Many entrepreneurs build a brand that customers recognize, and as the business grows, opportunities to expand through licensing or franchising often arise. But according to Joey Vitale, trademark attorney and founder of Indie Law, one critical issue can derail those opportunities: the business may not actually own the trademark rights to its name. “A lot of business owners don’t see this problem when they’re starting out,” Vitale said. “It shows up when the business gets bigger. Someone wants to license the name, open another location, or invest, and suddenly they’re asking a very important question: Do you actually own this brand?”
Licensing a brand means giving another party permission to use the name in exchange for agreed-upon terms. Franchising goes further, allowing another owner to operate under the brand and business system. In both cases, the brand itself is central to the deal. A federal trademark registration helps establish exclusive legal rights to use a name for the goods or services covered by the registration. Without those rights secured, a business may lack the protection that licensing partners, franchisees, investors, or their attorneys expect to see. That can turn what looked like a growth opportunity into a legal problem.
Before a franchise deal moves forward, trademark ownership is scrutinized early. In the United States, franchisors are generally required to provide prospective franchisees with a Franchise Disclosure Document (FDD), a detailed legal document outlining the terms of the deal. One section of the FDD is dedicated to trademarks, requiring the franchisor to identify the brand’s main trademarks, state whether they are federally registered, and disclose any known conflicts, such as another business claiming earlier rights to the name. Federal registration is not required to sell a franchise, but a brand without one must disclose that fact along with the added risks, which can make prospective franchisees and their attorneys think twice. Licensing deals don’t follow the same disclosure format, but licensing partners, investors, and their attorneys commonly ask for proof of ownership before signing.
Without that proof, the deal may slow down while the issue gets sorted out. Terms may need to change. In some cases, the opportunity may disappear altogether. There is also a bigger risk: a trademark search during due diligence, the legal and business review that happens before a deal is finalized, could uncover someone else with stronger rights to the same or a similar name. “That’s a painful time to find out you have a trademark problem,” Vitale said. “You might have a great opportunity sitting in front of you, but now everything has to stop while you figure out whether you actually own what you’re trying to license. This is the kind of issue that’s much easier to deal with before there’s a term sheet and a deadline on the table.”
Attorneys recommend starting the trademark process before serious deal conversations begin. Doing so allows time to search for potential conflicts, understand existing rights, and pursue federal registration before another party is waiting on proof of ownership. Indie Law focuses exclusively on trademarks and has helped business owners protect their brands through more than 2,500 trademark filings, with a 99.7% success rate. “You can’t build a bigger future for a brand you don’t fully own,” Vitale said. “Get the ownership piece right first. Then you can think about where the brand goes next.” Additional information about trademark protection is available at www.indielaw.com, and a detailed blog post on the role of trademarks in franchising can be found at https://www.indielaw.com/blog/the-role-of-trademarks-in-franchising-why-brand-protection-is-the-backbone-of-every-franchise/.
