Who pays the costs incurred in commencing or defending legal proceedings relating to Chatime's Intellectual Property?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
- (1) If it is the owner of any intellectual property (e.g., business or corporate names, trademarks, domain names) similar or identical to the Intellectual Property in the Territory, immediately upon execution of this Agreement, take all steps necessary to transfer ownership of that intellectual property to Franchisor at Franchisee's cost;
- (2) If, during the Initial Term, either Franchisee or any Guarantor registers any intellectual property (e.g., business or corporate names, trademarks, domain names) similar or identical to the Intellectual Property in the Territory, the relevant party must immediately upon such registration, take all steps necessary to transfer ownership of that intellectual property to Franchisor at Franchisee's cost; and
10.1 Indemnity
- (1) Franchisee Parties indemnify Franchisor and each of its Affiliates (Chatime Group) against all:
- (a) Losses incurred by the Chatime Group;
- (b) Liabilities incurred by the Chatime Group; and
- (c) All Legal Costs and other Costs and expenses incurred by the Chatime Group in connection with a demand, action, arbitration, or other proceeding (including mediation, compromise, out of court settlement or appeal),
arising directly or indirectly as a result of or in connection with:
(d) A breach by Franchisee Parties of this Agreement or any Collateral Agreement;
(e) Any injury to, or loss of property of, any person in or on premises from which the business is conducted;
(f) Franchisee's taxes, liabilities or Costs of The Franchised Business;
(g) Any negligent or willful act or omission of Franchisee, its employees, agents, servants, or contractors; and
(h) Any warranty, promise, or representation made by Franchisee Parties or any employee, agent, or other person acting on behalf of Franchisee Parties being incomplete, inaccurate, or misleading.
(39) Legal Costs means all fees, costs and disbursements actually paid or payable by Franchisor or its Affiliates to its own legal representatives (whether or not assessed under a retainer or costs agreement in place between Franchisor and its legal representatives) and other expenses incurred by Franchisor or its Affiliates in connection with a demand, action, arbitration, or other proceeding (including mediation, compromise, out of court settlement, or appeal).
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, franchisees may bear the costs of legal proceedings related to Chatime's intellectual property under certain circumstances. Specifically, the franchisee is required to indemnify Chatime against losses, liabilities, legal costs, and other expenses arising from various situations. These situations include breaches of the franchise agreement, injuries or property loss on the business premises, the franchisee's taxes or liabilities, and negligent or willful acts or omissions by the franchisee or their staff.
This means that if Chatime incurs legal costs due to actions or omissions of the franchisee, the franchisee is responsible for covering those costs. This obligation extends to demands, actions, arbitrations, or other legal proceedings, including mediation, settlements, or appeals. The FDD defines "Legal Costs" as all fees, costs, and disbursements actually paid or payable by Chatime or its affiliates to its own legal representatives, as well as other expenses incurred in connection with legal proceedings.
Furthermore, the franchisee is obligated to transfer ownership of any intellectual property they register that is similar to Chatime's intellectual property to Chatime at the franchisee's own cost. This includes business names, trademarks, and domain names. This requirement underscores the importance of protecting Chatime's brand and intellectual property rights, with the franchisee bearing the financial responsibility for ensuring these rights are maintained.
In practical terms, a Chatime franchisee needs to be diligent in adhering to the franchise agreement and operating their business responsibly to avoid potential legal issues that could lead to significant financial liabilities. Additionally, franchisees should avoid registering any intellectual property that could be construed as similar to Chatime's, as they will be required to transfer it to Chatime at their own expense.