Select Page
1.     
Introduction

Intellectual Property Rights
(IPRs) are very valuable business assets which do not only contribute to the
general profitability of a business but also leads to the advancement of the
innovative and technological sectors of every country.[2] A Franchise is a form of licensing
arrangement between a franchisee and franchisor which grants the franchisee,
through a franchise agreement, access to use the proprietary knowledge,
processes, technical know-how and other intellectual property rights of the
franchisor, to enable the franchisee trade in the product or service of the
franchisor under the trade name of the franchise. In a franchise agreement
several intellectual property rights are exploited since the transfer of those
intangible rights appears to be the bane of Franchise arrangements. 


These rights include
trademarks, trade secrets, patents, copyrights etc. There is often a mutually
beneficial relationship between a franchisor and franchisee, the franchisor
seeks to expand its business and brand name beyond its territorial borders
while the franchisee on the other hand seeks profitable return by exploiting
the existing brand reputation of the franchisor while remitting fees to the
franchisor. In the licencing and transfer of intellectual property rights in a
franchise agreement, it is very important that necessary steps and measures are
taken to better protect certain proprietary intangible rights from unauthorised
uses and exploitation by franchisees.

The franchisors have a
general duty of brand reputation management of its franchise especially as it
relates to the way the franchise business is run, the use of its trademark,
inventions and confidential information, and the promotional materials
utilised.[3] Sadly, there is no specific
regulatory agency or legislation regulating franchise arrangements in Nigeria.
In ensuring the adequate protection of the intellectual property rights covered
in a franchise arrangement, recourse is made to other existing laws and
regulatory agencies.[4] 

For instance, the National
Office for Technology Acquisition and Promotion (NOTAP) Act, requires that all
agreements for the transfer of foreign technology to Nigerian parties should be
registered with NOTAP not later than sixty days from the execution of the
agreement,[5] it also states other requirements
that should be satisfied before an agreement can be registered,[6] and prescribes the percentage of
fees approvable as royalty earnings for registration in a franchise agreement.[7] We will examine some relevant
intellectual property rights deserving attention and protection in a franchise
arrangement.

2.     
Trademarks

Trademarks are an essential
intellectual property right in a business enterprise or going concern which can
be licenced via a franchise agreement. A trademark is a signifier which is
capable of distinguishing the goods and services of one company[8] from those of another. It comprises
of logos, designs, drawings, symbols, taglines, numbers, three-dimensional
features, or a combination of any of these.[9] They are a very integral part of
Intellectual Property because they act as source identifiers by drawing the
attention of the consumers to the origin and source of the product or service.
In a Franchise agreement, the franchisor usually licences the use of its
trademark to a franchisee that in turn pays a fee or royalty for such use.
Examples of some popular franchise brands in Nigeria include: Chicken Republic,
Domino Pizza, Debonairs Pizza, Kentucky Fried Chicken (KFC), Coldstone
creamery, Slot, Mr. Biggs, Tantalizers etc.

However, the modality of
usage of a franchisor’s trademark should be clearly stipulated in a franchise
agreement because if the use of such trademark is not properly managed, the
franchise could face some serious reputational damage to its brand. For
instance, a franchisee that purchases products bearing the trademark of the
franchisor from a counterfeit supplier and distributes such fake products in
its jurisdiction, could tarnish the image of the franchise.[10] Consequently, the franchise agreement
should contain certain obligations required of the franchisee while utilizing
the trademark and brand name of the franchise. The obligations could entail in
addition to the franchisor acknowledging ownership of the Franchise trademark
by the franchisor, that all products distributed by the franchisee be sourced
from a verifiable third-party or the franchisor itself, and that any
unauthorised use or modification of the trademark or the sale of third-party
goods (under the franchise brand) without prior written approval of the
franchisor, may result in the repudiation of the franchise agreement. It is
important to note that, as opposed to some jurisdictions there is no statutory
requirement, asides those that may be implied from persuasive foreign case laws,
for a trademark licensor/franchisor to ensure that specific standards are met
by the licensee/franchisee in Nigeria. Likewise, there is no requirement that a
trademark must be transferred along with the goodwill in the business.[11]

Also, it is important that
the Franchisor obtains legal protection for the tra
demark of its franchise in
the jurisdiction[12] of the franchisee since trademark
registrations are territorial in nature with the exceptions of some regional
registration bodies.[13] Registration will give the
franchisor exclusive rights and protection of its trademark in the jurisdiction
of the franchisee. There are instances when the trademark of a franchisor is
already in use in the franchisee’s jurisdiction and sometimes the owners of
such mark could have registered the trademark mischievously to take advantage
of the goodwill and brand name of the franchise and to pre-empt a legitimate
claim. This was the unfortunate experience of a few famous franchise chains
like Burger King and Taco Bell when they
decided to expand their brand into new territories; only to discover that some
unrelated third parties were already making use of their trademarks.[14] Registration is very important in a
franchise agreement as it prevents the unauthorised use of the trademark of the
franchisor. However, apart from the registration of the franchisor’s trademark
in Nigeria, there is a need for the franchisor to grant a right of use (i.e., a
licence) to the franchisee to use its brand name in Nigeria and such licence
must be recorded at the Nigerian Trade Mark Registry to avoid objections by
interested parties seeking a declaration of abandonment for non-use.[15]

3.     
Trade Secrets/Confidential Information

There is a temptation to
categorize confidential information as trade secrets since both require the
protection of some sensitive information, but they are not exactly the same.
Trade secrets are basically confidential in nature but it is not all
confidential information that is a trade secret. For an alleged confidential
information to transit into a trade secret, there are certain characteristics
identical to a trade secret that it must possess. For instance, such
information should possess some commercial value and certain reasonable steps
should be taken to protect such information from public access.[16] A franchise agreement usually
involves the transfer of valuable confidential information to the franchisee
and it is essential that such information is protected from general public
knowledge in order not to deprive the franchisor of the benefits of its
creations. In comparison to other intellectual property rights like trademarks
and patents, trade secrets are not territorial in nature and do not require
registrations, periodic renewals or maintenance to be protected. However, once
they get into the public domain, they lose their protection. Therefore,
appropriate measures and relevant provisions should be clearly stipulated in
the franchise agreement to restrict the dissemination of proprietary
information.[17] In a franchise agreement, the
confidential information or trade secrets of the franchisor could be in the
form of any of the following; financial or technical know-how, business plans,
implementation strategies, distribution techniques, operation manuals, pricing
technique, recipes, customer lists, chemical formula etc. It should be noted
that the franchisee has a duty of ascertaining the precise value of the trade
secrets because certain proprietary information could be of doubtful legitimacy
and value.[18]

Furthermore non-compete
clauses and provisions restricting the franchisee from taking advantage of the
trade secrets of the franchisor should be laid out in the franchise agreement
to prevent the franchisee from rescinding the agreement in order to establish a
business based on protected information or from furnishing such information to
the competitors of the franchisor upon termination of the agreement. This was
the situation in the case of Gold Messenger v Mc Guay,[19] where confidential information
belonging to the franchisor was given to the franchisee and the franchise
agreement stipulated a provision disallowing the franchisee from competing with
the franchisor for three years and within 50 miles of the franchisor’s
franchise territories. At the termination of the agreement the franchisee
utilized the confidential information to set up his own enterprise and the
court held that the franchisee cannot use the confidential information he
obtained during the period of his contract with the franchisor to compete
unfairly with the franchisor. Consequently, it is important for every franchise
agreement to clearly define the franchisor’s trade secret, require the franchisee
to execute non-disclosure agreements with its employees who may become aware of
the franchisors trade secret only on a need to know basis, prescribe
confidentiality clauses that protect the trade secrets of the franchisor from
unauthorised use both during the lifespan of the franchise agreement and post
termination of the agreement.

4.     
Copyrights

This is another important
intellectual property right that can be impacted in a franchise agreement and
would thus require sufficient protection. A copyright is a legal protection
that avails creators and originators of works eligible for protection.[20] It confers an exclusive and
assignable right to the originator of various kinds of creative expressions,
whether literary, Musical, Artistic or Cinematographic works or adaptations of
any of the aforementioned works.[21] Nigerian law requires that the
author must have expended sufficient effort to give the work an original
character and the work must be fixated in a definite medium of expression.[22] Copyrightable works in a franchise
agreement include literary works like operation manuals, recipes, source codes;
musical, audio-visuals and sound recordings like radio jingles and television
commercials; architectural works like the template plans and designs of the
franchised buildings, sculptural works like Mascots etc.[23] As discussed under Trademarks,
Copyright registration is also important in obtaining protection in the
jurisdiction of the franchisee. Although copyright subsists in a work upon
creation, most jurisdictions possess a voluntary national registration system
where rights holders can lodge copies of their work.[24] In some jurisdictions, like the
United States, copyright registration entitles a claimant in a copyright
infringement action to statutory damages. It is important for franchisors to
register or lodge their copyrighted materials in the depository of the
prescribed bodies within the jurisdiction of the franchisee to obtain better
protection or in order to facilitate enforcement proceedings.

Also, it is pertinent for
franchise agreements to contain clauses on the copyright ownership of creations
of the franchisee or employers of the franchisee which were developed during
the course of the franchise, including developments in other forms of
intellectual property.[25]

5.     
Patents

A patent is an exclusive and
assignable intellectual property right granted to an inventor over his/her
patentable invention for a specified period of time.[26] In Nigeria, for an invention to be
patentable it must be new or constitute an improvement of a patented invention,
result from inventive activity and be capable of industrial application.[27] Some franchisors possess patented
inventions that are licensed to franchisees in a franchise agreement. These
inventions could be in the form of business methods, computer software
application, and equipment hardware. As has been sufficiently buttressed above,
the protection granted by a patent is territorial in nature, therefore there is
a need for the registration of these rights in the various jurisdictions where
the franchisees operate, in a bid to secure maximum protection over the patent.
Franchise agreements should prescribe the mode of utilization of the patented
inventions of the franchisee in order to prevent unauthorized exploitations. In
addition, it should include specific provisions on the ownership of inventions
created during the course of the franchise arrangement, especially if the
franchise agreement empowers the franchisee to undertake any inventive activity
for the overall benefit of the franchise.[28]

6.     
Conclusion

Intellectual Property Rights
(IPRs) are the main stock-in-trade in a franchise. They avail franchisors an
opportunity of business expansion while simultaneously making profits through
the collection of fees or royalty payments from their franchisees.  The
nature of a franchise exposes the franchisor to a high risk of possible
misappropriation of its trade secrets, misuse of its brand reputation, goodwill
and other intellectual property rights. There are very crucial provisions that
must be inserted in a franchise agreement to ensure that the IPRs of the
franchisor are adequately protected. In this regard, it is advisable for a
prospective franchisor or franchisee to retain the services of an IP lawyer
before venturing into a franchise arrangement to ensure that all requisite
bases are covered.



 For further information
on this article and area of law, please contact

Sandra Eke at:
S. P. A. Ajibade & Co., Lagos by telephone (+234 1 472 9890),

fax (+234 1 4605092) Mobile:
+234.7033442333 or Email: seke@spaajibade.com

[1]      
Sandra Eke, Associate Intellectual Property & Technology Law Department,
SPA Ajibade & Co., Lagos, NIGERIA.

[2]      
Yetunde Okojie (2018) “The Importance of IP Due Diligence in Mergers and
Acquisition” available at: http://www.spaajibade.com/resources/the-importance-of-ip-due-diligence-in-mergers-and-acquisition-article-okojie/ accessed
12th October 2019.

[3]      
Brand Protect, “Why IP protection is vital to franchisors” available at: https://www.bptm.co.uk/franchising/why-ip-protection-is-vital-to-franchisors/ accessed
13th December 2019.

[4]      
The NOTAP Act, Chapter N62, LFN 2004 through its agency, NOTAP (National Office
for Technology Acquisition and Promotion) regulates the importation of all
foreign technology into Nigeria; the Patents & Designs Act, Cap P2, LFN
2004, makes provisions for the registration of patentable inventions in
Nigeria. The Government agency that manages the grant of patents is the
Trademarks, Patents and Designs Registry; the Trade Mark Act, Cap. T13, LFN
2004 makes provisions for the registration of Trademarks in Nigeria etc.

[5]      
S.5(2) NOTAP Act. Although, as decided in the recent landmark case of Stanbic
IBTC v. FRCN & Anor

(2018) LPELR-46507(CA), the
court held that the non-registration of a technology transfer agreement under

the NOTAP Act neither
renders such agreement invalid nor unenforceable.

[6]      For
instance, there must be evidence of registration of intellectual property e.g.
trademarks and patents;

In the case of retail shops,
there should be evidence of the local sourcing of the raw materials from local

producers; the scope of the
agreement should specify the object of the agreement, obligations and

services to be rendered by
the technical partner, training and capacity-building, detailed information of

technical experts etc.

[7]      The
fees approvable are: Initial/Basic fee: A lump sum (to be reasonably fixed);
Franchise/Continuing fee:

0.5%- 2% of net Sales or
revenue and Marketing/ Advertising fee: which should not exceed 1% of net sales

or revenue.

[8]      
In this instance, it is a source identifier capable of distinguishing one
franchise from another.

[9]      
See generally, Sandra Eke “Why you need to Protect your Business Hashtags and
Catchphrases” available at:http://www.spaajibade.com/resources/why-you-need-to-protect-your-business-hashtags-and-catchphrases-sandra-eke/ accessed
13th December 2019.

[10]    
Op. cit. n.1.

[11]    
Section 26(1) and (4) Trade Marks Act.

[12]    
To obtain a trademark protection in Nigeria, the trademark is required to be
registered with the Trademarks,

Patents and Designs Registry
in Nigeria.

[13]    
Like the African Regional Intellectual Property Organization (ARIPO) and
Organisation Africaine de la Propriété  Intellectuelle (OAPI).

[14]    
Baybridge, “Intellectual Property in Franchising” available at: https://www.baybridge.com.au/blog/intellectual-property-franchising-why-does-it-matter/ accessed
13th December 2019.

[15] 
   See Sections 31 and 33(3) Trade Mark Act.

[16] 
   WIPO, “Managing Trade Secrets in a Franchising Arrangement”
available at: https://www.wipo.int/edocs/mdocs/sme/en/wipo_smes_lhe_2_07/wipo_smes_lhe_2_07_topic04.ppt accessed
13th December 2019.

[17]    
SPA AJIBADE & CO, “The Role of Trade Secrets in the Protection of IP
Rights” available at: http://www.spaajibade.com/resources/the-role-of-trade-secrets-in-the-protection-of-ip-rights/ accessed
14th December 2019.

[18]    
Ibid

[19]    
No. 96CA1619, 937 P.2d 907 (1997).

[20]    
Sandra Eke, “Fundamental elements of copyright ownership and protection under
Nigerian Law” available at: http://www.spaajibade.com/resources/fundamental-elements-of-copyright-ownership-and-protection-under-nigerian-law-sandra-eke/ accessed
14th December 2019.

[21]    
Ibid.

[22]    
Ibid.

[23]    
International Franchisors Association, “Basics Track: Franchisor’s Intellectual
Property and how to protect It”

December 2019.

[24]    
In Nigeria, copyrighted works can be lodged in the robust depository of the
Nigerian Copyrights Commission.

[25]    
Op. cit., n.13.

[26]    
The duration of a patent in Nigeria is 20 years. A patent expires at the end of
the twentieth year from the date of the filing of the relevant patent
application after which it falls into public domain.

[27]    
S.1 Patents and Designs Act.

[28]    
S.2 (4) Patents and Designs Act stipulate that “where an invention is made in
the course of employment or in

the execution of a contract
for the performance of specified work, the right to a patent in the invention
is vested in the employer or, as the case may be, in the person who
commissioned the work.”