Launching and Buying a Franchise

A franchise partner pays for the right to run a business on an established model: under the network's designations, to its standards, with training, supplies and support. An operating outlet and clear economics do not yet amount to a franchise. Only what has been documented becomes the subject of the transaction: if the designation has not been registered as a trademark and the standards exist only as the founder's experience, the partner pays for something that is not in the documents.

A franchise cannot be set up without a trademark: the right to the mark is a mandatory part of the set of rights under a commercial concession agreement. Without it, the grant of the set of rights cannot be registered with Rospatent, and without registration the rights are not deemed to have been granted to the partner. If the mark is registered in the name of the founder or another related company, the right to it is first transferred to the company that enters into the agreements with partners. Trademark registration takes time and is carried out before the network is launched.

Standards become an asset once they are described. Operating procedures, recipes and methods are protected as know-how if the rights holder takes measures to prevent them from becoming known to outsiders, above all by introducing a trade secret regime: without such measures, no know-how arises and the information passed to the partner is not protected.

The rights holder needs a description of the standards for three purposes: it defines what the partner receives; it provides a basis for requiring compliance with them and for withdrawing from the agreement in the event of a serious breach; and it shows what the partner may not use after leaving the network.

A franchise brings the rights holder a lump-sum fee and royalties without investment in opening its own outlets. With the income comes liability for the partners: if a partner fails to satisfy a customer's complaint about the quality of goods or services, the claim is brought against the rights holder, and the rights holder and the partner are jointly and severally liable for the rights holder's goods produced by the partner. Quality requirements and control procedures are set with this liability in mind.

If the partner needs only the right to use a mark or technology, without standards, training and oversight, a licence agreement is concluded. A franchise agreement is broader: the partner receives a set of rights together with the experience of running the business, and operates under the network's designations and by its rules.

For a franchise buyer, the rights holder's rights and the agreement are checked before signing.

If the network is built without granting a set of rights, through distributors or agents, the contractual model is chosen under the “Commercial Models and Contract Structuring” service.

• Network readiness opinionA list of what is to be put in place before partners are brought in: trademarks, rights to materials, operating procedures and the regime for information.
• Network document setA commercial concession agreement with schedules on standards and materials, non-disclosure agreements and supply agreements, in a single version for the whole network.
• Rospatent registration materialsApplications to register the grant of the set of rights and responses to queries concerning each partner.
• Opinion for a franchise buyerAn analysis of the rights to the trademark, the contents of the franchise and the terms of exit from the network before the agreement is signed.

The outcome of the service is the work performed within the scope agreed with the client.

1. Materials

   The work is built on the documents and information about the transaction; the following points are relevant.

   • Business modelHow many outlets are operating, in which territories partners are to be recruited and what they will sell.
   • DesignationsThe name, logo and other designations of the network, and registration details, if any.
   • Working practiceOperating procedures, instructions and training materials in their current form.
   • Contractors' materialsContracts with designers, website developers, and authors of texts and photographs.
   • Expected termsThe amount of the fee and royalties, the territory, restrictions on partners.
   • Rights holder's offerThe presentation and draft agreement, if a franchise is being acquired.

2. Assessment

   On the basis of the materials, the risks, the possible solutions and their consequences are identified.

3. Plan

   For the chosen option, a plan is drawn up: the sequence of steps, timing and scope of work.