We are now continuing with a previous topic that we had been covering before which is the Franchise Disclosure Document (FDD). In particular, we have worked through what they call the Items of the FDD. We've walked through Item 1 to Item 13, and now we are discussing Item 14 of the Franchise Disclosure Document. If you haven't read or seen our previous FDD posts we do recommend you go back and visit those because a lot of these items can be progressive, meaning that a previous item will lead to an item later on in the document.
Item 14 reviews the patents, the copyrights, and the proprietary information owned by the franchisor, what your access to that information means, and what your limitations are.
This is an item, in our opinion, that's more FYI-related than one that you really need to dive deep into. But you have to know that this section is really outlining where, when and how you can use any patents, copyrights, and proprietary information. So this section will outline where or if the franchise has any of these such items and how you can use them.
When I think of this section I always think of KFC. It's like the secret recipe, or maybe making Coca-Cola, there is a secret recipe to it. But if you're going to duplicate that, if you're going to be a franchisee you need to know what it is. So it protects both the franchisor because they've spent a lot of money and invested in all of this to make sure that you as the franchisee follow that same process.
Hopefully, that totally makes sense and the KFC example is perfect here as far as intellectual property goes. This Item 14 also deals with more concrete issues like patents and copyrights that have very little to do with necessarily a proprietary formula, that you are not really supposed to disclose. So now we will talk a little bit about the limitations that a franchisee might have under this particular item.
Very likely you're going to see verbiage in there that you can't modify it or make any changes or modifications to it and that the franchisor owns all the rights to it. The exclusive rights, not just to have it, but to modify it. If they modify it, then you're going to have to modify it as well. So basically you're saying that you agree to follow whatever that franchise has as their patents, their copyrights, and their proprietary information.
As always, we do also recommend that you have this document reviewed by a Franchise Attorney. In general, it’s pretty straightforward. If you have any questions regarding the Franchise Disclosure Document feel free to reach out to us.
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I’m Stacey Riska aka “Small Business Stacey”, your franchise placement specialist. I help aspiring business owners find the PERFECT franchise so they can get to the next level in life and business.