Freedom Foods case highlights difference between a licence agreement and franchise agreement

A recent legal case has highlighted the distinction between intellectual property licence agreements and franchise agreements.

Eaglegate Lawyers reports a legal stoush over almond milk has shone a light on the issue of trade mark control and reiterated why an intellectual property licence agreement is not a franchise agreement.

The legal dispute was between Californian company Blue Diamond Growers which had licensed Australian company Freedom Foods Pty Ltd to manufacture and sell almond milk products under certain trade marks.

Brisbane intellectual property and trade marks lawyer Nicole Murdoch says when a dispute arose between the two parties Blue Diamond turned to a clause in the licence agreement which requires arbitration of the dispute in California.

However Freedom Foods sought to avoid that clause, claiming the licence agreement was a franchise agreement and therefore regulated by the Franchising Code of Conduct.

The Code provides that a clause which requires a party to bring proceedings in any jurisdiction outside Australia “is of no effect”, Murdoch points out.

Murdoch,  a principal at Eaglegate Lawyers, says the court found that the most distinguishing feature of a franchise is the grant of a right to carry on a business under a system or marketing plan that comes about by the licensor. That is, the franchisor controls the business of the franchisee.

“In this case there was no control so it was found to be a licence not a franchise.

“Under the Trade Marks Act a trade mark owner must control use of the trade mark by authorised users. But how much control is too much control?

“This recent case shows that trade mark owners when licencing their trade marks risk going too far when they exert control over their authorised users.

“The case shows that a licence should be, just that, a licence and that trying to control the business operations of a trade mark licensee can potentially breach the Franchising Code of Conduct and expose the licensor to a finding that the licence is actually a franchise.”