Mark Vandegrift 
Welcome to the latest episode of the FranSimple podcast, where we make the concepts of franchising simple. On this episode, we continue our discussion with Sharon Toerek, trademark IP and marketing attorney from Legal and Creative. If you missed last week, you may want to start with part one too, as Sharon provides baseline tips and tricks regarding trademark and IP protection. We hope you enjoy today's episode and part two of our discussion on why trademark protection is a vital component of franchising. 

Mark Vandegrift
So what obligations does a franchisor have to monitor and protect its trademarks? What do they need to watch for once they've been received? 

Sharon Toerek
Right. Two things. It's one thing to... Three things. Sorry, lied. Three things. It's one thing to have done the due diligence and to have made the necessary filings to get yourself set up for protection. But before you get into market, you need to have a plan in place for monitoring the use of your brand. You wanna monitor the way your franchisees are using it to make certain that it's a solid representation of the brand as a whole. And you wanna monitor through any potential third party use of the market. So, if you learn of competitors, either because a franchise outlet tells you, you want to take fast action on that. You should have mechanisms in place for, you know, Google alerts and news alert setups and things like that to see other mentions of brands that might be similar or identical to yours in the same product categories and services. So, having a monitoring program. And it doesn't have to be super formal. It can be as simple as setting a few alerts and having a process for dealing with those. That's the third step. You can't sit on your rights as a trademark owner. You cannot learn of potential infringers out there, not take action on them, and then decide that you found a worse situation, you know, somewhere else and you really want to handle that one, but you didn't do anything about the first two that popped up on your radar. So, having done the due diligence is step one, the registration is step two. Step three is have a plan in place for monitoring. Step four is take action when you see a conflict or potential conflict out there. 

Steve Vandegrift
No matter how small or great. 

Sharon Toerek
No, and you know, there are levels of escalation of this, right? We don't have to be jerks about it if someone has done something innocently and they weren't aware of, you know, there's a different way to handle that situation than to handle somebody who, as a former employee of one of our franchisees and decided they were gonna steal all the keys to the castle and start their own dry cleaning business with a similar name. So you need to take action when you see any conflict out there with your brand and not be shy about doing that and make the situation with the appropriate amount obviously of action, but don't ignore it and or have a well-documented and strategic reason for not taking action if that's what you and your advisors decide to do.

Mark Vandegrift
You had mentioned I think. 

Steve Vandegrift
Go ahead. 

Mark Vandegrift
You had mentioned that it's important to know across the franchise system that the franchisees are using it correctly. How do you recommend that franchisors ensure the franchisees beyond the brand style guide and providing them marketing materials or even doing top-down marketing? How do you recommend that franchisors kind of police the use of their trademarks? 

Sharon Toerek
Well, you have a couple of levers. One is we want to see your marketing and advertising materials on a regular schedule. We want to see what you've been releasing. We want to know when you're releasing it. And we're going to do our own look and check to see that it's meeting our brand standards. Next, we're going to be providing you with best practices that reflect our standards. And if our standards have changed or evolved, we're going to make sure that we're timely informing you and giving you examples of how to do it right. And then I think third, a lot of training, right? A lot of ongoing education. I don't think brand management from a franchise, a franchisor's perspective should be a one-time set and forget situation. And I'd remind you, you know, any potential franchisee that a typical component of the relationship is you're going to be contributing and usually required to contribute financially to an advertising or marketing fund that is for the good of many, not just yourself. And so the franchisor has a lot of discretion over, you know, how to mobilize and utilize those funds and, and someone who's not acting in the best interests of the entire network of franchise businesses, you know, there's some levers there to pull in terms of how they get access to that budget. So be proactive, be educational, check in frequently, and remember that, you know, you're pooling advertising funds from your franchisees for a reason. 

Mark Vandegrift
That brings up a good point about licensing trademarks through franchise agreements. A lot of times as you use the word evolve, companies, franchisors will develop new products that they get trademarked and then they introduce to their franchise system. How are those typically licensed to start and then how do they evolve over time through the franchise agreement? 

Sharon Toerek
So the franchise agreement and its inception will typically allow for expansion into other licensed brands, products, services. And so to the extent you know that's a possibility, you have to build that accordion in to the franchise agreement. I think it's good for everybody to remember that ultimately a franchise relationship is nothing more from a legal perspective than a set of licenses. That is what it is. Whether you're licensing trademarks or you're a licensing copyright protected documentation, or you're licensing trade secret protected business secrets, it's all IP. It is a set and system of licenses. And those licenses can expand and contract and they can also be updated and amended. So no franchise agreement is permanent. They all have some term in them. And so using those as benchmarks for when to maybe expand your documentation involving the IP is important to do as well as a franchiser. 

Steve Vandegrift
That's very true. And it's interesting, Sharon, I want to ask this question. I obviously know the answer, but we've had clients in the past that thought when we talked to them about certain rules of using the trade name and recommending that they not allow their trade name to be part of a franchisee's corporate name. Would you just talk briefly on that because they're always surprised that we're not for that because of the confusion it can create in the marketplace? What's your thoughts? 

Sharon Toerek
No, I 100 % agree with you. It is bad practice from, for lots of legal reasons, trademark only being one of them, to enable your franchisees to include any part of the franchisor's branding or corporate names into their legal name because it's very difficult to compel any change of a legal entity name once the franchise relationship is broken. And so, you know, if you are a FranSource nationwide, letting your franchisee be FranSource of Kentucky LLC. It's not a good strategy, legally for either party actually, but it much worse for the franchisor so don't do it. 

Steve Vandegrift
Yes. Yes. And I think that's a great point there because it seems to make sense to them. Your extension was perfect. FranceSource of Kentucky. Why can't we do that? And I think you really address that question well. Thank you. 

Mark Vandegrift
So let's, let's assume that there is a trademark infringement within the franchise system. What types of infringements are you seeing most commonly that a franchisor has to address?

Sharon Toerek 
I'm more likely to be contacted about a conflict between the name of a product or a service that the franchisor offers and something that someone else has introduced into the market that sounds confusingly similar. That's probably scenario one. Scenario two is just another business that looks and feels the same from a from a brand perspective in the look and feel of it. So, it might not be the name specifically. It might be the other visual components of the branding, which can be parts of the trademark. Same colors, similar logos and graphics, different name. Or it may be, you know, people try to be creative in numbers. I've seen it all over the years. Well, let's just change some spelling. That'll give us a fresh start. So it's things like that, Mark. It's either we change some, but not all the components of the brand. And we think that's enough so that it's different and unique. And it isn't, and it's still confusing people. And one of the best things for franchisors to ask their franchisees to keep track of is how many phone calls or emails or social media pings did you get from a potential customer or a consumer thinking you were fill in the blank, this other business. Because that's a hallmark of confusion being caused and it's being caused for a reason, possibly because of trademark infringement. 

Steve Vandegrift
And to that point then, Sharon, would you just discuss, obviously we talked to clients about word only marks and then obviously trademark on their logo. Would you just briefly explain why that is important, especially when it comes to the logo? They feel like, I have the word only mark. Why do I need anything else? 

Sharon Toerek
Right. Well, I mean, a trademark, a protectable trademark can be a word, a combination of words, a symbol, a logo, a sound. There are definitely sonic trademarks for sure. Any combination of those things that identify a source, that are a source identifier. So in other words, a trademark can be anything that lets a buyer know that a particular seller is offering something for sale. And so it's just as important to protect. Now we triage this sometimes. I'm going to be candid with you. Sometimes it's more important to a business owner, trademark owner, that the name not be replicated. So that's what we call the literal element of a trademark. The words. But over time, as you develop a corporate identity, a brand identity, the other components of it become just as important. And also, in terms of the value of the franchised business, the larger portfolio of IP that you have, the more valuable you become over time. I've seen this time and time again. So it's not only about protection in the marketplace of the various visual and verbal components of your brand, but it is about generating a larger portfolio of intellectual property, trademarks, copyrights, other things that make your business more valuable and harder to penetrate and harder to compete with in the marketplace. This is the beauty of a franchise is it gets over time bigger and stronger. The more thing, if it's well run, more, the more IP it generates, the harder it gets to compete with and the more valuable each of the components of it are from a dollars and cents standpoint. 

Mark Vandegrift
Very good. That makes a lot of sense. You brought up copyrights, which could easily take us another hour. So maybe one day we'll have you back to talk about that. But that seems to be a more common mark that's thrown onto things where the actual process is not followed through. In other words, we throw a copyright on a website. We throw a copyright on an operations manual. Speak to that a little bit and really help educate our listeners as to exactly what process they need to take if they are going to throw the copyright line at the bottom of a footer or on their operations manual. 

Sharon Toerek
All right. Well, a copyright protects some original and tangible expression of whatever unique thing you're talking about. And by that, I mean let's give a couple examples. A copyright doesn't protect an idea, so it doesn't protect your SOPs in your business. It does protect the written manual in which those SOPs are expressed. Now, protecting something via an actual copyright registration can be a double edged sword in the franchise world because a lot of the time, the things you want reflected in those manuals, those processes, those handbooks, things like that. That's your secret sauce. So really you want trade secret protection for it. So here's your two or three part strategy for making sure you're using all the right tactics. You put your copyright notice on all those written documents, on all those videos, on your website. Really simple. Year of creation, name of copyright owner. You register copyright with the United States Copyright Office in any assets that will be publicly facing. So your website perhaps. If your menus as a restaurant are cool and original looking and you don't want anybody replicating them, but anybody can get one because they can come to your place and pick one up and maybe not return it at the hostess desk. Those things you might want to focus on actually achieving copyright registration for because there are some benefits and abilities to capture damages if somebody infringes a registered copyright. So there is a system of protections around all of your content. But remember, it doesn't protect anything that you're just verbally talking about. It's only some written or visual or video or audio expression of your intelligence that is protectable under any IP law. And the other way you protect it is in your franchise agreement. There's a big fat confidentiality and trade secret clause in every single offering document and also franchise agreement that you sign. And that is why they are there because there's some IP that doesn't get protected by registering it. It gets protected by being maintained as secret.

Mark Vandegrift 
Very good. And then for those that work, let's say it's a restaurant and you have waiters and waitresses and hostesses and cooks and everything else that it's very important for that franchise system to insist on local confidentiality agreements that are built into the employment agreement I would assume. Is that correct? 

Sharon Toerek
That is very correct. Do you want I mean there are state laws differ obviously especially when it comes to fair competition covenants that are not confidentiality related, but most states are in harmony around the ability to require an employee to maintain confidentiality around business secrets and details. So as a franchisor, you want to require that your franchisee outlets are implementing these. You may want to do a spot check every once in a while if you're auditing some of their other documents to make sure they're doing this with regularity. And in the states where non-solicitation is enforced, that's a good thing to be checking in with your franchisees about or requiring that they get local counsel around to see whether it's enforceable in their states to have an agreement from employees not to solicit their customers after they leave for a certain amount of time. I'm not gonna get into non-competes because they're highly disfavored in most states now and so, and it would take another hour for us to get into the dynamics of that.

Steve Vandegrift
So we have a third segment coming. 

Sharon Toerek
But yeah, to answer your question, you know, in a word, yes, Mark, it's important that franchisors check in with their franchisees about their practices there and ask them to expect confidentiality representations in writing from the people that work for them. 

Steve Vandegrift
And receive a copy of all of those, right? 

Sharon Toerek
Yeah, I mean, that's best practice. But even if you haven't regularly checked in with them to make sure you're getting copies, requiring it as a rule of being in the franchise network is important.

Mark Vandegrift 
Very good. Well, thank you very much, Sharon, for joining us. We really appreciate your time and we'll have you back again soon. I'm sure we can dive into a lot of different topics and we appreciate that. 

Sharon Toerek
It's been a joy to talk with you both as you both know, I'm an IP nerd from the word go and I love talking about it and I love seeing entrepreneurial companies leverage IP to do good and to do well. So I'm always happy to have the conversation. Thanks for letting me join you both today. 

Steve Vandegrift
It's been great.

Mark Vandegrift
Yeah. Well, thank you for joining the FranSimple Podcast. We appreciate our listeners for joining us today. And we ask that you like, share, subscribe and make sure you subscribe, subscribe, subscribe. Tell your friends about the FranSimple Podcast. And until next time, have an amazing day.