As businesses grow, opportunities to expand through licensing or franchising often arise. However, according to trademark attorney Joey Vitale, founder of Indie Law, many business owners overlook a critical prerequisite: securing trademark rights before entering into such agreements. Without established ownership, these deals can quickly unravel, turning potential growth into legal complications.
Licensing a brand involves granting permission to use a name in exchange for agreed terms, while franchising goes further by allowing another party to operate under the brand and business model. In both scenarios, the brand is central to the deal. A federal trademark registration establishes exclusive legal rights to use a name for specific goods or services. Without it, a business may lack the protection that licensing partners, franchisees, investors, or their attorneys expect to see. As Vitale notes, the issue often surfaces when the business gets bigger and someone asks, “Do you actually own this brand?”
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), which includes a section dedicated to trademarks. This section asks the franchisor to identify main trademarks, state whether they are federally registered, and disclose any known conflicts, such as another business claiming earlier rights. While federal registration is not required to sell a franchise, a brand without it must disclose that fact and the associated risks, which can give prospective franchisees and their attorneys pause. Licensing deals do not follow the same disclosure format, but partners, investors, and their attorneys commonly request proof of ownership before signing. Without it, negotiations may stall, terms may change, or the opportunity may vanish.
A more significant risk lies in due diligence, the legal and business review before a deal is finalized. A trademark search could uncover someone else with stronger rights to the same or a similar name. Vitale describes this as “a painful time to find out you have a trademark problem,” adding that it can halt everything while ownership is sorted out. He emphasizes that such issues are much easier to handle before a term sheet and deadline are on the table.
To avoid these pitfalls, attorneys recommend starting the trademark process before serious deal conversations begin. This allows time to search for potential conflicts, understand existing rights, and pursue federal registration before another party awaits proof of ownership. Indie Law, which focuses exclusively on trademarks, has helped business owners protect their brands through more than 2,500 trademark filings, with a 99.7% success rate. Additional information about trademark protection is available at www.indielaw.com. For a deeper dive into the role of trademarks in franchising, see the article at https://www.indielaw.com/blog/the-role-of-trademarks-in-franchising-why-brand-protection-is-the-backbone-of-every-franchise/.
Vitale concludes, “You can’t build a bigger future for a brand you don’t fully own. Get the ownership piece right first. Then you can think about where the brand goes next.”
