The operations manual will regulate the terms on which a franchisee operates the franchise business. This document will set out the day-to-day operational instructions to the franchisee.
Intellectual property rights in a franchising context can have particular significance because a franchisor will have built up a substantial amount of know-how and brand awareness, which it will seek to protect.
Trade marks will be of great significance, because of the importance of brand names and images. The franchisor may require their franchisees to enter into separate licence agreements when registered trade marks are being licensed.
Both sides will want the intellectual property to be protected. However, the franchisor will want to ensure that the value of its intellectual property is not affected by the business practices of the franchisee.
The franchisee will want to make sure that the franchisor has valid and valuable intellectual property rights.
The franchisor will want to consider:
Payment - this needs to take into account that it is not in its interest to squeeze its franchisees excessively. Usually, an upfront fee is negotiated for the initial grant of rights, and afterwards, a continuing monthly or quarterly fee, usually based on a percentage of the franchisee's turnover.
Operations manual - it is important to any franchisor that the franchisee complies with the operations manual and the licences of intellectual property rights so that customers receive the same quality of support at every outlet of the branded business
Confidentiality - The franchisor will not allow the franchisee to use the franchisor's confidential know-how to operate a similar business, either during or after the term of the agreement.
The franchisee will want to make sure that:
It has a realistic idea of the potential performance of the business that it will carry on under the franchise agreement.
It receives enough support from the franchisor in terms of advertising and training to succeed.
All of these issues will usually be dealt with in the franchise agreement between the two parties. Usually, there will also be a detailed Non-disclosure agreement. For more information, read Non-disclosure agreements.