If a Chatime Developer creates improvements and obtains intellectual property rights, what is the Developer required to do with those rights?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
(1) If any Developer's Improvements are developed by or on behalf of Developer during the Initial Term from which Developer obtains any intellectual property rights, Developer assigns all of Developer's rights to and intellectual property in Developer's Improvements to Franchisor or its nominee as and when the intellectual property rights are created, free of all encumbrances.
- (2) If Developer's rights to or intellectual property rights in Developer's Improvements are not capable of assignment to Franchisor, Developer grants to Franchisor or its nominee as and when the intellectual property rights are created an exclusive, worldwide, royalty free, fully assignable perpetual license in respect of Developer's Improvements, which may only be terminated by Franchisor, for Franchisor to use Developer's Improvements and grant others the right to use Developer's Improvements.
- (3) If Franchisor wishes to register the intellectual property rights in any of Developer's Improvements and Developer is the owner, or a necessary applicant for that registration, Developer must immediately upon the request by Franchisor apply in Developer's own name for registration and then sign all documents and deeds, perform all acts and do all things necessary to assign that registration or application to Franchisor or its nominee.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, if a Developer creates any improvements during the initial term and obtains intellectual property rights from those improvements, the Developer is required to assign all rights and intellectual property to Chatime or its nominee. This assignment must be free of any encumbrances and occurs as soon as the intellectual property rights are created. This means Chatime will own any new intellectual property the Developer creates related to the Chatime business.
However, if the Developer's rights or intellectual property rights in the improvements cannot be assigned to Chatime, the Developer must grant Chatime or its nominee an exclusive, worldwide, royalty-free, fully assignable perpetual license. This license allows Chatime to use the improvements and grant others the right to use them. The license can only be terminated by Chatime, giving Chatime significant control over the Developer's improvements.
Furthermore, if Chatime wants to register the intellectual property rights in any of the Developer's improvements and the Developer is the owner or a necessary applicant for registration, the Developer must immediately apply for registration in their own name at Chatime's request. Following the application, the Developer must sign all necessary documents and perform all actions to assign the registration or application to Chatime or its nominee. This ensures Chatime can secure formal intellectual property protection for the improvements.
This clause is designed to protect Chatime's intellectual property and ensure that any improvements made by the Developer become the property of Chatime. This is a fairly standard practice in franchising, as the franchisor typically wants to maintain control over the brand and system-wide standards. A prospective Chatime developer should carefully consider these obligations and how they might impact their ability to innovate and protect their own intellectual property independently.