The Trademark and the Franchising Contract
"THE TRADEMARK AS A PRIVATE INDUSTRIAL PROPERTY RIGHT IS THE CORNERSTONE OF THE FRANCHISING CONTRACT"
More than the remunerated authorisation by the franchiser of a business concept, in particular the respective know-how, the franchise is in fact based on a trademark, as a distinctive commercial sign, which the franchisee can use in accordance with the terms of the respective franchising contract.
Since this is the fundamental core of the contract, it is essential that the franchisee confirm not only whether the trademark is protected, through the competent registration (which in Portugal is constitutive of the trademark right), but also that it is fully and currently in force.
This is because if no trademark protection exists by means of its registration, the position of the franchisee is clearly weakened with regard both to the possibility of a third party having prior rights in the distinctive sign in question and to possible trademark infringements against which no efficient action can be taken.
This means that in the negotiations for a franchising contract, namely when analysing a possible franchise offer circular (in which the franchiser lays down the relevant contractual conditions), the franchisee should ensure that the trademark on which the contract is based is duly and effectively protected.
Three types of trademark protection are available (national, international and Community registrations) and it is therefore necessary first of all to consider the territorial scope of the trademark right and obviously to confirm whether it is protected in the country or countries to be covered by the franchising contract. The trademark registration should be consolidated, i.e. result from an administrative decision of grant (issued in the case of Portugal by the Industrial Property Office), and it must not have been judicially challenged, or if it has been, a final judicial decision of grant should exist.
Naturally, it is not advisable to enter into a franchising contract based on mere trademark applications (i.e. trademarks at an administrative phase prior to grant) or trademark registrations regarding which the grant decision is undergoing a judicial challenge through appeal proceedings.
Once the existence of a consolidated registration has been confirmed (proof of which is provided by means of a certificate issued by the entity that granted it), it is necessary to ascertain whether the registration is valid and in force. In fact, as well as the fact that the maintenance of a trademark registration requires the payment of periodic renewal fees, it is important to determine the use status of the trademark because if a trademark is not used during a period of five consecutive years, the respective registration becomes vulnerable to a revocation action.
These are the various preventive measures which a potential franchisee is advised to take in order to ensure that the trademark on which the franchising contract is to be based is a consolidated and valid right, and they are measures which can naturally be duly provided by specialised professionals in the field.