If a Chatime franchisee develops improvements during the initial term and obtains intellectual property rights, what is the franchisee required to do with those rights?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
11.7 Franchisee's Improvements
- (1) If any Franchisee's Improvements are developed by or on behalf of Franchisee during the Initial Term from which Franchisee obtains any intellectual property rights, Franchisee assigns all of Franchisee's rights to and intellectual property in Franchisee's Improvements to Franchisor or its nominee as and when the intellectual property rights are created, free of all encumbrances.
- (2) If Franchisee's rights to or intellectual property rights in Franchisee's Improvements are not capable of assignment to Franchisor, Franchisee grants to Franchisor or its nominee as and when the intellectual property rights are created an exclusive, worldwide, royalty free, fully assignable perpetual license for Franchisee's Improvements, which may only be terminated by Franchisor, for Franchisor to use Franchisee's Improvements and grant others the right to use Franchisee's Improvements.
- (3) If Franchisor wishes to register the intellectual property rights in any of Franchisee's Improvements and Franchisee is the owner, or a necessary applicant for that registration, Franchisee must immediately upon the request by Franchisor apply in Franchisee'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 franchisee develops any improvements during the initial term that result in intellectual property rights, the franchisee is obligated to handle those rights in specific ways. Firstly, the franchisee must assign all rights and intellectual property related to these improvements to Chatime or its designated nominee as soon as the intellectual property rights are established. This assignment must be free of any encumbrances, meaning there should be no liens, claims, or other restrictions on the transfer of these rights. This ensures that Chatime maintains control over any advancements or innovations related to the Chatime system.
However, if the franchisee's rights or intellectual property rights in the improvements cannot be directly assigned to Chatime, the franchisee is required to grant Chatime or its nominee an exclusive, worldwide, royalty-free, fully assignable, and perpetual license. This license allows Chatime to use the franchisee's improvements and to grant others the right to use them as well. Importantly, this license can only be terminated by Chatime, not by the franchisee, giving Chatime long-term control over the improvements.
Furthermore, if Chatime wishes to register the intellectual property rights for any of the franchisee's improvements, and the franchisee is either the owner or a necessary applicant for the registration, the franchisee must take immediate action upon Chatime's request. This includes applying for registration in the franchisee's own name and signing all necessary documents and deeds to assign the registration or application to Chatime or its nominee. This ensures that Chatime can formally protect the intellectual property rights associated with the improvements. These stipulations are designed to ensure that Chatime benefits from any franchisee-developed improvements to the Chatime system.