Intellectual Property and Franchising – Laws in India (Topic – 8176)
I. Introduction and Context
Franchising has become of increasing importance in today’s world, where businesses are looking to expand and increase their scale of operations. The term “franchise” has not been defined in the Indian Legal framework, but The Finance Act of 1999 provides that franchising is the act of a business owner (franchisor) granting permission to another person (franchisee) by lending the trademark, or any form of intellectual property rights to operate their own company using the proprietor’s name or brand to sell, manufacture goods, or provide services in exchange for royalty and an initial fee.
At the foundation of successful franchising lies Intellectual Property (IP), which includes patents, copyrights, trademarks, etc. It is a legal framework that protects a brand’s identity, business practices, and creative assets that give the business value. Without proper Intellectual Property protection, franchising as a business model would be vulnerable to misuse. Intellectual Property law forms the legal backbone for franchising in India.
II. Legal Framework Governing Intellectual Property and Franchising in India
A. Intellectual Property Laws
1. Trademarks Act, 1999
• A trademark is a word, phrase, symbol, design, or combination that distinguishes a franchisor’s goods or services. Protects brand names, logos, and slogans.
• Section 28 allows the franchisors to license trademarks while retaining ownership.
• Section 29 provides remedies against the infringement of trademarks, which is crucial in maintaining the brand’s reputation.
• Trademark licensing allows the franchisees to use the brand legally without transferring the ownership from the franchisor.
2. Copyright Act, 1957
• Protects original creative works like books, music, and art for the person’s life plus 70 years after death.
3. Patents Act 1970
• Prevents unauthorised replication. Protects for up to 20 years, requiring maintenance fees.
• Protects inventions, novel processes, machines, and designs, granting exclusive rights to make, use, or sell for a limited time.
4. Designs Act, 2000
• Protects product appearance, store layout, and packaging designs. Ensures visual uniformity and brand recognition.
B. Laws Governing Franchise Relationships
Even though India does not have a dedicated franchise statute, franchising is regulated through the following:
1. Indian Contract Act, 1872
• Franchise agreements are legally enforceable contracts.
• Section 10 outlines the essential elements for all agreements to become enforceable contracts, which mandate free consent, lawful object, and lawful consideration. It establishes what a contract requires.
• Section 11 defines who is competent to contract as the person must be of majority age, of sound mind, and not legally disqualified.
2. Competition Act, 2002
• Section 3 bars anti-competitive agreements, covering agreements on production, supply, distribution, etc.
• Section 4 prohibits the abuse of a dominant position by an enterprise. Forbids misusing the power of a dominant position in the market.
3. Consumer Protection Act, 2019
• The franchisees that provide goods or services are accountable to consumers and liable for their grievances.
• Protects the final consumers and ensures the franchisors maintain quality standards.
4. Other regulatory frameworks
• Labour laws, FDI guidelines, and state-level regulations may also apply depending on the sector.
III. Role of Intellectual Property in Franchising
A. Trademark Licensing
The franchisor authorises the franchisees to use the registered trademark while maintaining ownership. This ensures brand uniformity and legal protection against misuse.
B. Copyright Protection
Franchisors often provide training materials, operations manuals, and marketing templates. The licensing ensures that the franchisees operate according to the brand’s standards.
C. Quality Control and Brand Reputation
Franchise agreements impose strict quality control obligations to prevent trademark dilution and loss of goodwill. Maintain standards to safeguard brand reputation.
D. Confidentiality and Non-Compete Clauses
These clauses protect trade secrets and restrict the franchisees from using the intellectual Property after the termination of the agreement.
IV. Judicial Approach and Case Laws
A. McDonald’s India Pvt. Ltd. v. Vikram Bakshi
The dispute highlighted the importance of trademark ownership and contractual obligations in franchise relationships. The franchisees' deviation from the brand’s standards led to a dispute over trademark use. Mr Bakshi claimed that McDonald’s India Pvt. Ltd. ousted him as the Managing Director of the North/East India franchise company to force him to sell his 50% stake at an undervalued price, constituting mismanagement and oppression, while McDonald’s India Pvt. Ltd. claimed breach of contract and mismanagement, leading to a legal battle over the control and share valuation.
B. KFC India Franchise Agreement Enforcement
The Indian Courts upheld franchisor intellectual property rights and emphasised contractual obligations. The franchisees should be focused on maintaining quality and contributing to marketing funds. The Courts stressed brand protection and procedural fairness in enforcement.
C. Subway Systems India Pvt. Ltd. v. Infinity Foods
The Delhi High Court upheld the enforcement of trademark and franchise agreement terms, which reinforced the significance of intellectual property protection. It included detailed intellectual property clauses to prevent misuse and ensure brand uniformity. is a landmark judgement relating to infringement of trademark. The Court ultimately emphasized that common or descriptive terms cannot be monopolised.
D. Tata Sons Ltd. v. Manu Kosuri
This case reinforced the importance of maintaining brand identity in corporate disputes.
Manu Kosuri & Ors allegedly registered several domain names containing the trademark “TATA” for their malicious intent to gain advantage from the goodwill of a trademark. The court recognised trademarks as valuable commercial assets deserving strong legal protection.
V. Practical Implications
• Registering intellectual property strengthens legal standings, deters infringement, and unlocks opportunities for licensing and commercialisation.
• Franchisors must ensure the registration of all intellectual property before entering franchise agreements.
• They should draft strong franchise agreements by clearly defining rights, responsibilities, territory, brand use, finances, training, etc.
• Regular audits and monitoring of franchise operations help prevent intellectual property violations.
• Franchisors must understand the Indian intellectual property enforcement mechanisms before expanding for legal compliance and risk management.
VI. Challenges in Intellectual Property-Based Franchising
A. Lack of Specific Franchise Law
• The lack of a single uniform body of franchise law means various legal perspectives must be considered.
• The over-reliance on contract law leads to inconsistent enforcement.
B. Trademark Infringement and Dilution
• Poor quality or misuse of the brand may damage reputation
• The Trademarks Act, 1999, provides remedies under sections 28 and 29.
C. Cross-Border Enforcement Issues
• Enforcement through Indian courts and intellectual property offices can be complex, especially for foreign franchisors.
D. Contractual Imbalance and Disputes
• Franchisees often lack the power to bargain.
• They face issues with royalty payments, termination, and non-compete clauses.
VII. Critical Analysis and Personal Insights
• While India’s intellectual property framework adequately protects franchisors, enforcement delays and vague clauses can lead to disputes.
• The absence of a unified franchise law creates ambiguity and increases the dependence on judicial interpretation.
• The absence of a dedicated law leads to heavy reliance on contract law. From a practical perspective, a specific law would benefit both domestic and international businesses.
• Emerging sectors like e-commerce and fashion franchises require proper, tailored intellectual property strategies.
• Increased digitisation of intellectual property registration could significantly improve efficient enforcement.
VIII. Conclusion and Recommendations
Intellectual property is the heart of franchising. It safeguards the brand, business process, and creative assets. The Indian framework provides substantial protection even though it lacks a specific franchise statute.
Recommendations:
• Dedicated franchise legislation with intellectual property safeguards.
• Register all intellectual property before franchising.
• Draft comprehensive and strong franchise agreements.
• Regular monitoring of franchise operations.
• Encourage transparency and promote legal awareness.
• By doing these brands can expand confidently with proper legal protection and promote sustainable economic growth.