Item 13, trademarks

Strip a franchise agreement down to what you are actually buying and you are left with two things: a system of operating standards, and permission to trade under somebody else’s name. Item 13 covers the second one. It discloses the principal marks licensed under the agreement, their registration status and the register they sit on, any pending applications, whether the registrations have been maintained, any agreements that limit how the marks may be used, and whether the franchisor knows of superior rights that could affect your use.

That last clause is why this Item is not clerical. A sign, a menu board, a delivery-platform listing and a decade of local goodwill all sit on top of the name, and the cost of changing it falls on the person who paid for the signage.

Ownership before status

Start by asking who owns the marks, because it is not always the entity on the cover page. In systems assembled from a parent, an operating company and one or more affiliates — the structure Item 1 exists to map — the marks frequently sit in a holding company that licenses them down to the franchisor, which sublicenses them to you. That chain is fine, and it is worth drawing, because your right to the name is only as durable as the weakest link in it. Ask what happens to the sublicense if the intermediate agreement ends.

The question sharpens where a brand has an origin outside the United States. GDK’s FDD issued 3 September 2024 is a US offering run out of Auburn Hills, Michigan, for a brand of UK origin. Pepper Lunch’s May 2024 comparative record discloses six US outlets while the operator’s own site claims over five hundred locations across fifteen countries. In both cases the interesting question is not how famous the name is abroad but who holds the United States rights, on what terms, and whether the US franchisor’s own licence has an expiry date shorter than the franchise term it is selling.

Registration status, read plainly

The disclosure states where each mark is registered and whether the registrations have been kept current. A federal registration on the principal register, maintained, is the strongest ordinary position. An application still pending, a registration on a supplemental register, or reliance on common-law use are all lawful and all mean something different about what the franchisor can promise.

Copy what the Item says. Note the registration or application details it gives. Hand the question of what those details mean to a lawyer who practises in the area. A broker in a discovery meeting should not characterise a status into an outcome.

Two further disclosures belong in the notes. Agreements that significantly limit the franchisor’s right to use the marks — a co-existence agreement with another business, or a settlement restricting use in a region — directly constrain where and how you may trade. And any known superior right by a third party is the disclosure that most changes a buyer’s risk, because it is the one that can end with a demand to stop using a name in a particular market.

What happens when someone objects

Item 13 also has to describe the parties’ obligations if the marks are challenged or infringed. Read three things: whether you must notify the franchisor of infringement or a claim; whether the franchisor is obliged to defend you, or merely permitted to; and whether the franchisor may require you to modify or stop using a mark, and who pays if it does.

That third one is where the money is. A clause allowing the franchisor to require a change of mark, with you bearing the cost of new signage, packaging, uniforms and listings, is not unusual. Its practical weight depends on the format. Disclosed signage rows here run from Mad for Chicken’s $5,500–$9,500 and 375°’s $10,000–$12,000 to Shah’s $10,000–$28,000 and GDK’s $20,000–$35,000. A mark change is not only a legal event; it is a capital event of roughly that size, plus the goodwill attached to whatever the neighbourhood has been calling the shop.

Where the Item connects

Item 14 is the natural sequel: marks are the public part of the intellectual property, and recipes, manuals, software and other proprietary information are the private part. Read the two together and you have the whole of what you are licensed to use, and what happens to it at the end of the term.

Item 1 supplies the entity map that makes the ownership chain legible. Item 9 carries the row obliging you to use the marks only as the standards require, and Item 16 restricts what may be sold under them. Item 17’s post-termination row is where the licence ends, and it usually requires de-identification — removing signage, listings and branded materials — at your cost, which is the same capital event arriving from a different direction.

Fame is not a registration

The usual mistake is treating fame as a legal position. A brand with hundreds of outlets overseas, a queue outside a famous original location, or heavy social reach feels unassailable, and none of that is a registration. The Halal Guys’ May 2024 record shows a business founded in 1990 that began franchising in 2014 with 93 outlets by 2024; Wienerschnitzel’s shows a system franchising since 1965 with 323 outlets. Longevity of that kind usually does come with a well-maintained portfolio — but “usually” is not what Item 13 is for. The Item states the actual position for the actual marks in the actual offering.

The second mistake is assuming the licence covers everything on the storefront. Fonts, photography, music, delivery-platform assets and third-party software each have their own licences, some of which sit in Item 8 as required vendors and in Item 22 as separate contracts. Ask which of the things a customer sees are covered by the trademark licence and which arrive under a separate agreement that can be terminated on its own terms.

Related reading

• Item 14, patents and proprietary information — the private half of the licence
• Where change shows first — registration status is language with a future
• Item 1, the franchisor — who in the group owns what
• Item 9, franchisee’s obligations — the standards row that governs use
• Item 17, renewal and exit — de-identification at the end
• Attorney and accountant — who should read a registration status