The Franchise Game What is a FRANCHISE Things You Need to ... · “The IP Experts” 10 Malaysia...

“The IP Experts” 1

BY K. GEETHAKASS INTERNATIONAL SDN BHD

The Franchise Game

&Things You Need to Know


What is a FRANCHISE?

It is, in fact, cloning a business

Franchisor’s Franchisee’s

business business


Franchise business is regulated in Malaysia

and in many other countries.

Malaysian Franchise Act 1998

Does your business fall under MFA 1998?


Distinguishing between franchising

and…

1. Licensing trademark

patent

industrial design

copyright

or a combination?



and…

2. Agency

Principal Agent

Agent acting for and on behalf of Principal

(e.g. Insurance Agents, Sales Agent)

Agent makes his

on commission on sales generated



and…

3. Distribution agreements

One party distributes the products of

another party

Makes his by generating a profit


Low

Low High

High

Risk

Agent

Distributor

Franchising

Joint Venture

Subsidiary

Control


Franchising

One party adopts the successful business

model of another under terms and

conditions

It is an adoption of sum total of IP Rights,

Trade Secrets, Know-how, Business

Strategies, Business Method, Price List,

etc.


Common Features

Upfront franchise rights payment

Periodic payment, often based on sales

volume subject to guaranteed minimum

amount

Condition to buy equipment, raw materials

parts, etc from franchisor or his nominee

(tie-in clauses)


Malaysia Franchise Act 1998

Enacted to “baby-sit” local potential

franchisees

1. For any sale of franchise within the country;

offer of sale or purchase of a franchise is

conducted in Malaysia and accepted either

in or outside the country; and the business

franchised will be carried out IN the country.


2. Procedure for registration of franchise

business by a franchisor

3. Details on franchise agreements / contracts

4. Parties’ conduct and the termination of the

franchise agreement / contract

5. Offences and penalties

6. Enforcement of Act

Malaysia Franchise Act 1998


Why a Franchise?

Franchisor

Advantages:

1. Allows for the increase of number of outlets with

minimum capital outlay

– Accelerates the network’s growth & profitability

2. Self-employed franchisees are generally more

motivated or committed – better results for less

expenditure of capital than salaried managers

– Research in UK showed franchised outlet generated

up to 40% higher level of sales than a managed

outlet


Franchisor

Advantages:

3. A smaller staff will mean fewer HR problems

4. Greater degree of operational consistency

Why a Franchise?


Franchisor

Disadvantages:1. Franchisor has to control and co-ordinate a network of

semi-independent businessmen and ensure that they build and maintain a favorable image for the whole franchised operation

– Franchisor’s own role changes

2. Policing and monitoring of standards by the franchisor is vital

– At times can be difficult

– Use of “carrot and stick” to obtain desired performance

Why a Franchise?


Why a Franchise?

Franchisor

Disadvantages:

3. Ensuring franchisees do not under report their

turnover is a major task

– Proper auditing of operations

4. Lack of trust, control

– Relationship challenges


Advantages:

1. Franchisee is owner of its own business and owns

tangible assets

2. Subject to conditions, can sell its business (to

franchisor or to third party)

3. Franchisee learns business model

- Can to a limited extent start a business adopting

the same model;

e.g. local fast food chains, hotel chains

FranchiSEE

Why a Franchise?


Advantages:

4. Chances of failure are small

- In UK over 25% of ordinary business fail but less

than 5% of franchised outlets fail!

5. Short learning curve

6. Enjoy International, National or Regional Promotions /

Advertising campaigns

FranchiSEE

Why a Franchise?


MORE Advantages!!!

7. Financing is easier – banks more willing to lend money

to a known brand

8. Relationships with suppliers have been established –

can get discounts not usually offered to newcomers

FranchiSEE

Why a Franchise?


Disadvantages:

1. Franchisee is NOT totally independent

– Has to take instructions from franchisor

2. Franchisee does NOT own goodwill

3. Lower risk is off-set by lower reward for success

FranchiSEE

Why a Franchise?


MORE Disadvantages:

4. Costs may be higher than expected – franchise fee,

royalty, marketing contribution, product cost,

equipment cost

5. Other franchisee’s bad antics will reflect on entire

brand including your unit franchise

6. High start-up costs -no gradual build up. But instant

start-up

FranchiSEE

Why a Franchise?

“The IP Experts”

Role of IP in Franchises

Gives a USP to the franchise

Makes the franchise stand out from others

in the industry

Allows for premium pricing

Business cannot be replicated

Monopoly owned by franchisor for a period

of time

21 “The IP Experts”

What kind of IP rights exist in Franchises?

Trademarks

Industrial Designs

Patents

Copyright

Trade secret

22


TRADEMARKS


TRADEMARK

THE CHICKEN RICE SHOP

SOCK SHOP

SECRET RECIPE

THE FACE SHOP

PRODUCTS/SERVICES

- Selling CHICKEN RICE

- Selling SOCKS

- Restaurant using recipes

- Selling facial care products

24


Avoid trademarks that cannot be registered

Avoid descriptive words

Avoid generic words

Avoid laudatory words

TIPS on Trademark Selection


Avoid common surnames

Avoid identical/similar marks

Avoid TLA (three letter acronyms)

MORE TIPS on Trademark Selection

26


PATENTS


Processes used in the franchise

(excluding business processes)

Products used in the franchise or sold by

the franchise

Improvements to products or processes

28


Examples of patents in Franchises?

McDonald’s Soft Ice Cream Making Machine


Examples of patents in Franchises?

KFC’s Deep Fat Frying Equipment and Method of Use


INDUSTRIAL DESIGN


Shapes (2D and 3D)

Configurations

Patterns

Ornaments

applied by an industrial process to an article used in the franchise

• Features must appeal to the eye (visual or aesthetic design)

• Features cannot be functional

32“The IP Experts”


Examples of designs in Franchises?

McDonald’s CupEU Reg No. 000025432-0001

KFC’s shop layoutEU Reg No. 000896618-0002


Examples of designs in Franchises?

KFC’s bucketEU Reg No. 001763921-0001


COPYRIGHT


Artistic work

Literary work

Derivative work

Must be original and must be reduced to substance

36


Examples of copyright in Franchises?

Menu cards

Packaging of products

Brochures/promotional materials/manuals


TRADE SECRETS

38


Processes used in the franchise

Products/ingredients used in the franchise

Improvements to products or processes


Colonel Sanders' "Original Recipe" of

11 herbs and spices

Coca Cola’s secret recipe is kept in a vault

in Atlanta

40

Examples of trade secret in Franchises?

“The IP Experts” “The IP Experts” 42

THANK YOU

K. GeethaTel: 03 2284 7872Fax: 03 2284 1125

E-mail: [email protected]

The Franchise Game What is a FRANCHISE Things You Need to ... · “The IP Experts” 10 Malaysia...

Documents

Transcript of The Franchise Game What is a FRANCHISE Things You Need to ... · “The IP Experts” 10 Malaysia...