Trademark Ownership: The Hidden Hurdle in Texas Franchise and Licensing Deals

As Texas businesses grow, many owners consider expanding through licensing or franchising. But according to trademark attorney Joey Vitale, founder of Indie Law, one critical issue can derail those plans: the inability to prove ownership of the brand's trademark rights. "A lot of business owners don't see this problem when they're starting out," Vitale said. "It shows up when the business gets bigger. Someone wants to license the name, open another location, or invest, and suddenly they're asking a very important question: Do you actually own this brand?"

Licensing a brand means granting permission to use the name for agreed-upon terms, while franchising goes further by allowing another owner to operate under the brand and business system. In both cases, the brand is central to the deal. A federal trademark registration helps establish exclusive legal rights to use a name for the goods or services covered by the registration. Without those rights secured, a business may not have the protection that a licensing partner, franchisee, investor, or their attorney expects to see. That can turn a promising growth opportunity into a legal problem.

Before a franchise deal moves forward, trademark ownership is scrutinized early. In the United States, franchisors are generally required to provide prospective franchisees with a Franchise Disclosure Document (FDD), a detailed legal document that outlines the terms of the deal. One section of the FDD is dedicated to trademarks. It asks the franchisor to identify the brand's main trademarks, state whether they are federally registered, and disclose any known conflicts, such as another business claiming earlier rights to the name.

Federal registration isn't required to sell a franchise, but a brand without one must disclose that fact in the FDD, along with the added risks. This can make prospective franchisees and their attorneys think twice. Licensing deals don't follow the same disclosure format, but licensing partners, investors, and their attorneys commonly ask for proof of ownership before signing. Without that proof, the deal may slow down while the issue gets sorted out. Terms may need to change, and in some cases, the opportunity may disappear altogether.

There is also a bigger risk. A trademark search during due diligence—the legal and business review that happens before a deal is finalized—could uncover someone else with stronger rights to the same or a similar name. "That's a painful time to find out you have a trademark problem," Vitale said. "You might have a great opportunity sitting in front of you, but now everything has to stop while you figure out whether you actually own what you're trying to license. This is the kind of issue that's much easier to deal with before there's a term sheet and a deadline on the table."

If licensing or franchising is part of a business's growth plan, trademark protection shouldn't be an afterthought. Attorneys recommend starting the trademark process before serious deal conversations begin. Doing so allows time to search for potential conflicts, understand existing rights, and pursue federal registration before another party is waiting on proof of ownership.

Indie Law focuses exclusively on trademarks and has helped business owners protect their brands through more than 2,500 trademark filings, with a 99.7% success rate. "You can't build a bigger future for a brand you don't fully own," Vitale said. "Get the ownership piece right first. Then you can think about where the brand goes next." Additional information about trademark protection is available at www.indielaw.com and in a recent blog post at https://www.indielaw.com/blog/the-role-of-trademarks-in-franchising-why-brand-protection-is-the-backbone-of-every-franchise/.