IP Update - Australian Franchising

    December 2013

    Thinking about entering the Australian franchise market? The following legal issues need to be thought about before any action is taken. Entering the market without dealing with these issues first will create legal problems and unexpected expenses later in the process.

    Brand Ownership

    Before entering the Australian market, businesses should ensure that they are the owner of their brand in Australia. The intellectual property in a brand can be protected through trade mark protection, but to ensure full protection a business also needs to consider domain name registration, business name registration, design registration and registration of Twitter handles and other social media usernames.

    Many businesses will only register their name as a trade mark prior to entering a market, but do not have any logos as registered trade marks, slogans, movements, colours or other trade marks registered. This can become a major issue when franchising and distribution requires licencing of those brand assets. Franchisors and distributors expect warranties and indemnities to be given in relation to brand ownership, and the failure to register all associated trade marks means that these warranties cannot be properly given.

    Businesses also register “.com.au” domain name licences, but fail to obtain the domain name licences for other associated names such as the “.net.au” and “.org.au” domain names. Australia’s system of business name registration requires that businesses register their brand name, and franchisees register their brand name with the associated location of the franchise. Ensuring that a business name is registered in addition to any trade mark registrations is necessary to avoid fines from the Australian Securities and Investments Commission (ASIC).

    Franchise Versus Distribution Structure

    In Australia, franchising is highly regulated under the Franchising Code. The Franchising Code requires that any franchising agreement comply with certain statutory terms, that a comprehensive disclosure document is provided to each prospective franchisee, and that each prospective franchisee is presented with a bundle that includes a:

    • franchising agreement;
    • disclosure document;
    • copy of the Franchising Code; and
    • financial statement for the past one or two years.

    Distribution, on the other hand, is less regulated but gives a business less control over local operators. The question for businesses to consider when entering the Australian market is whether they wish to control the brand very tightly through franchises (despite the higher regulatory burden), or choose a less regulated approach with less control over the brand.

    Management Structures

    Many international franchise operations will establish an Australian subsidiary to control and manage their Australian franchisees. This can be done by either establishing a wholly owned subsidiary of the overseas parent, or by bringing in a third party contractor to manage the network locally. Some businesses even go to the extent of setting up state and territory based subsidiaries to manage the structures in each state or region of Australia.

    The question for any business entering the Australian is one of management rather than any particular issues of legal compliance. For management reasons, businesses may wish to set up an entity to run their Australian operations, or you may choose not to.

    Squire Sanders’ Experience

    In Australia, Squire Sanders has assisted some of the world’s best known retail brands to enter the local market through distribution and franchise structures. This experience includes:

    • Assisting the Chinese car manufacturers Geely and ZX Autos establish local franchise systems to distribute their vehicles in Australia.
    • Preparing franchise agreements and documents for the West Coast Hi-Fi consumer retail franchise.
    • Advising on franchising issues in relation to the acquisition of Croissant Express.
    • Advising TM Lewin on their entry into the Australian market including their online retail sales.
    • Successfully conducting trade mark dispute negotiations to enable

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