Franchise and trademark: how to draw up an agreement correctly?

Franchising is a popular way of doing business that allows aspiring entrepreneurs to use a ready-made business model, and experienced businessmen to expand their network. And at the heart of most franchises is the brand . It’s a “magnet” that attracts customers and an identifier to distinguish one franchise from another.

But having a registered trademark is not enough. In order for a franchise to work effectively and safely for both parties – the franchisor (TM owner) and the franchisee (TM user) – it is necessary to draw up the franchising agreement correctly. This document is the basis of all co-operation, and the success of the entire project depends on its quality.

A franchising agreement is a complex legal document that requires careful preparation and attention to detail. It should clearly set out all the terms and conditions of the use of the trade mark, the rights and obligations of the parties, the terms of remuneration, the quality control procedure and much more. An improperly drafted contract may lead to serious problems, conflicts and even litigation.

I. What is a franchise and what is TM’s role in it?

Before we delve into the intricacies of formalising a franchise agreement, let us, for example, clearly define the basic concepts. What is a franchise? And why does a trade mark play such an important role in this type of business? In this section, we will define a franchise, look at its main elements and, of course, find out what place the brand name has in it.

Subsection 1.1: Definition of franchise

Franchise ( or franchising) is, in simple terms, a type of business activity when one party (franchisor) grants another party (franchisee) the right to use its business model, brand, technology and other developments for a fee.

Let us turn to a more official definition. Ukrainian legislation, for example, does not directly use the term “franchise”. Instead, the term “commercial concession” is used.

Commercial concession ( according to Chapter 76 of the Civil Code of Ukraine) is a contract under which one party (right holder) undertakes to grant to another party (user) for a fee the right to use, in accordance with its requirements, a set of rights belonging to this party for the purpose of manufacturing and (or) selling a certain type of goods and (or) providing services.

What does a set of rights that is transferred under a franchising (commercial concession) agreement include?

• Trade mark (mark for goods and services): This is usually the best known and most valuable element of the franchise.
• Know-how: This is confidential information that has commercial value (e.g. recipes, production techniques, management methods, customer databases).
• Trade secret: This is information that is not publicly known and the disclosure of which may cause damage to the franchisor.
• Business reputation and experience: The franchisee gets an opportunity to use the franchisor’s positive image and experience.
• Other intellectual property: Patents, industrial designs, copyrights (e.g. software, design).

Thus, a franchise is not just a lease of a brand. It is, in fact, the transfer of a whole set of rights that allows the franchisee to conduct business under the franchisor’s umbrella using its successful business model.

Subsection 1.2: TM as a key franchise element

Among all the rights that are transferred under a franchise agreement, the trade mark (TM) occupies, without exaggeration, a central place. Why?

• Business identification: TM is what consumers see first of all. It identifies the franchisor’s business and, accordingly, all franchisees who operate under this brand. For example, when you see the golden arches of McDonald’s, you immediately realise what kind of establishment it is and what goods/services it offers.
• Recognisability and trust: A well-known TM is already half of success. Consumers tend to trust well-known brands that have a good reputation, so to speak. The franchisee gets an opportunity to use this recognition and trust from the first day of operation.
• Quality standards: TM is often associated with certain quality standards of goods/services. The franchisee is obliged to adhere to these standards in order not to damage the brand reputation.
• Marketing and advertising: The franchisor usually conducts large-scale marketing and advertising campaigns aimed at promoting the TM. This benefits all franchisees because, for example, it increases the flow of customers.
• Competitive advantage: Working under a well-known TM, the franchisee gains a significant competitive advantage over other entrepreneurs who start a business from scratch.

So, a trademark is not just a pretty name or logo. It is, in fact, the heart of the franchise, which ensures its recognisability, consumer confidence and, finally, the success of the entire business. That is why it is so important to properly formalise the transfer of rights to the TM in the franchise agreement.

II. Types of contracts used in franchising

We have found out what a franchise is and what role a trade mark plays in it. Now let’s understand what types of agreements are used to formalise franchise relations in Ukraine, and, for example, which of them is the most suitable for transferring rights to TM. It is like choosing a tool: different tools are needed for different tasks. It is the same with contracts: different types of contracts may be appropriate for different situations.

Subsection 2.1: Commercial concession agreement

In Ukraine, the main type of agreement that regulates franchising relations is a commercial concession agreement. This is, so to speak, a special type of contract provided for by the Civil Code of Ukraine (Chapter 76).

What is a commercial concession agreement?

It is a contract under which one party (the right holder, i.e. the franchisor) undertakes to grant the other party (the user, i.e. the franchisee), for a fee, the right to use, in accordance with its requirements, a set of rights belonging to this party for the purpose of manufacturing and (or) selling a certain type of goods and (or) providing services.

Key features of a commercial concession agreement:

• Complexity: A commercial concession agreement provides for the transfer of not only the right to use the TM, but also other rights (know-how, trade secrets, business reputation, etc.). This, in other words, distinguishes it from an ordinary licence agreement for the use of TM.
• Fee: The franchisee pays the franchisor a fee for the use of the set of rights.
• Compliance with the franchisor’s requirements: The fran chisee is obliged to comply with the franchisor’s requirements for business conduct, quality of goods/services, design of premises, etc.
• Purpose of use: The set of rights is granted for the purpose of manufacturing and (or) selling a certain type of goods and (or) providing services. That is, for example, not for any purpose.
• Term: The contract is concluded for a fixed term.

Please note: a commercial concession agreement must be concluded in writing.

It should also be remembered: this agreement is subject to state registration with the UKRNOIVI (for more details see Section IV).

A commercial concession agreement is, so to speak, the “classic” and the most common way of formalising franchise relations in Ukraine. It allows to regulate all aspects of co-operation between the franchisor and the franchisee, including the issues of TM use.

Reference to Chapter 76 of the Civil Code of Ukraine: link to zakon.rada.gov.ua

Subsection 2.2: Licence agreement for the use of TM

Although a commercial concession agreement is the main way of formalising a franchise relationship, there are situations where, for example, a trademarklicence agreementcan be used.

When can a licence agreement be used?

• If the right to use only the trade mark is transferred (without other intellectual property and elements of the business model). In other words, there is no “complex of rights” characteristic of a franchise.
• If the parties do not wish to conclude a commercial concession agreement for some reason (for example, because of the complexity of the registration procedure).

What is a TM licence agreement?

It is a contract under which the owner of a trademark certificate (licensor) grants another person (licensee) permission to use the TM under certain conditions.

Difference between a commercial concession agreement and a licence agreement:

It is important to remember:

• A licence agreement, like a commercial concession agreement, must be concluded in writing.
• The transfer of rights to use the TM under a licence agreement is also subject to state registration with the SCRNOVI.

Thus, if you plan to transfer to the franchise only the right to use the TM, you can, in other words, use a licence agreement. However, if it is a question of transferring a set of rights characteristic of franchising, it is better to conclude a commercial concession agreement.

III. Essential conditions of the commercial concession agreement (regarding TM)

We have found out that the commercial concession agreement is the main document that regulates franchising relations in Ukraine. Now, for example, let us consider in detail what essential conditions concerning the trade mark must necessarily be included in this contract. It’s like a recipe: if you don’t add an important ingredient, the dish may turn out unpalatable or not at all. It is the same with a contract: if important terms are not spelled out, problems and misunderstandings may arise between the parties.

Subsection 3.1: Clear definition of the TM

The first and probably the most important thing to do in a commercial concession agreement regarding a trade mark is to clearly define it. It must be done in such a way that there is no doubt as to which TM we are talking about.

What should be stated in the contract to clearly define the TM:

1. Name of the TM: If the TM is verbal (i.e. consists of a word or words), the full name of the TM must be stated.
2. TM Image: If the TM is pictorial (i.e. consists of an image) or combined (word + image), a clear image of the TM should be added to the contract.
3. TM certificate number: This is the most important identifier of the TM. It is necessary to indicate the full number of the certificate for the mark for goods and services issued by UKRNOIVI.
4. Date of TM registration (date of application): This date determines the term of validity of the TM rights.
5. List of goods and services: It is necessary to specify the list of goods and services for which the TM is registered in accordance with the International Classification of Goods and Services (ICDS). This is important for determining the scope of the rights to be transferred.

Example of wording in the contract:

“The Rightholder grants the User the right to use the mark for goods and services “Sonyashnik” (Certificate of Ukraine No. 123456 dated 01.01.2023), the image of which is attached to this Agreement (Annex 1), for the goods and services listed in Annex 2 to this Agreement.”

It is worth paying special attention to the accuracy of data on the TM in the contract: the name, image and number of the certificate should be indicated without errors. It is also advisable to attach a copy of the TM certificate to the contract as confirmation. Finally, if any changes have been made to the register of information on TM, it is necessary to specify this in the contract.

A clear definition of TM in the contract is a guarantee that both parties understand which intellectual property object is being referred to and that there will be no misunderstandings in the future.

Subsection 3.2: Ways of using the TM

Once you have clearly defined the TM, it is necessary to describe in detail the ways of its use, which the franchisee is allowed touse. In other words, it is necessary to specify how exactly the franchisee may use the TM in its activities.

What ways of using the TM can be stipulated in the agreement?

• Use in signage: For example, placement of the TM on the facade of a shop, café, franchisee’s office.
• Use in advertising: Use of TM in advertising materials (printed, electronic, outdoor, etc.).
• Use on goods: Applying TM on goods produced or sold by the franchisee.
• Use on the packaging of goods: Applying TM on the packaging of goods.
• Use in business documentation: Use of TM on letterheads, business cards, commercial offers, etc.
• Use on the Internet: Use of TM on the franchisee’s website, in social networks, in online advertising.
• Other ways of use: For example, use of TM on souvenir products, on staff uniforms.

Remember: the list of ways of using the TM must be exhaustive. This means that the franchisee has no right to use the TM in other ways than those expressly provided for in the agreement.

Also note: there may be certain restrictions or requirementsfor each way of using the TM . For example, the franchisor may require that the TM on the signage has a certain size, font, colour, and that the advertising meets certain quality standards set by the franchisor.

Example wording in the agreement:

“The User has the right to use the Mark for goods and services in the following ways:

1. Placing the Mark on the signboard of the shop at the address:.
2. Use of the Mark in advertising materials (printed, electronic, external) related to the goods/services defined in Appendix 2 hereto.
3. Applying the Mark on the goods defined in Appendix 2 hereto, as well as on their packaging.

At the same time, the User undertakes to comply with the requirements for the use of the Mark set out in Appendix 3 to this Agreement”.

A clear definition of the ways of using the TM in the agreement, allows avoiding misunderstandings and, for example, conflicts between the franchisor and the franchisee, as well as protecting the reputation of the brand.

Subsection 3.3: Territory of use of the TM

Another important aspect that needs to be regulated in a commercial concession agreement is the territory of use of the trade mark. In other words, it must be clearly defined where exactly the franchisee has the right to use the TM.

Why define the territory of use?

• Protection of the franchisor’s interests: The franchisor may have several franchisees in different regions, and, for example, in order to avoid competition between them, it is important to limit the territory of TM use for each franchisee.
• Protection of the franchisee’s interests: The franchisee receives, so to speak, an exclusive right to use the TM in a certain territory, which gives it a competitive advantage over other entrepreneurs who do not have such a right.
• Network development planning: Defining the territory of TM use allows the franchisor to effectively plan the development of its franchise network.

How can the territory of use be defined?

• Specific city or town: For example, “the city of Kyiv”.
• City district: For example, “Pecherskiy district of Kyiv”.
• Region: For example, “Kyiv Oblast”.
• Region: For example, “Western Ukraine”.
• The whole territory of Ukraine: If the franchisor grants the franchisee the right to use the TM in the whole territory of Ukraine.
• Other options.

Example of wording in the contract:

“The Rightholder grants the User the right to use the Mark for goods and services on the territory of the city of Lviv.”

or

“The territory of use of the Mark for the goods and services under this Agreement is Obolon district of the city of Kyiv.”

Please note: the territory of use of the TM must be defined clearly and unambiguously. Such formulations as “large city”, “promising region”, etc. should not be used.

Defining the territory of TM use in the agreement is, in other words, an important tool for protecting the interests of both the franchisor and the franchisee, as well as for efficient management of the franchise network.

Subsection 3.4: Term of the contract

A commercial concession agreement must necessarily specify the term of its validity. Accordingly, this term will also determine the term of validity of the rights to use the trade mark which are transferred under the contract.

Why define the term of the agreement?

• Legal certainty: The term of the agreement establishes a clear time frame during which the franchisee has the right to use the franchisor’s TM.
• Planning: Both the franchisor and the franchisee can plan their activities based on the term of the agreement.
• Possibility to revise the terms and conditions: After the term of the agreement expires, the parties may revise its terms and conditions (e.g., the amount of remuneration, the territory of TM use) or, in other words, decide not to continue co-operation.

How long can the term of the contract be?

• Specific term: For example, “5 years”, “10 years”.
• Specific date: For example, “until 31 December 2028”.
• Indefinite term: The contract may also be concluded for an indefinite term. In such a case, each party has the right to withdraw from the contract at any time by giving the other party a certain period of notice (usually six months’ notice, unless otherwise stipulated in the contract).

Example of wording in a contract:

“This Contract shall enter into force from the date of its signing by the Parties and shall remain in force for a period of five (5) years.”

or

“This Contract is concluded for an indefinite term. Each of the Parties has the right to withdraw from the Contract at any time by notifying the other Party in writing 6 (six) months prior to the date of termination of the Contract.”

Remember: the term of the commercial concession agreement must be clearly defined. This, for example, avoids misunderstandings and provides legal certainty for both parties.

Subsection 3.5: Terms of payment of remuneration (royalties)

The franchisee pays the franchisor a remuneration for the use of a set of rights that is transferred under a commercial concession agreement, including the right to use a trade mark. This remuneration, in other words, is often called royalty. The royalty payment terms are one of the most important parts of the contract.

What should be clearly defined in the contract on the terms of royalty payment?

1. The amount of royalty:
   • Fixed amount: For example, “UAH 10,000 per month”.
   • Percentage of income (revenue): For example, “5% of the franchisee’s monthly income from the sale of goods/services under the TM”.
   • Percentage of profit: For example, “10% of the franchisee’s monthly net profit”.
   • Combined option: For example, “UAH 5,000 per month + 3% of monthly income”.
   • Other options
2. How royalties are calculated:
   • If the royalty is calculated as a percentage of income or profit, it must be clearly defined how exactly this income or profit is calculated (which expenses are taken into account, which are not, etc.).
   • It is necessary to establish what documents the franchisee should submit to the franchisor to confirm the amount of income/profit.
3. Frequency of payments:
   • Monthly.
   • Quarterly.
   • Annually.
   • Other options.
4. Timing of payments:
   • For example, “by the 10th day of the month following the reporting month”.
   • For example, “within 15 days after the end of the reporting quarter”.
5. Form of payment:
   • Cash in cash.
   • Non-cash transfer to a bank account.
6. Liability for late payment:
   • Penalty (a percentage of the amount owed for each day of delay).
   • Penalty (fixed amount).

Example of wording in the contract:

“For the use of the complex of rights granted under this Agreement, the User shall pay the Rightholder remuneration (royalty) in the amount of 5% (five per cent) of the User’s monthly income from the sale of goods/services under the Mark for Goods and Services. The User’s income is defined as the sum of funds received by the User from the sale of goods/services under the Mark for goods and services, less value added tax.

The royalty shall be paid monthly, not later than on the 10th (tenth) day of the month following the reporting month, by non-cash transfer of funds to the Rightholder’s bank account specified in this Agreement.

The User is obliged to provide the Rightholder with a monthly report on the income received from the sale of goods/services under the Mark for goods and services, not later than the 5th (fifth) day of the month following the reporting month, according to the form established by the Rightholder (Annex 4 to this Agreement).

In case of late payment of royalty, the User shall pay to the Rightholder a penalty in the amount of 0.1% (zero point one-tenth of one per cent) of the outstanding amount for each day of delay”.

Please note: the terms of royalty payment, for example, should be as clear and transparent as possible to avoid misunderstandings and disputes between the parties.

Subsection 3.6: Quality control

One of the key aspects of the franchise relationship is quality control of goods and/or services that the franchisee produces/supplies under the franchisor’s trade mark. This, in other words, is necessary to protect the brand reputation and ensure uniform quality standards throughout the network.

Why is quality control necessary?

• Protection of TM reputation: If the franchisee produces/provides low-quality goods/services, it will negatively affect the reputation of the entire franchise and, in particular, the consumers’ perception of TM.
• Ensuring uniform standards: Consumers expect to receive the same level of quality of goods/services in all outlets of the franchise network, regardless of who the franchisee is.
• Protecting the franchisor’s interests: The franchisor is interested in associating its TM with high quality.
• Protecting the franchisee’s interests: Compliance with the quality standards set by the franchisor helps the franchisee to avoid problems with customers and, for example, regulatory authorities.

How can quality control be carried out?

• Regular inspections: The franchisor may carry out regular inspections of the franchisee’s activities (e.g., visiting the franchisee’s outlets, checking documentation, conducting customer surveys).
• Mystery shopping: The franchisor may use the mystery shopping method to assess the quality of service and goods/services provided by the franchisee.
• Audit: The franchisor may audit the franchisee’s financial and operational activities.
• Reports: The franchisee may be obliged to provide the franchisor with regular reports on its activities, quality of goods/services, customer feedback, etc.
• Mandatory requirements: The franchisor may set certain quality standards to be adhered to by the franchisee.
• Training: The franchisor may provide training for the franchisee’s personnel to ensure compliance with quality standards.
• Other Methods.

What should be specified in the quality control agreement?

• The franchisor’s right to control: It should be clearly stated that the franchisor has the right to control the quality of the franchisee’s goods/services.
• Methods of control: It is necessary to list the specific methods of control that the franchisor may use.
• Frequency of control: How often the franchisor can carry out inspections.
• Responsibilities of the franchisee: What the franchisee must do to ensure quality control (e.g., provide access to premises, documents, submit reports).
• Consequences of detecting violations: What happens if the franchisor finds that the franchisee does not adhere to the quality standards (e.g., warning, fine, cancellation of the agreement).

Example of wording in the contract:

“The Rightholder has the right to control the quality of goods/services produced/supplied by the User under the Mark for Goods and Services by conducting regular inspections of the User’s activities, including by using the method of “mystery shopping”.

The inspections shall be carried out not more than once a month.

The User undertakes to provide unhindered access of the Rightholder’s representatives to all premises where the production/sale of goods/services under the Mark for Goods and Services is carried out, as well as to provide all necessary documents and information concerning the quality of goods/services.

In case of detection of violations of the quality standards established by the Licensor, the Licensor shall have the right to demand from the User to eliminate these violations within the established term. In case of failure to eliminate violations within the established term, the Rightholder has the right to terminate this Agreement unilaterally.”

Quality control is, in other words, an important tool to ensure the successful operation of the franchise network and to protect the reputation of the trade mark.

Subsection 3.7: Liability for infringement of TM rights

The commercial concession agreement should clearly define the liability of the parties for infringement of trade mark rights. This, in other words, is important to protect the interests of both the franchisor and the franchisee.

What can be infringements of TM rights?

• On the part of the franchisee:
  • Use of TM in ways not stipulated by the agreement.
  • Use of TM outside the territory defined by the Agreement.
  • Use of the TM after the expiry of the agreement or after its cancellation.
  • Use of a modified TM (without the franchisor’s consent).
  • Failure to comply with the quality standards set by the franchisor, which may damage the TM reputation.
  • Transfer of the right to use the TM to third parties (without the franchisor’s consent).
• On the part of the franchisor:
  • Granting the right to use the TM that does not legally belong to the franchisor.
  • Unlawful cancellation of the agreement, which deprives the franchisee of the right to use the TM.
• On the part of third parties.

What kind of liability can there be?

• Indemnification: The party that has infringed the TM rights is obliged to compensate the other party for the losses caused (including lost profit).
• Penalties: The contract may provide for penalties for infringement of TM rights (e.g., a fixed fine or penalty for each day of delay).
• Termination of the contract: Infringement of TM rights may be grounds for early termination of the contract.

What should be stated in the contract about liability?

• Types of inf ringements: List the specific types of infringements of TM rights for which liability is provided.
• Amount of liability: Indicate the amount of penalties or the procedure for their calculation.
• Indemnity procedure: Describe the claims and indemnity procedure.

Example of wording in the Agreement:

“In case the User uses the Mark for goods and services in ways not provided for by this Agreement or outside the territory defined by this Agreement, the User shall pay to the Licensor a fine in the amount of [amount] UAH for each fact of infringement.

In case the User uses the Mark for goods and services after the expiration of this Agreement or after its cancellation, the User shall pay to the Licensor a fine in the amount of [amount] UAH for each day of illegal use.

If the User transfers the right to use the Mark for goods and services to third parties without the written consent of the Licensor, the User shall pay a fine to the Licensor in the amount of [amount] UAH for each violation.

The Party that violated the rights to the Mark for Goods and Services shall be obliged to compensate the other Party for the losses caused, including loss of profit, in full.”.

Clearly defining liability for TM infringement in the contract, for example, helps protect the interests of both parties and ensure compliance with the terms of the contract.

Subsection 3.8: Termination Conditions

In a commercial concession agreement, it is necessary to clearly define the terms of termination of the agreement, including the terms of early termination. This, in other words, is important to ensure legal certainty and to protect the interests of both parties.

What can be the grounds for termination of a contract?

1. Termination of the contract: This is the most common ground. If the contract was concluded for a fixed term, it terminates at the end of that term (unless the parties agree to extend it).
2. Early termination of the contract by agreement of the parties: The parties may agree at any time to terminate the contract early. Such agreement must be formalised in writing.
3. Early termination of the agreement unilaterally:
   • At the franchisor’s initiative:
     • The franchisee’s violation of the terms and conditions of the agreement (for example, non-payment of royalties, non-compliance with quality standards, use of the TM in ways not stipulated by the agreement).
     • The franchisee’s failure to fulfil its obligations.
     • Bankruptcy or liquidation of the franchisee.
     • Other grounds stipulated by the agreement or the law.
   • On the franchisee’s initiative:
     • The franchisor’s violation of the terms and conditions of the agreement (e.g. failure to provide necessary support, transfer of TM rights to third parties in the same territory).
     • The franchisor’s failure to fulfil its obligations.
     • Bankruptcy or liquidation of the franchisor.
     • Other grounds stipulated by the contract or the law.
4. Cancellation of a contract concluded for an indefinite term: If the contract has been concluded for an indefinite term, each party has the right to cancel it at any time by giving the other party a certain period of notice (usually six months, unless otherwise provided for in the contract).
5. Other grounds provided by law: For example, recognising the contract as invalid.

What should be stated in the contract about the terms of termination?

• Grounds for early termination: Clearly list all grounds on which each party has the right to terminate the contract unilaterally.
• Procedure for termination: Describe the procedure for terminating the contract (e.g. written notice, negotiation).
• Notice periods: Establish the time frame for the party initiating the termination to notify the other party.
• Consequences of termination: Define what happens to the TM rights after termination of the agreement (as a rule, the franchisee loses the right to use the TM), how financial issues are resolved (e.g., return of the unused part of the royalty), what happens to the goods labelled with the TM, etc.

Example of wording in a contract:

“This Agreement may be prematurely terminated at the initiative of the Rightholder in the event of:

1. Failure by the User to pay royalty within the terms established by this Agreement more than twice.
2. The User’s use of the Mark for goods and services in ways not provided for by this Agreement or outside the territory defined by this Agreement.
3. The User’s failure to comply with the quality standards of goods/services established by the Licensor, which is confirmed by the results of inspections carried out by the Licensor.

In case of early termination of the Agreement on the grounds stipulated by this clause, the Licensor sends a written notice to the User about the termination of the Agreement. The Agreement shall be deemed terminated from the date specified in the notice, but not earlier than 10 (ten) days from the date of sending the notice.

Upon termination of this Agreement, the User shall lose the right to use the Mark for goods and services and shall be obliged to stop using it in any way.”.

Clearly defining the terms of termination, for example, avoids uncertainty and protects the interests of both parties in the event of termination of the franchise relationship.

IV. State registration of the contract

You have prepared and signed the commercial concession agreement, settled all the issues concerning the use of the trade mark… But that’s not all! In order for the agreement to come into force and, so to speak, for the rights to the TM to be legally transferred to the franchisee, it is necessary to go through the procedure of state registration of the agreement in UKRNOIVI. It is like with the registration of marriage: until you register your relationship in the registry office, you are not considered spouses from the point of view of the law. It is the same with a contract: until it is registered in the UKRNOIVI, it has no legal effect with regard to the transfer of rights to the TM.

Subsection 4.1: Necessity of registration

The agreement on the transfer of rights to use a trade mark (including a commercial concession agreement, as well as a licence agreement) is subject to mandatory state registration with the Ukrainian National Office of Intellectual Property and Innovation (UKRNOIVI).

Why is registration mandatory?

• Legal validity: According to the Civil Code of Ukraine and the Law of Ukraine “On Protection of Rights to Marks for Goods and Services”, an agreement on the transfer of rights to use TM that is not registered with UKRNOIVI is considered invalid. In other words, it does not generate any legal consequences and the franchisee has no right to use the TM legally.
• Protection of rights: Registration of the agreement with UKRNOIVI protects the rights of both the franchisor and the franchisee. It is an official confirmation that the rights to the TM have been transferred and, for example, allows avoiding disputes on this issue in the future.
• Publicity: Information on the registration of the contract is entered into the State Register of Certificates of Ukraine for Marks for Goods and Services, which is open for access. This means that any person can check whether a certain entity has the right to use a certain TM.
• Possibility to dispose of rights: Only after the registration of the agreement, the franchisor may, if necessary, transfer the rights to the TM to other persons (e.g., enter into new commercial concession agreements).

Consequences of non-registration:

• Invalidity of the agreement: As already mentioned, an unregistered agreement is invalid.
• Risk for the franchisee: The franchisee who uses the TM on the basis of an unregistered agreement runs the risk of being prosecuted for illegal use of the TM (up to criminal liability).
• Risk for the franchisor: The franchisor will not be able to protect its rights to the TM in case of their infringement by the franchisee or third parties.

Remember: state registration of the agreement on the transfer of TM rights is not a formality, but a necessary condition for the agreement to be legally valid and for the TM rights to be, so to speak, securely protected.

V. Recommendations for concluding the agreement

Concluding a franchising agreement, especially in the part concerning the trade mark, is a responsible step that requires attention, thoroughness and, for example, knowledge of legal nuances. To help you avoid mistakes and ensure successful co-operation between franchisor and franchisee, we have prepared some practical recommendations:

1. Consult a qualified lawyer:A franchising agreement is a complex document that has many subtleties. Do not try to draw it up yourself if you do not have specialised knowledge. Contact a lawyer who specialises in intellectual property and franchising. He will help you
   • :To formulate all the terms of the agreement correctly.
   • To
   • take into account all your interests.
   • To avoid mistakes that may lead to negative consequences.
   • To carry out state registration of the agreement.
2. Carefully check all the terms of the contract:Do not sign the contract without reading it carefully. Make sure that all the terms of the contract are clear to you and that they are in your best interests. Pay particular attention to the following provisions:
   • Definition of TM.
   • Methods of use of TM
   • . Territory of use of TM.
   • Term of the contract.
   • Royalty payment terms.
   • Quality control.
   • Liability for infringement of TM rights
   • . Termination terms.
3. Clearly define all rights and obligations of the parties: The agreement should be as clear and unambiguous as possible. It should clearly define all rights and obligations of both the franchisor and the franchisee. This, in other words, will avoid misunderstandings and conflicts in the future.
4. Check the authority of the person signing the agreement: Make sure that the person signing the agreement on behalf of the franchisor or franchisee is authorised to do so.
5. Keep a copy of the agreement: After signing and registering the agreement, be sure to keep a copy in a safe place.
6. Don’t forget about state registration: Remember that the agreement on the transfer of rights to use TM comes into force only after its state registration in SCRNOVI.
7. Make changes if necessary: If in the course of co-operation it becomes necessary to make changes to the agreement (for example, to change the territory of use of the TM, the amount of royalties), this should be done by concluding an additional agreement to the agreement, which is also subject to state registration.

Compliance with these recommendations will help you conclude, so to speak, a legally competent and favourable franchising agreement, which will ensure successful and safe cooperation between the franchisor and the franchisee.

Conclusions

To summarise, it is safe to say that the proper execution of the franchise agreement, which includes a provision on the use of the trademark, is the key to successful and safe cooperation between the franchisor and the franchisee.

The trademark is, in other words, the key element of the franchise, which ensures its recognisability and consumer trust. That is why it is so important to clearly define in the contract all the terms and conditions of its use: methods of use, territory, term, terms of remuneration payment, quality control procedure, etc.

A commercial concession agreement is the main type of agreement that regulates franchising relations in Ukraine. It must be concluded in writing and is subject to mandatory state registration in the UKRNOIVI. Only after the registration of the agreement the franchisee receives the legal right to use the TM.

Do not forget about the importance of contacting a qualified lawyer when concluding a franchise agreement. This, for example, will help you avoid mistakes, take into account all your interests and ensure reliable legal protection of your business.

We also recommend you to read our article “Trade mark registration: a necessity for your business“ to see once again the importance of protecting your TM rights.