A relatively recent trend indicates that state regulators in franchise registration states are conducting state trademark searches and advising franchise owners, who are filing applications to offer and sell franchises in those registration states, that a local third party already operates in the state under the same or similar trademark as the franchise. Consequently, the state regulator is requesting, and in some cases requiring, additional franchisor disclosures and representations in the Franchise Disclosure Document (FDD) concerning the franchise’s trademark rights, and the potential risks to prospective franchisees concerning the right to use the franchise trademark in the state.

This scenario presents a significant issue for franchisors and their ability to sell franchises in a state in which they had not yet been operating, but into which they expected to expand without interference. In addition to the prospect of the franchise trademark owner having to enforce its trademark rights against a local third-party infringer in the state, there’s a good chance that any prospective franchisee will refuse to sign a franchise agreement after receiving the state regulator required amended FDD, thereby delaying expansion into the new state, as well as increasing costs to do so.

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