How to Protect Your Franchise’s Goodwill

How to protect your franchise's goodwill

When you hear the term goodwill, what do you think? There are a lot of things that make up your company’s goodwill, such as your corporate identity or image, the quality of your product, the relationships you maintain with suppliers and customers, as well as the conduct of your management and other employees.

Basically, you should think of your goodwill as the image you send out into the world. It might not seem like it, but your brand identity and reputation for quality goods and services possesses monetary value because of their ability to attract customers and generate revenue. Franchisees capitalize on your goodwill when they purchase a license to offer your products or services in new markets. However, when you license your brand to franchisees, you also expose your goodwill and bottom line to potential abuse. Here are some steps you can take to protect your company’s goodwill.

Confidentiality Agreements for Trade Secrets

If your brand cachet includes secret recipes, ingredients or any type of unique technology that you developed, you can’t afford to let the secret out. But by making it available to franchisees and their employees, you risk just that. In these cases, your franchise contract must clearly require and enforce confidentiality agreements. Also, they should state prohibitions against reverse engineering or any other effort to unmask your trade secrets. Any and all breaches of this agreement should be met immediately with swift and serious legal consequences to set the example for all other franchisees and their employees.

Trademark protection and registration

Trademark (TM) Registration and Protection

By registering your intellectual property, company name, logo, slogans, marks, etc., you gain the legal right to their exclusive use. This prevents, or should prevent, unauthorized third-party pirating of your brand identity. You license these to your franchisees with the understanding that, essentially, they are borrowing your marks but can never appropriate them or sell them for their own use. Again, any infringement must never be tolerated or you may ultimately lose your rights to your trademarks.

International TM Registration

In this age of globalization, you ought to consider registering your trademarks in other countries, especially if you plan to expand abroad in the future. Many countries handle intellectual property differently, but several international treaties also provide for standardization across borders. For instance, now you can register your intellectual property with the EU and enjoy protection in all of the member countries at once.

Create a Thorough Set of Guidelines for Your Franchisees

Your franchisees could inadvertently breach your licensing contract. One example might be that they use your logo on inappropriate marketing materials. Or they might claim ownership of your brand as a sales tool. While they could misuse your brand identity in an innocent manner, it’s best to stamp out that possibility before it occurs. Every franchisee should receive, as part of the contract, a comprehensive set of guidelines covering the use of your property and fully explains the consequences of unapproved use.

You’ve worked too hard to establish a known, reliable and desirable brand. You can’t afford to send it out into the world hoping everyone else will respect it. The best way to cover all your bases is to consult with an attorney experienced in franchise law. The complexities are great, but the payoff from securing your goodwill can’t be underestimated.

Contact us for answers about franchising

Have any questions about franchising? Shelton Law & Associates has years of experience helping passionate entrepreneurs start their own franchises, providing the legal advice needed to understand their rights and obligations when franchising as well as creating positive relationships with franchisors. Please contact us today to speak with an experienced attorney about your options. We would be happy to help!