What rights does Desi District grant to franchisees related to intellectual property?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company's primarily performance obligation under the franchise agreement mainly includes granting certain rights to access the Company's intellectual property and a variety of activities relating to opening a franchise unit, including initial training and other such activities commonly referred to collectively as "pre-opening activities", which are recognized as a single performance obligation. The Company expects that certain pre-opening activities provided to the franchisee will not be brand specific and will provide the franchisee with relevant general business information that is separate and distinct from the operation of a company-branded franchise unit. The portion of pre-opening activities that will be provided that is not brand specific is expected to be distinct as it will provide a benefit to the franchisee and is expected not to be highly interrelated or interdependent to the access of the Company's intellectual property, and therefore will be accounted for as a separate distinct performance obligation. All other pre-opening activities are expected to be highly interrelated and interdependent to the access of the Company's intellectual property and therefore will be accounted for as a single performance obligation, which is satisfied by granting certain rights to access the Company's intellectual property over the term of each franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, the company grants franchisees certain rights to access its intellectual property as part of the franchise agreement. Desi District's primary performance obligation involves granting these rights, which are tied to pre-opening activities such as initial training.
The document specifies that a portion of the pre-opening activities provided to the franchisee will not be brand-specific, offering general business information distinct from the Desi District brand. These non-brand-specific activities are treated as a separate performance obligation because they benefit the franchisee independently and are not highly interrelated with accessing Desi District's intellectual property.
However, the remaining pre-opening activities are considered highly interrelated and interdependent with the access to Desi District's intellectual property. Consequently, these activities are accounted for as a single performance obligation that is fulfilled by granting the franchisee rights to access the company's intellectual property throughout the term of the franchise agreement. The fees associated with these activities, not allocated to the non-brand-specific pre-opening, are recorded as Unearned Revenue and recognized over the franchise agreement term.