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Formalising franchise deals and registering IP rights

Written by Mekael Rahman on 19 December 2017

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A recent ruling by the Court of Appeal in London underscores the significance of formalising franchise agreements in writing and the importance of promptly registering any intellectual property (IP) rights a business may have.

Caspian Pizza, a restaurant business based in Birmingham claimed that a rival pizza restaurant with the same name that is situated in Worcester, had infringed its trade mark rights. The former restaurant claimed that both parties had entered into an oral franchise agreement in 2008. The effect of the agreement was that the rival Worcester-based restaurant could use the Caspian Pizza name in return for royalties payments. Furthermore, the Birmingham business had stated that in accordance with the agreement, “any goodwill generated by the use of the mark would be vested in or assigned” to it.

However, the agreement was terminated in 2013 after the Worcester business “refused to regularise the position by entering into a written agreement and failed to pay the royalties due”. The business in Birmingham consequently ended up filing a claim for trade mark infringement, but the Court of Appeal in its judgement deemed the trade marks to have been “invalidly registered”. This was due to the fact that the Worcester-based restaurant had obtained sufficient goodwill in its use of the Caspian Pizza name in the local area which predated the registrations. Additionally, the Birmingham restaurant’s evidence regarding the franchise agreement was previously rejected by the High Court.

David Woods of Pinsent Masons would aptly articulate that “[t]his case highlights the importance of formal written agreements – if a formal franchise agreement had been entered earlier in this case it would have documented the terms of such a deal and detailed any constraints under which the Worcester business was under over its use of the Caspian Pizza name”. Moreover, he would go on to elaborate that “[t]he case is also a reminder to businesses that they should seek to register any IP rights they have as soon as possible. Here, the Birmingham pizza businesses started using the Caspian Pizza name as early as 1991, but did not register that name as a trade mark until 2005. This was after the Worcester restaurant business had already acquired goodwill in its use of the signs”. 

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