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Franchising of fashion brands and the role of trademarks

October 08, 2021
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This is written by Romina Virjee, pursuing a Diploma in Intellectual Property, Media, and Entertainment laws from lawsikho. This article has been edited by Dhruv Shah (associate, lawsikho) and by Ruchika Mohapatra  (associate, lawsikho).

Introduction

Strategies for launching a new fashion brand revolve around building its online presence as well as physical retail establishments. The brand broadens its horizon locally, nationally, and eventually worldwide. Hence, protecting the intellectual property of the brand is of utmost importance even before launching the brand in the market.

The intellectual property associated with establishing a  fashion brand includes registration of its trade name i.e. trademark, which eventually gains a reputation as the brand. Registration of a trademark with a local government body gives the brand statutory protection against any other party using identical or similar marks for selling similar goods or services as the registered brand. Trademarks are words, symbols, logos, and phrases used by a manufacturer to distinguish his products from that of others and thus, create a brand image in the mind of the consumers. For a  fashion brand, it is crucial that the designs, logos, styling of merchandise, slogans, etc be copyrighted or registered under design patent such that to protect the brand statutorily. A franchise agreement involves the temporary transfer of marketing rights and the right to use its trademark and logos from the franchisor to the franchisee. The growth in terms of mass outreach of a brand depends on its availability and accessibility in terms of procuring its merchandise easily.  For this purpose, either the brand owner prefers to franchise his brand to other franchisees or launches his own retail outlets. The former is the most viable option for any brand owner in terms of mass outreach and gaining profits from the royalty of the brand itself.

Franchising of a fashion brand

Franchising a brand involves temporarily assigning the trademark of a brand to the franchisee for carrying on business and selling the branded merchandise in return for royalty and/or profits. The franchise owner guides the franchisee from scratch and trains him right from designing the store to providing him merchandise knowledge and training his staff for an appropriate customer approach. Many fashion brands like Zara, H & M, Forever 21, GAP, etc have franchise outlets worldwide due to which their brand has global outreach. Such trademarks are also known as well-known trademarks since their business has grown fourfold due to global presence.

Any franchise agreement includes brand control, consistency, and IP protection under the agreement. It is important to protect the brand, its business model, and the right to use its IP under the agreement to avoid misuse of the brand name. In this article, the author has shared the top five tips for fashion brands to expand globally.

Protect the intellectual property of your brand

Your brand reflects the value you put into its manufacturing and design. Hence, protecting your imagination and design through various IP aspects becomes important since the merchandise of successful brands is invariably duplicated. To safeguard your brand and its business, it is essential to look into various IP rights that can be sought not just regionally but also internationally. 

Plan expansion into local territories and international nations

Expanding your brand via franchising is a great way to achieve global outreach in a short span of time. However, it is critical to analyse franchising and commercial laws of each country depending on the location of expansion. Franchise rights granted to a franchisee for a particular territory should be evaluated in terms of restricted agreement only for that particular territory or he should be given unrestricted rights over many territories such that his investment can be recovered in a short duration. Also giving one person or one company larger territorial rights shall ensure lesser risk to the brand image and shall ensure smooth functioning of the expansion plan.    

Structure the franchise

Understanding the entire sourcing and manufacturing of the merchandise is critical to give structure to the franchise. A quality control monitoring system is of utmost importance to maintain the quality of products sold under your brand. Hence, structuring the franchise is important, in a way that the quality of your merchandise is maintained even if they are manufactured locally as per territorial needs. Laws of the land play a vital role in devising techniques to maintain the quality of the merchandise as well.

Prepare franchise offer

The next step to expand into the international market is to tap prospective franchisees who would be interested in your brand. For this purpose, it is essential for your brand to gain reputation and popularity regionally and for the business turnover to be captivating enough so as to lure the franchisees. It is also essential to establish a pack of information or product portfolios for prospective franchisees that shall hold primary information on various products sold under the brand, present retail outlets, customer reviews, e-commerce outreach, etc. Franchise offer should be an overview of how the brand merchandise can be made popular amongst international consumers. It must look lucrative to any franchisee wanting to be associated with your brand.

Understand commercial terms and conditions 

Finally, when a franchisee is interested in investing in your brand, you should understand the commercial terms of the franchise agreement based on the laws of the land. Every county has different laws with respect to franchising. Before signing any international contract, it is crucial to evaluate the final terms of allocation between the two parties. The franchise agreement should be water-tight with respect to payment terms, legal obligations, and marketing rights. Eventually, a franchise agreement assures brand protection and profitability of the brand for the franchisor and franchisee respectfully.

Role of trademarks for fashion brands

Franchising and trademarks are two sides of the same coin. It is pivotal for any brand to register its trade name i.e. trademark such that no other person can sell its goods under his trademark. Registering a trademark shall grant the sole statutory right to the brand owner to market or sell its merchandise under his brand name thus avoiding competition from other traders using deceptively similar or identical brand names. Consumers seldom relate the brand to the quality and usability of the products sold under the brand. Any branded product of the same quality shall have a higher market price than a non-branded product of the exact same quality. For example, denim brands like Levis and Pepe Jeans are popular amongst college-going consumers as compared to locally made non-branded denim. Indian Fashion brands like Sabyasachi, Manish Malhotra, Ritu Kumar, Neeta Lulla especially selling bridal wear fall in the luxury category as their bridal lehengas are sold at exorbitant prices as compared to customized replicas of the same brand. Hence, any new business that grows at the national and international level requires some degree of Intellectual Property protection to protect its merchandise from replicating in the market thus, disturbing the brand image and net worth. Registration of brand under trademark becomes of extreme importance to such brand owners where none other than the owner of a trademark can use the brand to market or sell similar merchandise as that of the brand. A trademark brings value to the brand in terms of exclusivity of use for selling or marketing certain goods/services under the brand name.    

Territorial rights under trademarks

Trademark is a territorial right meaning if a brand is registered only in one country it enjoys protection only in that country. Hence, start-ups usually trademark their brand in their jurisdiction first and as they grow their presence in different countries, they eventually register their brand in those countries too. Well-known marks usually register their brand in all countries and in all classes such that they are well protected in all countries. When any local brand grows internationally, it is important for it to have its brand registered in that country because the viability of franchising the brand increases thus relieving the owner of the brand to the self-acquired business establishment in an international setup. It is always easier to promote a brand internationally via a franchise agreement than to self-acquired the business on international land. The biggest example of trademark territorial rights is that of ‘BURGER KING’ in Australia. A small restaurant with the registered trademark ‘BURGER KING’ already existed in Australia before the US brand could acquire its consumer market. Hence, the US brand ‘BURGER KING’ in Australia was marketed under the brand ‘HUNGRY JACK’S.’ Under Section 34 of the Trademarks Act 1999, the doctrine of prior user is clearly mentioned as territorial operation i.e within the territory of India except in the case of cross border reputation where a brand or trademark registered in another region or country has acquired reputation and goodwill in India without being registered in India.

Case laws

Alfred Dunhill Ltd v Kartar Singh Makkar 

In this case, it is well settled that a passing-off action would lie even if the plaintiff is not manufacturing or producing in this country any goods similar to that of the defendants. Assuming, for the sake of argument that, textile articles manufactured by the plaintiff are not available for sale in India. Yet the plaintiff company is entitled to protect its global reputation, image, name, fame, and goodwill as the goodwill or image or reputation of goods and services does not depend upon its availability in a particular country. It was held that trans border reputation of the trademark and trade name DUNHILL has been established in this country by means of the fact that plaintiff’s products are available in duty-free shops in India, by the fact that advertisement of plaintiff’s goods under the trademark and trade name DUNHILL are to be found in various magazines like the Newsweek, Time and the Asia Magazine, which are freely available in India. It can safely be inferred that the plaintiff’s trademark and trade name DUNHILL have a live reputation in this country.

Lifestyle Equities & Anor v Amazon UK Services Limited & Ors 

Justice Green said: “In my judgment, it is plain that both Amazon.com and the BHPC listings on it are not targeted at the UK/EU consumer. Such a consumer knows full well that they are viewing or shopping on the Amazon website that is primarily directed at US consumers.” He said that the tension between the territoriality of trademark rights and the global nature of the internet is something that businesses and brands have to live with. “Where there is the split ownership of the brand as in this case, it is not possible or justified to split the accessibility of information on the internet and deprive consumers of information to which they are otherwise entitled,” he said.

Conclusion

The global consumer market is now accessible from any region or territory through e-commerce and hence registration of trademarks have gained momentum in terms of building brand value, brand presence, and net worth. Fashion brands are acquiring global markets rapidly and creating reputation and goodwill amongst consumers on a large scale. The internet has made it possible to compare international brands with a click of a button. Social media reputation also has a greater impact on the minds of the consumers. In such scenarios, it is of utmost importance for a brand to carve a niche for itself by registering its trademark worldwide to avoid the competition of any kind.

References

  1. https://www.mondaq.com/uk/franchising/366436/international-franchising-in-the-fashion-industry–top-five-tips-for-growing-overseas
  2. https://www.trademarknow.com/blog-essentials/the-role-of-trademarks-in-franchising
  3. https://www.dentons.com/en/insights/alerts/2015/january/13/international-franchising-in-the-fashion-industry?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration
  4. https://www.franchiselawsolutions.com/franchising/trademarks/
  5. http://fashionpro.me/top-10-indian-bridal-wear-designers/
  6. https://www.cbc.ca/radio/undertheinfluence/why-it-s-hard-to-find-a-burger-king-in-australia-1.5469678
  7. https://www.lexology.com/library/detail.aspx?g=ecaf4f7c-9e9d-4395-8e96-ddfebf0445d5

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