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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, disclose:

(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 must disclose:

(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.