Monday, August 13, 2012

Franchisor Duties: Protect the Brand

Recently the Quebec Superior Court ruled that Dunkin’ Donuts’ master franchisee had failed to protect and enhance the Dunkin’ Donuts brand in Quebec in violation of its contractual obligations under the franchise agreement with its Quebec franchisees. The Superior Court noted that this was one of the franchisor’s few duties under the agreement and its failure to do so led to 200 store closures.

This is a chilling reminder to all franchisors of their duty to protect the brand. In the Dunkin’ Donuts’ case, the franchisor claimed that it was competition from another brand that hurt their system. But the court showed that the franchisees had alerted Dunkin’ Donuts of the competition back in 1996 and asked for some sort of plan to respond to the effect the new competitor was having on their sales. Unfortunately, Dunkin’ Donuts did nothing to try to counter the negative effect this new competition was having on its franchisees.

This is just one example of how a franchisor can fail to protect the brand. The franchisor needs to be constantly aware of its brand and protecting that brand in the market. Some of the areas the franchisor needs to monitor to protect its brand are as follows:

  • Make sure that franchisees are using the brand only as directed by the franchise agreement and operations manual. Franchisees that do not follow the system and operate under the brand name can effectively hurt other franchisees.

  • Monitor the use of the trademark to ensure that others are not using the marks or marks that are significantly similar to the franchisor’s mark. This can dilute the marks, cause confusion in the market and ultimately hurt the value of the brand.

  • Monitor competition with the brand and come up with ways to counteract the effects of competition on the brand. (This is the Dunkin’ Donuts example.)

  • Review the brand to ensure that the brand is current for the marketplace. This may mean updating the brand so that it appears fresh and continues to draw old and new customers.