A franchise is a type of business in which a franchisor grants a franchisee the right to use trademarks, business secrets, and methods of operation developed by the franchisor for a period of time in exchange for a subscription fee. For example, a McDonald’s franchisee contracts to use McDonald’s yellow smiley face trademark, learns the recipes for Big Macs and McMuffins from the McDonald’s franchisor, and learns how to take orders, prepare and deliver food quickly and efficiently to operate a McDonald’s restaurant. Trademark rights that are associated with a franchised restaurant are very important assets for a franchisor. Therefore, intellectual property laws such as trademarks and patents are closely related to franchise law.
Franchisors protect the trademarks they develop by registering them. Dunkin’ Donuts’ orange and pink DD trademark, the unique slogan “America Runs on Dunkin’,” and the distinctive shape of the Coca-Cola bottle are all protected. Words, pictures, and colors aren’t the only things that can be protected – a popular mobile ice cream franchise called Mister Softee has even trademarked and protected the distinctive music that plays as the vehicle moves (Musical Jingle, Registration # 2218017). Given that children have an automatic response to the sound of this music, saying “the ice cream truck is here,” it’s clearly worth protecting.
One of the reasons trademark law is so important to franchise businesses is that it protects any form of distinctive dress or association of a franchise, which is called “trade dress.” Existing case law on the definition of “trade dress” states that it is “the collective image of a good or service, encompassing its size, shape, color or combination of colors, tactile sensations, graphics, or particular manner of sale.” This scope is expanding. This scope has expanded, and in a recent 2015 decision, the court said that it includes “almost anything at all that is capable of carrying meaning.” This means that trademark law protects not only the Pizza Hut trademark itself, but everything that is associated with the franchise, from the roofline of a Pizza Hut to the color scheme of an interior design to the blue roof of an IHOP.
However, trademark law itself does not protect a franchise’s “method or style of doing business” or “core concept of a business,” and litigation over what is or is not protected is more common than you might think. For example, fast food as a business format is not protected. The line becomes more blurred when you dig into the “distinctive concept of a business.” For example, in a 1990 case, an Indian franchise restaurant called “Taj Mahal” sued Trump’s “Taj Mahal,” which built an Indian-style casino and hotel, claiming that Trump was copying its “distinctive concept of a business” of “Indian food,” including having all of its employees wear traditional Indian clothing, bringing in elephant statues, and decorating in an Indian style. The court ruled that Indian attire and interior decorations are an inevitable part of a customer’s visit to an Indian restaurant when they want to get an Indian feel, and that they cannot be protected as trademarks because they are not developed by the restaurant owner, but are distinctive cultural symbols of the country of India. However, what if the employees at the Taj Mahal restaurant wore traditional Indian clothing, but with distinctive patterns, so that when they saw the clothing, they were reminded of a restaurant called the Taj Mahal? The court might have made a slightly different decision. After all, P.F. Chang’s giant Chinese horse statue is protected by trademark anyway.
As you can see, there are more gray areas than black-and-white answers when it comes to franchise and trademark lawsuits, so the outcome of your case will depend a lot on how clear your franchise agreement or trademark registration is. If you are a franchisor and have plans for a franchise business, please pay close attention to trademark registration.
If you have any questions about franchise law and intellectual property law, or any other area of law, please email mail@songlawfirm.com.