Module Four will provide you with a basic understanding of:
- Franchising Intellectual Property: Understanding what is Intellectual Property; Trademarks, copyright and internet domains; Who owns Intellectual Property developed under a franchise?
- The Franchise Operations Manual: The Operations Manual as an extension of the franchise agreement; Types of Operations Manuals and their evolving nature.
- Franchisor / Franchisee Relationship: Understanding the nature of the relationship; and the e-Factor.
- Dispute Resolution: Types and causes of franchise disputes; and Mediation and the Office of the Franchising Mediation Advisor (OFMA).
Franchise Intellectual Property
Intellectual Property (IP) is a core component of franchising, and it’s often the strength of a franchise’s IP which gives value to the franchise offer. When buying into a franchise it’s important to understand what IP is, how it works, and what it will mean for your franchise operations.
Chair of the Franchising Intellectual Property Committee of the Queensland Law Society Derek Sutherland explains IP in franchising in the video below.
In a franchise system, you normally see IP being held in trademarks, copyright, designs, confidential information and trade secrets, and these are vital to a franchisee.
Franchising Intellectual Property Fast Facts:
- The Franchising Code of Conduct specifies in Item 7 of the Annexure 1 Disclosure Document, the details about the intellectual property that have to be disclosed to a franchisee.
- It’s recommended a franchisee undertakes an extensive legal, accounting and business due diligence on the system they’re entering into.
- Typically a franchisor (or an entity associated with the franchisor) will own the IP.
- Any intellectual property that is created during the term of the franchise by the franchisee or its employees used in the business, will effectively be transferred to the franchisor so that they can use that for the benefit of franchisees in the system.
- Intellectual property develops and changes over time.
- Franchisees don’t automatically get access to all forms of intellectual property.
The Franchise Operations Manual
The Operations Manual is an extension of the franchise agreement and includes core business information and processes. It’s generally a document or series of documents which contain the essential information on how to run the franchise.
Franchise Operations Manual Highlights:
- It contains the know-how of the franchise system, providing a franchisee with a ready reference to running all aspects of the business.
- A failure to follow the policies and procedures outlined in the Operations Manual may result in a breach of the franchise agreement, which can have serious implications for a franchisee if the breach is not rectified.
- An operations manual may be expected to contain the franchisor’s detailed policies and procedures across a range of functions, as well as convey the organisation’s brand promise from corporate vision and mission, support information and franchisee and staff training requirements to organisational policies, administrative procedures, inventory management, marketing and lots more. Greater detail and a more extensive list is provided in the Franchise Operations Manual document.
- Franchise Operations Manuals generally remain the property of the franchisor and franchisees are granted access to the manual for the term of the Franchise Agreement
- Wherever possible, a potential franchisee should ask to view an operations manual prior to buying a franchise to verify that the manual exists and that is comprehensive.
- All key elements of the Franchise Operations Manual and the information generally contained within it are outlined here.
Franchisor / Franchisee Relationship
When the relationship between a franchisee and franchisor is healthy, business generally flows a lot better. Here franchise relationships expert and adjunct lecturer at the Asia-Pacific Centre for Franchising Excellence Greg Nathan explains how the franchisor – franchisee relationship works and provides tips for a successful relationship.
Franchise Relationship Key Points:
- The franchisor/franchisee relationship is much more than just a legal relationship. It can be similar in many ways to any relationship where you have an ongoing commitment to another party (such as business partnership or even a marriage).
- A good franchise relationship is based on respect. The franchisor needs to have a fundamental sense of respect for the franchisee, and the franchisee needs to also bring a sense of respect to the brand and to their obligations to work in a system.
- To assess franchise relationships, good questions to ask existing franchisees are: ‘If you had your time over, would you do this again?’ and ‘Are you making the sort of money that you thought you would be making?’ Their answers may provide critical insights into the franchise.
- Relationships between franchisees are very important. They provide a source of moral support and franchisees can share business ideas, and help each other with resources such as staffing.
- Relationships can sour when people’s expectations aren’t met and this is often around the amount of money being earned. Lack of respect is another factor which causes relationships to go bad.
Conflict is inevitable in any business relationship, however there are strategies to minimise and resolve conflict quickly. The Office of the Franchising Mediation Adviser (OFMA) provides support for dispute resolution through mediation.
The Franchising Code of Conduct is an industry-wide regulation published under the Competition & Consumer Act 2010 which provides that franchisees and franchisors undertake certain actions and have certain obligations in their dealings with each other.
One of these requirements, is to engage in a dispute resolution process of mediation (or facilitated negotiation) to resolve any dispute that occurs in their relationship.
The Office of the Franchising Mediation Adviser (OFMA) was established by the Federal Government to provide advice and support the appointment of a mediator, if required.
Mediation has been used as a dispute resolution mechanism under the Code for many years and has proved to be a suitable process for discussing and resolving the commercial and communication issues in franchising disputes. The process of mediation provides a forum where people can be heard and understood and make their own decisions about how to resolve their dispute.
Either the franchisor or the franchisee can initiate the dispute resolution procedure by sending the other party a “Notice of Dispute”. This is document simply and clearly explains what the dispute is about.
A Notice of Dispute ready to be filled out online, can be obtained directly from the OFMA website. The complaining party then sets out in writing and sends to the other party:
- the nature of the dispute or what the problem is actually about
- what outcome they want to achieve, and
- what actions they think could be taken to resolve the dispute
The Code stipulates that there is then a three week period for the parties to negotiate directly with each other about the issues that have been raised. This gives them the opportunity to simply and inexpensively discuss and remedy the issues in dispute between themselves.
If the dispute is not resolved within that time period, either party can contact the OFMA to request that the mediation adviser appoint a mediator to assist with the resolution of their dispute. The OFMA maintain a list of mediators that it has appointed to assist parties which is available on the Franchising Code website.
All mediators on the list are accredited under the National Mediator Accreditation Standards and have mediation experience as well as significant commercial business and franchising experience. Many are lawyers who have practised in commercial law and the franchising area, although as the mediator they are unable to give the parties legal advice.
The OFMA will appoint a mediator within 14 days. The mediator will then contact the parties and arrange for a meeting at the first available time which suits all of the participants The mediation process typically takes between five and six hours on the same day and costs each party around $1,500 to $2,000 for the mediator’s fees and room hire charge, making it one of the most cost effective dispute resolution methods available.
At the mediation, both parties are given the opportunity to raise their issues or concerns as they see them. The mediation process belongs to the parties, so it’s for them to make the decisions that meet their needs. Any agreement reached, can be made into a binding contractual arrangement, often prepared by the party’s legal advisors.
Parties can still use the litigation process if they are unable to obtain the outcome they want but the mediation process is effective in assisting the parties to resolve their dispute in around 75% of all matters.
Module Four Resources
- IP Australia website
- Office of the Franchising Mediation Adviser
- Franchise conflict research findings, conducted by the Asia-Pacific Centre for Franchising Excellence and funded by the Australian Competition and Consumer Commission.
- Recommended Reading: Profitable Partnerships, by Greg Nathan, Franchise Relationships Institute.
Module Four Self Assessment: Franchise operations, relationships & dispute resolution
If you successfully complete the quiz with a score of 85% or higher you will receive a Certificate of Completion.