Legal Issues in Franchising and Trademarks (Term Paper Sample)

TRADE MARKS AND FRANCHSING
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Trademarks and franchising are two related terms that have ubiquitously gained popularity in the contemporary legal and business spheres. While the two concepts are related in various respects, trademarks owe their roots mainly from intellectual property rights origin while franchising is a modern business innovative strategy. Franchising uses most intellectual property concepts of trademarks and enjoys almost the same legal protection as trademarks.
As a matter of fact, it has been argued that trademarks form a foundation or cornerstone of franchising. Therefore, it is a fundamental legal requirement, as will be evident later in this paper, that franchising agreements conform to the legal norms and elements of a trade mark as a form of intellectual property right. The purpose of this paper, at the outset, is to discuss in depth the two concepts of trademarks and franchising. This analysis and discussion will focus inter alia, majorly on the legal frameworks of the two, the relationship between them and differences, if any.
Trade Marks
The Historical Perspective
Historically, traders would apply various marks to identify their goods, distinguish them from others and indicate ownership rights over the property in form of possessory and proprietary marks. Farmers would brand and earmark their livestock for identification purposes while trade merchants would also place unique marks on their goods before they could be shipped to enable identification and retrieval of the goods in the unlikely event of a shipwreck. The concept of trademarks also has roots in the early practice of the Guilds that were trading organizations that controlled the production of goods. It was a requirement by the guilds organizations that each producer apply identifying marks and signs for their goods which would make it easier for the organizations to trace the source of substandard and unsatisfactory goods. In England, the legal protection of trademarks began at common law which recognized an action for deceit in case of an infringement of a trade mark. It later developed in the Courts of Chancery which protected traders from the tort of passing of off for traders who had acquired goodwill and reputation for via the use of certain symbols and signs in trade.[Lionel Bentley and Brad Sherman, Intellectual Property Law (New York: Oxford University Press, 2004), 5-60.]
Rationale for the recognition and protection of trademarks
A plethora of justifications have been put forward to bolster the legal recognition and protection granted to trade mark holders. One of the most important ones is that trademarks are a show of creativity hence their protection means the protection of the personality and labor of the producer of a given commodity. Further, the second justification and arguments for their protection and recognition is that trademarks are in the public interest as they enable the dissemination of valuable information about a product to the consumers hence improving market efficiency. This argument has been augmented by Justice Breyer when he asserted that:[Amanda Michaels and Andrew Norris, A Practical Approach to Trade Mark Law (Oxford New York: Oxford University Press, 2010), 50-150.]
[By] preventing others from copying a source-identifying mark, trademarks law reduces the customer costs of shopping and making purchases decisions…for it quickly and easily assures the a potential customer that this item- the item with this mark-is made by the same producer as other similarly marked items that he or she liked (or disliked) in the past.[S V London Borough Havering (2002)]
The legal recognition and protection of trademarks is also founded on the ethical justificatory ideas of justice and fairness to the creator and owner of the trade mark sign or symbol
Meaning of Trade Marks
Different states apply different legal and business definitions of the term ‘trade marks’. The courts have also been consistent in defining what a trade mark is. However, in all the definitions attempted by various legal scholars and inherent in a variety of national and international laws, one clear thread that runs across them is that ‘identity of origin of a good or service’. Justice Frankfurter once defined a trade mark as under:
A trade mark is a merchandising shortcut which induces a purchaser to select what he wants or what he has been led to believe he wants… whatever the means employed, the aim is the same-to convey through the mark, in the minds of potential customers, the desirability of the commodity upon which it appears. Once this is attained, the trade mark has something of value.[Mishawaka Manufacturing Co. V Kresge Co 316.U.S. 203 (1942)]
In the United Kingdom, for example, trademarks are governed by the Trade Marks Act 1994 where a trade mark is defined as any sign capable of being represented graphically which distinguishes the goods or services of one business from those of another.[Section 1, English Trade Marks Act]
In addition, trademarks are defined by the Directive on trademarks as:
A trade mark consists of any signs capable of being represented graphically, particularly words, including personal names, designs letters, numerical, the shape of goods, or of their packaging provided that such signs are capable of distinguishing the goods or services of one undertaking from those of other undertakings.[Article 2, U.K Trade Mark Directives]
The main theme that underpins the trade mark law in any country is the extent of the kind of business monopoly that a registered mark confers on the trade mark owner. The legal framework of trademarks therefore aims mainly at striking a balance between the conflicting interests of the proprietor of the mark, their competitors and the final consumer of the products. The law of trademarks seeks to ensure that these three major parties are protected against injustice and substandard goods and services.
Functions of Trade Marks
Trade marks play a variety of roles particularly in the business field.
Identity of Product Origin
The main function that lies at the heart of trademarks law is that of indication of the origin of commodities being sold and this has been emphasized by the courts in Centrafarm V American Home Products in which the court said:
The essential function of the [trade] mark, which is to give the consumer or final user a guarantee of the identity of the origin of the marked product by enabling him to distinguish, without any possible confusion, that product from others of a different provenance.[(1996) FSR, 225]
This fundamental role of trademarks was reaffirmed later by an English Court when it stated:
Trade marks rights constitute an essential element of the system of undistorted competition…in that context, the essential function of a trade mark is to guarantee the identity of the origin of the marked goods or services to the consumers and user by enabling him, without any possibility of confusion, to distinguish the goods or services from others which have another origin.[Arsenal Football Club V Mathew Reed (2003) 3ALL ER 865]
Quality Assurance Function
Trade marks enable consumers of various goods and services to be sure of the quality of those commodities produced by the trade mark proprietors. This assurance of quality flows from the fact that the trade mark owner has economic advantages and interests in the products that they wish to protect from infringement and copying by competing businesses. As a consequence, they are likely to raise quality standards.
The House of Lords emphasized this function of trademarks when it stated in its judgment that:
The quality of goods on the offer is at the heart of all trading activities. As long as trading has existed, buyers have sought information and assurance about the quality of the merchandise on display. The use of trademarks is an integral part of this activity.[Scandecor Developments AB V Scandecor Marketing AB (2001) UKHL 21]
Advertisement and Informational Role
Trade marks may also be applied as advertisement tools and strategies by traders to create more consumer awareness about the presence, identity and uniqueness of their products as distinguishable from those of competitors. This point was succinctly stated by the court a case involving disputes over trade marks ownership rights when the court said:
A trade mark is a vehicle for communicating a message to the public, and itself represents financial value. This message is incorporated into the trade mark through the message itself, whether informatively or symbolically. The message may refer to the product’s quality or indeed intangible values such as luxury, lifestyle, exclusivity, adventure, youth etc.[Souza Cruz SA V Hollywood SAS (2002) ETMR 64, 705]
Investment Role
In addition, Trademarks play the role of investment mechanisms whereby trades use their monopolies in the production of given commodities to lock out competition from similar businesses and require consensual or contractual agreements to part with the monopoly. Such a scheme enables the proprietor of the mark to venture in new investments areas and products that others may not be able to explore as was stated by the court that:
It is also argued that trademarks have other functions which might be termed ‘communication’, investments or advertising functions. Those functions are said to arise from the fact that the investment in the proportion of a product is built around the [trade] mark…distinguishing the trade mark owner’s good from those of his competitors.[Perfums Christian Dior and Perfums Christian Dior BV Vs Eura BV (1998) RPC 166 C337/95]
The trade mark, as legal requirement, should be such that ...