Franchising arrangements are essentially just a specialized form of intellectual property license. A franchisor, or rights owner, licenses its intellectual property to a franchisee to use, subject to certain conditions, for the purpose of operating a business in a particular territory. The licensed rights often include trademarks, copyrighted material, and trade secrets, which together comprise a unique method of doing business or business system.
Along with direct investment, franchising is a common method used by brand owners to expand their business in Taiwan. Our team advises a number of brand rights holders with respect to their franchising activities in Taiwan. Over the course of a multi-part series, we will set out five points we see as essential for brand rights holders to consider when they are evaluating entry into the Taiwan market. In this first segment, we look at Taiwan’s trademark laws and stress the need for brand owners to register and monitor the use of their marks in Taiwan.
1. Register and monitor your marks in Taiwan
This first point seems to be common sense. However, brand owners sometimes rely on their existing overseas trademark rights and fail to appreciate that Taiwan is a “first-to-file” not “first-to-use” jurisdiction.
We recommend that brand owners file an application with the Taiwan Intellectual Property Office as soon as they or any of their licensed master franchisors plan to begin franchising efforts in Taiwan. Marks may be registered in Taiwan prior to use. Taiwan trademark laws give the owner three (3) years from registration in which to use the mark.
The alternative would be to commence franchise operations using marks which are registered overseas but unregistered in Taiwan. However, such marks would not be protected under Taiwan law except in certain special circumstances involving particularly well-known brands. Using marks that are unregistered in Taiwan makes it almost impossible to prove infringement in Taiwan. It also opens up the possibility that a franchisee or other unrelated party may register the foreign mark in Taiwan before the rightful brand owner. And, while we have an excellent litigation team which can help to recover rights in such circumstances, registration of the marks in Taiwan at the outset will save significant time and expense.
In addition to registration, we recommend that brand owners task their master franchisors, if any, and their franchisees with a positive obligation to monitor the relevant territory and report any suspected infringement of the brand owner’s marks to the brand owner. In addition to the obvious benefit of assisting the brand owner to monitor the Taiwan market for infringing behavior, it also adds a potential claim against a franchisee who begins to compete with the business of the brand owner indirectly through family members or other related parties. In such instances, it may be difficult to prove violation of the relevant non-compete provisions of the franchise agreement as the relationship between the franchisee and the competing parties may be tenuous (at least on the surface). It is usually easier to show that the franchisee failed in its obligation to report known infringement by these same parties.
In the next part of this series, we will examine franchisee due diligence and related matters. If you have any questions or require additional information on franchising in Taiwan, please contact Gregory Buxton at email@example.com.Written March 8, 2021 By Gregory A. Buxton, Bryan Tan, Yi-Kai Chen.