Franchise Questions

Should you allow franchisees to use your trademark in their corporate name?

One question that frequently comes up is whether franchisors should allow franchisees to use the franchise’s trademark in their corporate names. Suppose your franchise’s trademark is Good Business. It would only make sense that your Denver franchisee would want to use the name Good Business of Denver, LLC. While this may seem like a good idea on the surface, there are several reasons why franchisors should not allow franchisees to use franchise trademarks in their corporate names.

  1. Perception of Ownership. An important aspect of the franchise relationship is the distinction of the franchisor and franchisee as separate entities that have entered into a business contract and license agreement. If a franchisee uses your trademark in their corporate name, you lose some of that distinction and increase the likelihood that the public will believe that you own the franchisee’s business. If the franchisee was facing a lawsuit, the presence of your trademark in their corporate name could be used as evidence in an attempt to include you in the lawsuit. Additionally, if a franchisee leaves, but still has your trademark in their corporate name, you risk additional public confusion as to whether or not they are still a part of your system.
  1. Trademark Dilution. Allowing franchisees to use the franchise trademark in their corporate names may also dilute the trademark itself, decreasing the value of the brand and the mark.
  1. Franchisee Conflicts. In the example above, suppose Good Business of Denver only operated in North Denver, and you wanted to add a franchisee in South Denver. Well, the new franchisee will likely not be happy that another franchisee is using a name designating themselves as the Denver franchisee.
  1. Search Engine Optimization. If someone runs an internet search for your franchise, you risk them landing on a website related to the specific franchisee entity as opposed to your brand website.
  1. Other Business. The franchisee owns their corporate name, and unless it is prohibited by their franchise agreement, could theoretically open up other businesses under their entity name. You would then have to deal with those businesses operating under your trademark.