Post on 21-Aug-2020
transcript
“The IP Experts” 1
BY K. GEETHAKASS INTERNATIONAL SDN BHD
The Franchise Game
&Things You Need to Know
“The IP Experts” 2
What is a FRANCHISE?
It is, in fact, cloning a business
Franchisor’s Franchisee’s
business business
“The IP Experts” 3
Franchise business is regulated in Malaysia
and in many other countries.
Malaysian Franchise Act 1998
Does your business fall under MFA 1998?
“The IP Experts” 4
Distinguishing between franchising
and…
1. Licensing trademark
patent
industrial design
copyright
or a combination?
“The IP Experts” 5
Distinguishing between franchising
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
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Distinguishing between franchising
and…
3. Distribution agreements
One party distributes the products of
another party
Makes his by generating a profit
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Low
Low High
High
Risk
Agent
Distributor
Franchising
Joint Venture
Subsidiary
Control
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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.
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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)
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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.
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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
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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
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Franchisor
Advantages:
3. A smaller staff will mean fewer HR problems
4. Greater degree of operational consistency
Why a Franchise?
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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?
“The IP Experts” 15
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
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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?
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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?
“The IP Experts” 18
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?
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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?
“The IP Experts” 20
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
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What kind of IP rights exist in Franchises?
Trademarks
Industrial Designs
Patents
Copyright
Trade secret
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“The IP Experts”
TRADEMARKS
23 “The IP Experts”
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
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“The IP Experts”
Avoid trademarks that cannot be registered
Avoid descriptive words
Avoid generic words
Avoid laudatory words
TIPS on Trademark Selection
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Avoid common surnames
Avoid identical/similar marks
Avoid TLA (three letter acronyms)
MORE TIPS on Trademark Selection
26
“The IP Experts”
PATENTS
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Processes used in the franchise
(excluding business processes)
Products used in the franchise or sold by
the franchise
Improvements to products or processes
28
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Examples of patents in Franchises?
McDonald’s Soft Ice Cream Making Machine
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Examples of patents in Franchises?
KFC’s Deep Fat Frying Equipment and Method of Use
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INDUSTRIAL DESIGN
“The IP Experts”
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”
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Examples of designs in Franchises?
McDonald’s CupEU Reg No. 000025432-0001
KFC’s shop layoutEU Reg No. 000896618-0002
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Examples of designs in Franchises?
KFC’s bucketEU Reg No. 001763921-0001
“The IP Experts”
COPYRIGHT
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Artistic work
Literary work
Derivative work
Must be original and must be reduced to substance
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Examples of copyright in Franchises?
Menu cards
Packaging of products
Brochures/promotional materials/manuals
“The IP Experts”
TRADE SECRETS
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“The IP Experts”
Processes used in the franchise
Products/ingredients used in the franchise
Improvements to products or processes
39 “The IP Experts”
Colonel Sanders' "Original Recipe" of
11 herbs and spices
Coca Cola’s secret recipe is kept in a vault
in Atlanta
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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: geetha@kass.com.my