Federal Bill Clarifies Trademark Licensing by Franchises

Federal Bill Clarifies Trademark Licensing by Franchises

Franchise owners would get much-needed legal clarity under proposed trademark legislation. The Trademark Licensing Act of 2018 clarifies that the licensing of a trademark does not create an employment or principal-agent relationship.

The need for clarification stems from the National Labor Review Board’s (NLRB) decision in Browning-Ferris Industries of California. The 2015 decision established a new standard for determining whether two or more separate employers constitute a joint employer for purposes of the National Labor Relations Act (NLRA). Under the NLRB’s test, the primary question is whether the putative joint employer possesses the authority, even indirectly, to control terms and conditions of employment. Accordingly, the test no longer requires that a company have direct and immediate control over terms and conditions of employment, nor that a company actually exercise that authority.

With respect to franchises that license trademarks from brand owners, the NLRB decision has created significant legal uncertainty. Under federal trademark law, brand owners must control the use of their marks; however, complying with the Lanham Act could lead to increased liability under the Browning-Ferris joint-employer standard.

Trademark Licensing Act of 2018

Co-sponsored by Congressman Steve Chabot (R-OH) and Congressman Henry Cuellar (D-TX), the Trademark Licensing Act of 2018 amends the Lanham Act by adding a new section to address trademark licenses granted to franchisees. It states, in relevant part:

The licensing of a mark for use by a related company, and any control or exercise of control over thereof for the purpose of preserving the goodwill, reputation, uniformity, or expectation of the public of the nature and quality of goods or services associated with the mark, may not be construed as establishing an employment or principal-agent relationship between the owner of the mark and the related company.

The term “employment or principal-agent relationship” is defined to include various types of business relationships including joint employer, single employer, alter ego or successorship relationships.

Not surprisingly, the business community supports the proposed trademark legislation. The International Franchise Association’s Robert Cresanti recently wrote an op-ed in The Hill, entitled “Support the Trademark Licensing Protection Act.” He argued that “by establishing control mechanisms to protect their brand – which franchisors are required by law to do – franchisors are penalized by employment law that increasingly considers them a ‘joint employer’ over its franchisees, ultimately opening up franchisors to inappropriate additional liability and threatening the independence of franchisees.”

The House Committee on the Judiciary is currently considering the proposed legislation. The Scarinci Hollenbeck Intellectual Property Group will continue to track its progress and post updates.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Bill Samuels, or the Scarinci Hollenbeck attorney with whom you work at 201-806-3364.