Does Chesters have an obligation to indemnify a franchisee for expenses or damages if they are a party to a judicial proceeding involving a Mark?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
The Agreement does not require us to protect your right to use the Marks listed above or to protect you against claims of infringement or unfair competition from your use of the Marks. You have no contractual obligation to notify us of any apparent infringement or challenge to your use of any Mark or of any person's claim of any rights in any Mark. In all these cases, we have the right to take the action we deem appropriate (including no action). Because we own the Marks, we would expect to control exclusively any litigation, USPTO proceeding, or other administrative proceeding arising from any infringement, challenge, or claim. We have no obligation to participate in your defense and/or indemnify you for expenses or damages if you are a party to an administrative or judicial proceeding involving a Mark we license to you or if the proceeding is resolved unfavorably toward you. You must cooperate with us in defending or settling litigation. Our Agreement does not address our right to change the Marks during the franchise term.
Source: Item 13 — TRADEMARKS (FDD pages 31–33)
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, Chesters is not obligated to defend or indemnify a franchisee in legal proceedings involving the brand's trademarks. Specifically, Chesters bears no responsibility to cover a franchisee's expenses or damages if they are involved in an administrative or judicial proceeding related to a licensed Mark, especially if the outcome of the proceeding is unfavorable to the franchisee. This means that if a franchisee is sued for trademark infringement related to their Chesters restaurant, they will likely be responsible for their own legal defense and any resulting damages.
This lack of obligation extends to both administrative and judicial proceedings, providing Chesters with broad discretion over its involvement in trademark-related disputes. While Chesters retains the right to take action as it deems appropriate, including no action at all, the franchisee cannot rely on Chesters for financial or legal support in such situations. However, the franchisee is required to cooperate with Chesters in defending or settling any litigation.
This arrangement places a significant risk on the franchisee, who could face substantial legal costs and potential damages in a trademark dispute. It is common in franchising for franchisors to offer some level of indemnification to franchisees for trademark issues, so Chesters's policy is less favorable than some other franchise systems. Prospective franchisees should carefully consider this potential liability and factor it into their assessment of the Chesters franchise opportunity. It would be prudent to discuss this issue further with Chesters and potentially seek legal advice to fully understand the implications.