Does Craters & Freighters have the right to select legal counsel for the defense of an infringement claim?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
- 8.10 Infringement of Marks.
In the event that Franchisee becomes aware, receives notice, or is informed of any claim, suit, or demand against Franchisee on account of any alleged infringement, unfair competition, or similar matter relating to the use of the Marks or any trademarks, trade names, service marks, logotypes, insignia, or designs owned by Franchisor or represented by Franchisor and used by Franchisee in accordance with the terms and conditions of this Agreement, Franchisee will notify Franchisor in writing ("Infringement Notice") within three (3) calendar days of any such claim, suit, or demand.
Franchisee will not communicate with any persons other than Franchisor or Franchisor's legal counsel in connection with any such claim, suit, or demand.
Upon receiving the Infringement Notice from Franchisee, Franchisor will indemnify and defend Franchisee against any such claim by any third party, so long as such claim arose solely out of Franchisee's authorized use of the Marks licensed under this Agreement in connection with the operation of the Franchised Business.
Further, Franchisee acknowledges that Franchisor has the right to completely control the defense and, if appropriate, settlement negotiations and resolution regarding such claim, including the right to select legal counsel Franchisor deems appropriate.
Source: Item 22 — CONTRACTS (FDD pages 49–50)
What This Means (2025 FDD)
According to the 2025 Craters & Freighters Franchise Disclosure Document, if a franchisee faces a claim related to the use of Craters & Freighters' marks, Craters & Freighters has the right to manage the defense, settlement negotiations, and resolution of the claim. This includes the right for Craters & Freighters to choose the legal counsel they deem appropriate. The franchisee must notify Craters & Freighters in writing within three calendar days of any such claim, suit, or demand. The franchisee is also required to refrain from communicating with anyone other than Craters & Freighters or their legal counsel regarding the claim.
Craters & Freighters will indemnify and defend the franchisee against such claims if the claim arose solely from the franchisee's authorized use of the marks licensed under the agreement in connection with the operation of the franchised business. The franchisee is required to cooperate fully with Craters & Freighters and to execute any documents and actions deemed necessary by Craters & Freighters' counsel to carry out the defense, settlement negotiations, or resolution of the claim.
However, Craters & Freighters' liability is limited to the amount of the initial franchise fee paid by the franchisee under the agreement. This means that while Craters & Freighters controls the legal defense and may cover initial costs, the franchisee's potential financial exposure is capped at the initial franchise fee, regardless of the actual costs incurred in defending the claim. This arrangement is typical in franchising, where the franchisor seeks to protect its brand and trademarks while also limiting its financial risk.
This clause highlights the importance of franchisees adhering to Craters & Freighters' standards and guidelines for using the brand's marks. It also underscores the need for franchisees to promptly report any potential infringement claims to Craters & Freighters to ensure they can receive the necessary support and protection under the franchise agreement.