them from trade secrets, which also protect the underlying invention.
In order to be patentable, an invention must be non-obvious and it must have a useful purpose. Laws of nature, such as mathematical formulae, are not patentable.
An invention is not protected by patent law in the U.S. unless the U.S. Patent and Trademark Office issues a patent. The application process is lengthy. Enforcement of patent rights is also expensive. Once the twenty-year patent term expires, patent protection is ended and the invention is available for all to use.
Trade Secrets
Trade secrecy law protects confidential information that has commercial value. Unlike copyright law, trade secrecy law protects the ideas themselves. Protectable trade secrets may include inventions, whether patentable or not, as well as competitively sensitive information, such as customer lists, methods of doing business, financial information and the like.
The Uniform Trade Secrets Act, adopted in about 40 states, defines a “trade secret” (in Section 45) as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
- Derives independent economic value, actual or potential, from not being generally known to the public or other persons who can obtain economic value from its disclosure or use; and
- Is the subject of efforts that are reasonable under the circumstances to maintain secrecy.”
One important advantage of maintaining information as a trade secret is that a trade secret can last as long as the information remains a secret. The formula for Coca-Cola, for example, has remained a secret for well over a century. Once the information goes into the public domain, however, trade secrecy protection is lost forever.
Trade secrets are protected under state laws in the U.S. as long as the owner of the secrets takes the appropriate steps to protect their secrecy. This means, for example, prominently marking all secret information as trade secrets. Companies that have confidential information they wish to protect must take steps to safeguard that information. This is an ongoing effort. The owner of the information should prominently mark it as secret or confidential, disclose it only to the extent necessary, and obtain confidentiality agreements where appropriate. Entering into appropriate confidentiality agreements is another step that owners of trade secrets can take to protect these secrets.
