Intellectual Property Protection For Start-Up To Franchised Business

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The different types of intellectual property protection that a business can apply for regardless whether your business is a start up or a franchise.

The different types of intellectual property protection that a business can apply for regardless at which stage your business is – start up or franchise.

From an Acorn to an Oak Tree

55 years ago the McDonald’s® burger business started as a single store in Des Plaines, IIinois, USA. Now it has 32,000 outlets spread out in 117 countries, with a turnover of US$16.6 billion from the years 2007 through 2009. Similarly the Starbucks Coffee chain started in Seattle, Washington in 1971. Now it has over 17,000 outlets in 55 countries, with an annual turnover exceeding US$9.77 billion in 2009. Then we have the home-grown franchised outlets. Secret Recipe® café started its first business in 1997. Now the chain has over 100 outlets in Malaysia, Singapore, Indonesia, Australia, Philippines, Brunei, Pakistan and China and is still growing. Nelson’s® corn started in 1995 with one outlet and now it has 800 outlets in Malaysia, the Middle East, China, USA, Germany, Russia, Sweden, Bulgaria and Brunei.

How did these single stand-alone stores dealing with common non-sophisticated products grow into multinational business operations? This article discusses how the strategic exploitation of Intellectual Property Rights plays a critical role in the transformation of a stand-alone business into a multinational business.

Unique Factors that Attract Customers

When a business located at one place is successful, there will be a tendency or an urge for the founder (who will often be “chief executive officer”) to expand the business further in other locations. The business can expand into other locations by one or more of several ways – by way of branches, by way of joint-ventures (joint-ownership) of business and by way of franchises. But to retain the uniqueness of the business that attracts repeated customers, the founder-owner has to first identify the features of his/her business that continue to attract customers. It is these unique features that have to be repeated in other locations. In the food and beverage business, is it the quality/taste of the food/drinks served? Is it the nature and quality of the customer service? Is it the facilities at the outlet? Or are there some other special factors?

Standardization of Features

Whatever it is, the founder has to carefully identify and standardize the unique features. These features need to be documented as an operation manual. In the next location, whether it is operated as a branch, joint-venture or franchise, it is the exact implementation of what is contained in the operation manual that will greatly determine the success or otherwise of the new location. As every businessman knows, if a business is successful there are bound to copycats, “me-too” products or identical business models. For example, following the business success of Starbucks®, there are several coffee chains with a similar style of operations, albeit differentiated in minor ways. In Malaysia, someone decided to give a modern lifestyle twist to the traditional “kopitiam” business. The business model was successful, and we now see several “xxx town” coffee outlets. This happens in all businesses without exceptions.

Claiming Uniqueness as Property Rights

So how can the founder of a unique business ensure his/her uniqueness is not copied or adopted? This is where Intellectual Property Rights come to his/her support. Firstly, the trade name of the business should be registered as a trademark. There may be more than one trademark or more than one registration. For instance, a food and beverage business needs to register the business name as a trademark (for service). If it also sells takeaway food, then it is advisable to register the mark for food and beverage products as well. Such registrations of the business name and trademark will give the owner exclusive rights to the mark in respect of the business name and the products it sells. No one can use an identical or substantially similar mark for the same type of business or products – not even ex-partners, shareholders, ex-employees, suppliers, etc. It is the trademark that identifies the business to the public so it is very critical that the founder registers the trademark as soon as possible. It is not expensive to register the mark. However, it is important that serious attention is given to the selection of a trademark. A mark that is very descriptive of the business would not give novel protection. If you are selling “char koay teow”, it is of little use to call your business “The Char Koay Teow Shop” as other traders trading in that food would have every legal right to call their food by those words. How else would they call their product? Similarly if you are operating a hair saloon business, selecting “Modern Hair Saloon” as a tradename would not be advisable as well, as all other hair saloons would describe their business as modern hair saloons and would be legally entitled to do so. Small businesses are strongly advised to seek professional assistance from trademark specialists who will be able to advise on the selection of appropriate trademarks and business taglines, and registration of trademarks.

Trade Dress / Corporate Identity

Next, the “trade dress” of the business should be kept consistent in all the outlets. Trade dress would encompass features such as the ambience of the outlet, colour scheme of outlet, “cultural” elements, type of music played, even the colour of the floor – in fact, any aspect of the outlet that gives a customer a unique experience. Other aspects of the trade dress would include the style/uniform of the staff, the design of the price list sheet (menu cards), cutlery, chains, etc. So when a customer, after visiting one outlet, visits an outlet of a competitor, he should not be confused or deceived as to which outlet he is patronizing.

Trade Secret / Confidential Information

Another important business asset that must be protected is Trade Secret (also referred to as “confidential information”, “trade know-how”, “secret formula”, etc). A trade secret would refer to any information or aspect of business that is not publicly known or that which is not easily accessible. In the food and beverage business, trade secrets would include food/drink recipes, supplier list, customer list, customer demographics, sales pattern variations on a weekly, monthly or annual basis, pricing policy, staff remuneration package, etc. All trade secrets and documents containing trade secrets should be scrupulously managed as trade secrets. Unless it can be shown that the leaked information was a trade secret, the Courts would not give protection to that information. Trade secrets must be managed with great discipline, such as information is given to others on a need-to-know basis (that too only such information that is needed to carry out a specific task). Merely marking all files or documents as “Trade Secret” or “Confidential” is not sufficient if there is no control as who has access to these files. Merely depending on copyright protection is not sufficient. The “operation manual” should be handled as a trade secret and not as copyrighted material.

Copyright

Copyright protection only prevents others from reproducing the document. It does not prevent others from using the information or re-writing the information using their own words. All published information would be in the public domain and anyone can use the information freely.

Industrial Designs Right / Patents

If the business has uniquely designed items such as tables, chairs, counters, cutlery, or other equipment, then attempts should be made to acquire Industrial Design Rights, or Patent Rights. Such statutory rights give the owner exclusive rights and the right to sue any others who use the same design or patented product or process. Such exclusively designed products can be done by the business or can be commissioned to others. The owner has to ensure that the rights are registered under his name or his business.

Audit of Standards

As customers of the original or first outlet would like to have the same experience when they patronize any subsequent outlets, it is vitally important that quality and standards be maintained. Different outlets cannot have different quality of products, service, ambience, etc. All the different touch points a customer experiences must be consistent. A cup of coffee in one fast food outlet must taste the same in a different outlet of the same franchise. If customers are promised that they would be attended to within, say, 5 minutes of taking a queue number, then that promise must be fulfilled in all the outlets. In this respect it is important the franchisor or the business owner conduct regular unannounced quality audit checks anonymously. Often market survey firms or quality management firms are employed to conduct anonymous quality audits against established quality criteria.

Periodic unannounced quality audits helps to keep all outlets “on their toes”. Customers can expect the same quality of product and services. Neglect in this important aspect is the start of collapse of branches, franchisers and joint-ventures.

Conclusion

The operation of one outlet by an owner, who is often the technical man on the job and the manager of the business, is easy as compared to the involvement of the three functions to different persons. The technical aspects of the business must be standardized, and preferably recorded in operating manuals. The outlets need to be professionally managed by the managers, who often may also be the owners of the business or the outlet. As the business grows, or the number of outlets multiply, it is often necessary to engage professional advisors who not only ensure that quality and standards are maintained, but also ensure the efficiency of operations in its total branches / franchise network. Such measures would also contribute to unit cost reduction – thus keeping away newcomers. Source identifiers, such as trademarks, trade names, patent and industrial design rights, confidential information and all intellectual property rights should be managed and enforced against any infringers.

If you are interested to apply for trademark protection or to learn more about protecting your intellectual property (IP) please visit our partner, KASS, a leading Southeast Asian IP boutique firm.

This article is written by P. Kandiah, the Director of KASS International and is reproduced with permission.

The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.

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