A typical Franchise is a contractual arrangement between the owner of an existing business system and Trademark with some level of demonstrated success – the Franchisor, on the one hand – and an aspiring entrepreneur seeking to replicate that business under the same Trademark with the benefit of some guidance – the Franchisee, on the other hand. While commonly-known Franchises are restaurants and bars, hotels, and fitness centers, the reach of Franchising extends to businesses in virtually every industry sector. Successful Franchise models deliver a mutually beneficial relationship that affords a Franchisor the opportunity to expand using a Franchisee’s capital, and helps the Franchisee reduce the risk of starting a business by relying on the Franchisor’s experience, assistance, and pre-existing brand recognition. However, managing that complex and long-term relationship is of paramount importance.
In general, the legal elements of a Franchise are relatively simple: (1) use of the Franchisor’s Trademark; (2) a required payment of $500 or more within the first sixth months of operation; and (3) significant assistance from the Franchisor or significant control by the Franchisor over the Franchisee’s method of operation. The offering of Franchises is highly regulated as a form of consumer protection in the realm of business opportunities. In 1979, the Federal Trade Commission (“FTC”) adopted the “FTC Franchise Rule,” which still governs the sale of all Franchises within the United States. Additionally, many states have created their own Franchise and business opportunity disclosure and registration laws. Failure to comply with this array of Franchise rules and regulations can result in severe consequences for the Franchisor, including imposition by the state of fines and injunctions against further offerings, the creation of causes of action for a Franchisee to seek rescission, damages, and attorney fees against the Franchisor, and in some cases the attachment of personal liability against the principals of a Franchisor. Therefore, assistance from experienced Franchise counsel is critical in the identification, creation, and administration of Franchise arrangements.
Our attorneys assist Franchisor clients in navigating these Franchise pitfalls, which often begins by assessing whether a business is sufficiently mature to be a viable Franchise candidate, at all. As needed, we can guide the development of operations to meet Franchise requirements and also explore interim alternatives to accomplish multi-unit expansion without the expense of regulatory compliance with the various Franchise laws. When appropriate, the Firm will guide a Franchisor client through preparation of the formal Franchise Disclosure Document and Franchise Agreement, registration of the Franchise in the relevant states, completion of Franchise closings, creation of Franchisee associations, transfers of Franchises, establishment of Sub-Franchisors and Area Developers, and expansion to international markets.
Franchisees may also look to the Firm for assistance in understanding and negotiating Franchise terms, reviewing and confirming disclosures about the Franchise system, and proper corporate organization before signing a Franchise Agreement.
The Firm also has a team of lawyers dedicated to resolving Disputes and Litigation that may arise in the Franchise environment, including but not limited to regulatory actions by a state, disagreements between a Franchisor and Franchisee, and enforcement of the Trademarks and other Intellectual Property rights.
To learn more about how the Firm can assist with your Franchise matters, please email or telephone. We look forward to the opportunity to be of service to you.
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Since 1959, Malloy & Malloy P.L. has focused its practice exclusively on Patent, Trademark, Copyright, and related matters, including U.S. and International Applications, Licensing, and Trials & Appeals. The Firm’s many Board Certified Specialists and Registered Patent Attorneys have served as trusted Intellectual Property counsel to entrepreneurs, small businesses, leading corporations, and research universities in the U.S. and worldwide, across a broad range of industries and technologies.