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Updating Your Franchise Documents

Written by: Peter Macrae Dillon

Article Overview: This brief article considers a couple of key issues that franchisors need to consider when updating their franchise documents. The first thing to realize is that franchise documents need to be updated! Advances in technology and changes in system requirements dictate that a franchisor should be keeping its documents current on an ongoing basis. If they don't have the resources to do that, then an complete overhaul every 5 years is recommended. This artilcle looks at issues relating to renewal and trademark provisions of a franchisor's standard form of franchise agreement.

Updating Your Franchise Documents

Any franchisor updating its franchise agreement should consider a requirement that its franchisees create and maintain a home page on the Internet. The cost of home page design may be shared amongst participating franchisees, much like yellow page advertisement. The agreement should also require the franchisee to insert a “hot key” or hyperlink between the franchisee’s home page and that of the franchisor and other franchisees.

In the Courts - Timothy’s Coffees v. Frank Switt

This recent Ontario decision will be of interest to franchisors whose franchise agreement contains provisions for renewal which require the franchisee to “execute the form of franchise agreement then in use by the franchisor”. In the Switt case, the franchisee exercised his right of renewal. The renewal agreement contained terms that were different from the original franchise agreement, including an increase in the royalty rate from 6% to 9%.

The court found that the franchisee had an obligation to carefully review the franchise agreement to satisfy himself that it contained the terms that the franchisee thought it did. Even though the franchise agreement was drafted by the franchisor and provided very little flexibility to the franchisee, the court said that “this, of course, is the very nature of a franchise operation where uniformity, conformity and standardization go to the heart of the operation, and where individuality plays no part”.

The court confirmed that the franchisee, in order to effectively exercise its right of renewal, was required to sign the form of agreement being used by the franchisor at the time of renewal. The court ordered that the franchisee pay additional royalty fees owing as a result of the difference in royalty fees between those provided for in the original agreement and those provided for in the renewal agreement, from the effective date of renewal.

We advise franchisors to carefully review the wording of their renewal clauses to specifically allow for different financial terms to be contained in the renewal agreement. The clearer the terms with respect to this matter, the less likelihood that a franchisee will be able to avoid the requirement to live by the terms of the renewal agreement.

Trademarks, Etc. - What can be trademarked?

In any franchise or distribution systems, there will be a number of valuable assets that may need protection under the law of trademarks. In this report, we look at three registrable items.

Logo. It is common for business owners to invest a considerable amount of money and time to develop a memorable graphic design, and to spend even more money on various forms of advertising to create an association in the public’s mind between that logo and their business or products. Having invested all of this money and time, it is well worth gaining the advantages of formal trademark registration.

Slogan. A series of words such as “we never cut corners” or “clean, fresh, friendly” are slogans that may be registered as trademarks. A purely “laudatory” phrase, such as the expression “your dog will love it” in connection with pet food, is not permitted for registration.

Numbers. Pizza Pizza’s well known phone number “967-11-11”, in which Pizza Pizza invested heavily, was registered as a trademark. This was at some expense to Pizza Pizza, since the Registrar of Trademarks had originally taken the position that a telephone number, being purely functional, was not subject to registration. The matter was finally determined by the Federal Court of Appeal, who held in favour of Pizza Pizza.

More information.

For more information on franchising in Canada, the United States and internationally, please contact Peter Macrae Dillon, head of Siskinds Franchise Law Group. Peter is recognized expert in franchising. He is the author of the annotated Ontario Franchise Disclosure Act and the annotated Alberta Franchises Act and over 40 other publications on the subjects of franchising, licensing and distribution. He is licensed in Ontario and New York. Peter can be contacted at 800-816-9596 ext. 389 or by email at peter.dillon@siskinds.com. The information contained in this note is for general reference only, and should not be relied upon as constituting legal advice.

Disclaimer.

This article does not constitute legal advice. If you require assistance with the issues raised in this article, either to determine whether your business constitutes a franchise, to establish a franchise, or to avoid a finding that your business constitutes a franchise, you must obtain competent legal advice. Siskinds would be pleased to assist you in this regard.

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