A core component to Franchising is the inherent trademark license granted from franchisor to franchisee. In a “perfect IP world” the franchisor’s principal trademarks are registered with the USPTO and FDD Item 13 discloses the registration information.
Since nothing is ever perfect, many times, franchisors will fail to obtain registration of their primary marks. There are many reasons for a USPTO registration denial, including, the claimed mark being “descriptive” or “confusingly similar” to an existing mark that previously obtained registration.
Failure to obtain registration at the federal level does not render a tradename or trademark valueless or one that, necessarily, needs to be abandoned. One example being a trademark that has acquired common law protections and rights resulting from a franchisors use of that mark within certain geographic areas or regions.
So, when faced with disclosure of your unregistered trademarks, what information must be disclosed in Item 13. The FTC Compliance Guide is extremely instructive on this point:
First (Disclaimer): The following disclaimer must be stated in Item 13:
We do not have a federal registration for our principal trademark. Therefore, our trademark does not have as many legal benefits and rights as a federally registered trademark. If our right to use the trademark is challenged, you may have to change to an alternative trademark which may increase your expenses.
Second (Explanation): Explanations are permitted. A franchisor is permitted to disclose common law rights that a franchisor claims to an unregistered mark. The FTC Compliance Guide does a good job of illustrating a potential disclaimer. The following is a portion of the sample qualifying disclosure contained in the FTC compliance guide.
We grant you the right to operate a shop under the name “Belmont Muffler Shop”. You may also use our other current or future trademarks to operate your shop. By “trademark,” we mean names, trademarks, service marks and logos used to identify you shop. We registered the trademark on the United Stated Patent and Trademark Office principal register on May 11, 1993, as Number 379286.
You must follow our rules when you use these marks. You cannot use a name or marks as part of a corporation name or with modifying words, designs, or symbols, except for those which we license to you. You may not use Belmont’s registered name in connection with the sale of any unauthorized product or service, or in a manner that we have not authorized in writing.
On June 4, 2003, the United States Patent and Trademark Office rejected Belmont’s application to register the mark “Super Mufflers” because the mark was found to be confusingly similar to a previously registered mark.
Our inability to register this mark on the federal level permits other to establish rights to use the Super Mufflers mark. Such use of the Super Mufflers mark does not occur in areas where our franchisees are operating or advertising under the mark, or in the natural zone of expansion for Belmont’s shop. In addition, others outside the Belmont system who use the Super Mufflers mark must act in good faith and without actual knowledge of out prior use of the mark. However, if others establish rights to use the Super Mufflers mark, we may not be able to expand into these areas using that mark.
Caution should always be taken when proceeding with an unregistered trademark. However, if you are faced with this situation there are options.