Who can terminate the exclusive license granted to Chatime for franchisee improvements that are not capable of assignment?
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 the 2025 Chatime Franchise Disclosure Document, if a franchisee develops improvements during the initial term that generate intellectual property rights, those rights are assigned to Chatime. However, if these rights are not capable of assignment, the franchisee grants Chatime an exclusive, worldwide, royalty-free, fully assignable, perpetual license to use these improvements.
This license can only be terminated by Chatime. This means that even though the franchisee created the improvement, Chatime has the sole right to decide whether to continue using it.
This clause ensures that Chatime maintains control over any intellectual property developed within its franchise system, even if the franchisee initially owns the rights. It is important for prospective franchisees to understand that any improvements they develop for the Chatime system become the property of Chatime, and they will not have the power to terminate Chatime's right to use them.