Is Exit obligated to defend a franchisee against all claims by a third party, or only those concerning the use of Proprietary Information?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
aterially affect your use of EXIT's trademarks.
ITEM 14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION
EXIT Realty Upper Midwest does not own or grant you the right to use any item governed by a patent but does permit you to use Proprietary Information in the Training Manuals, and copyrighted material owned by EXIT while you are a Franchisee. See ITEM 11 of this Disclosure Document. Although EXIT does not own federally determined rights in copyright materials and has not filed an Application for Copyright Registration for the Training Manuals, the information in the Training Manuals is proprietary, and EXIT claims a copyright to the entire Training Manuals and in various advertising and sales promotion materials used in connection with the EXIT System. You may not copy any of EXIT's confidential information or give it to a third party, except as EXIT authorizes. You must also promptly tell us when you learn about unauthorized use of this Proprietary Information. EXIT Realty Upper Midwest is not obligated to take any action but will respond to this information as we think appropriate. EXIT has the right to control any litigation involving Proprietary Information. EXIT or EXIT Realty Upper Midwest will defend you for claims by a third party concerning your use of this Proprietary Information.
ITEM 15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS
As a Franchisee, you, or if you are an entity, an officer, member, director, partner or other person named as the real estate broker of record, must devote full time and best efforts to the Franchise business. If the Franchisee is operating as a corporation, partnership or limited liability company, you and all other equity holders in the company must execute a Personal Guaranty of the Franchise Agreement. In addition, in community or marital property states, your spouse may be required to sign the Personal Guaranty. Your business must be directly supervised "on premises" by a manager who has successfully completed EXIT's training programs.
Source: Item 14 — PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION (FDD page 27)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, Exit provides defense to franchisees only in specific instances related to the use of Proprietary Information. Exit or Exit Realty Upper Midwest will defend a franchisee against claims made by a third party concerning the franchisee's use of Exit's Proprietary Information. This obligation is specifically limited to claims arising from the use of Proprietary Information.
However, the franchisee has a responsibility to defend and indemnify Exit and its affiliates against claims arising from the franchisee's business operations. Specifically, the franchisee is responsible for fines, suits, proceedings, claims, or damages relating to its business, including any costs, expenses, or liability resulting from loss of life or injuries sustained in connection with the operation of its real estate service. This obligation extends to defending, indemnifying, and holding Exit harmless from any claims, liability, or expenses, including attorneys' fees, that Exit may incur due to the franchisee's business conduct.
In practical terms, this means that if a claim arises because a franchisee is allegedly misusing Exit's trademarks or confidential information, Exit will provide a defense. However, if a claim arises due to the franchisee's actions in running their business, such as a customer injury on the property or a contractual dispute, the franchisee is solely responsible for handling the claim and must also protect Exit from any liability. This division of responsibility is typical in franchising, where the franchisor protects its brand and system, while the franchisee manages the day-to-day operational risks.
It is important for a prospective Exit franchisee to understand the scope of these indemnification and defense obligations. Franchisees should ensure they have adequate insurance coverage to protect against potential claims arising from their business operations. Additionally, franchisees should consult with legal counsel to fully understand their responsibilities and potential liabilities under the franchise agreement.