If a Chatime franchisee's intellectual property rights in improvements are not capable of assignment, what type of license does the franchisee grant to the franchisor?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
- (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.
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 improvements to the Chatime system and cannot assign the intellectual property rights to the franchisor, the franchisee grants Chatime a specific type of license. This license is exclusive, meaning that Chatime is the only party that can use the improvements. It is also worldwide, allowing Chatime to use the improvements anywhere in the world.
Furthermore, the license is royalty-free, so Chatime does not have to pay the franchisee for the right to use the improvements. The license is fully assignable, meaning Chatime can transfer the license to another party. Finally, the license is perpetual, lasting indefinitely, and can only be terminated by Chatime.
This arrangement benefits Chatime by ensuring it can use and control any improvements made to the system, even if the franchisee retains some legal rights. For a prospective franchisee, this means any innovations or improvements they develop for their Chatime store could be used by the entire franchise system without additional compensation to the franchisee. This is a significant consideration for franchisees who are innovative and may want to benefit directly from their creations.