Know-how and identity protection

One of the most essential parts of a franchise formula is, the word says it all, the formula itself. It is not always easy to determine what is meant by the concept of formula, but in general it may concern the appearance of the formula, the brand, the manner in which products are presented and, in some cases, also the products themselves. Sometimes formulas are mainly aimed at marketing, sometimes also specifically at products. In all cases, the franchisor concerned will consider that its formula represents a considerable amount of know-how, which deserves protection in every possible way. This protection of know-how can be designed in various ways. More generally, one can think of protective constructions that have existed for a long time when it comes to the protection of intellectual property rights, such as the brand of the formula, the trade name, the logos, et cetera.

More specifically in franchise situations, this could include the situation in which franchisees leave the formula. This is usually provided for by including a so-called non-competition clause in the franchise agreement, which usually applies during the term of the agreement, as well as one year after its expiry. In short, in most cases the franchisee is prohibited from engaging in competitive activities with the franchise organization during that period. From a competition law point of view, there are various limitations in particular to the non-competition clause, which mainly relate to the maximum duration thereof and the territorial scope. I will not go into that here, as competition has already been written about in earlier installments of this column.

In addition to competition law restrictions, the protective constructions described above also have other limitations. With regard to the protection of intellectual property, an example of such a limitation lies in the fact that a sales method as such does not qualify for protection. This means that, for example, the manner in which products are presented in a shop, an “accessible appearance”, the use of glass fronts or a certain type of floor covering, all such specific material characteristics of, in this example, a shop are not eligible for protection. That is different, it must be repeated, with regard to logos, color schemes and, in some cases, perhaps specific use of materials, as long as this cannot be interpreted as a sales method.

A second important limitation has to do with the aforementioned non-compete clause. That limitation lies in the interpretation thereof by the court. After all, the court views non-competition clauses very precisely in all cases. In jargon: such terms are given a grammatical explanation. The bottom line is that the exact wording, down to the comma, of a non-compete clause is decisive for its purport and scope. In some cases, an incorrectly placed comma can affect the validity of the entire clause. If a non-compete clause, especially when it relates to the period after the termination of the franchise agreement, is to achieve its intended purpose, it must therefore be drafted with the utmost precision and tested against what the franchisor in question wants to achieve with that clause. The proverbial “slip of the pen” can have major consequences in this case.