Understanding the Franchise Disclosure Document - Item 13
By Mario Herman
In part 2 of Item 13 from the FDD, learn more about the franchisors
trademarks and related issues.
Last week we were discussing Item 13 of the FDD -- trademarks. Here is the
second half of that article.
(6) Any pending material federal or state court litigation regarding the
franchisor’s use or ownership rights in a trademark. For each pending action,
(i) The forum and case number.
(ii) The nature of claims made opposing the franchisor’s use of the trademark
or by the franchisor opposing another person’s use of the trademark.
(iii) Any effective court or administrative agency ruling in the matter.
(7) Any currently effective agreements that significantly limit the
franchisor’s rights to use or license the use of trademarks listed in this
sectioning a manner material to the franchise. For each such agreement, the
franchisor must disclose:
(i) The manner and extent of the limitation or grant.
(ii) The extent to which the agreement may affect the franchisee.
(iii) The agreement’s duration.
(iv) The parties to the agreement.
(v) The circumstances when the agreement may be canceled or modified.
(vi) All other material terms.
(8) The franchisor must also disclose:
(i) Whether the franchisor must protect the franchisee’s right to use the
principal trademarks listed in this section, and must protect the franchisee
against claims of infringement or unfair competition arising out of the
franchisee’s use of the trademarks.
(ii) The franchisee’s obligation to notify the franchisor of the use of, or
claims of rights to, a trademark identical to or confusingly similar to a
trademark licensed to the franchisee.
(iii) Whether the franchise agreement requires the franchisor to take
affirmative action when notified of these uses or claims.
(iv) Whether the franchisor or franchisee has the right to control any
administrative proceedings or litigation involving a trademark licensed by the
franchisor to the franchisee.
(v) Whether the franchise agreement requires the franchisor to participate in
the franchisee’s defense and/or indemnify the franchisee for expenses or damages
if the franchisee is a party to an administrative or judicial proceeding
involving a trademark licensed by the franchisor to the franchisee, or if the
proceeding is resolved unfavorably to the franchisee.
(vi) The franchisee’s rights under the franchise agreement if the franchisor
requires the franchisee to modify or discontinue using a trademark.
(9) Whether the franchisor knows of either superior prior rights or
infringing uses that could materially affect the franchisee’s use of the
principal trademarks in the state weatherman business will be located. For each
use of a principal trademark that the franchisor believes is an infringement
that could materially affect the franchisee’s use of a trademark, the franchisor
(i) The nature of the infringement.
(ii) The locations where the infringement is occurring.
(iii) The length of time of the infringement (to the extent known).
(iv) Any action taken or anticipated by the franchisor.
One of the principal reasons some prospective franchisees decide to enter
into franchise agreement is to obtain the benefit of name recognition. It is
critical, then, to know the strength of a franchisor’s rights in the trademarks
it is licensing to the prospective franchisee. These are complicated provisions,
and an experienced franchisee law attorney can assist you in determining whether
your rights will be protected.
Mr. Herman based in Washington, D.C., represents franchisees domestically and
internationally negotiation, mediation, arbitration, and litigation.