Trademark Use After Franchise Termination in Korea: What Franchisees Must Know

Trademark Use After Franchise Termination can create unexpected liability for a franchisee even when there was a legitimate reason to end the franchise agreement.

When a franchise relationship ends, the dispute is not always over. Franchisees must also consider what happens to signs, trademarks, interior branding, equipment, and other materials associated with the franchisor.

Trademark Use After Franchise Termination

In one consultation involving a meal-kit franchise, the franchisee experienced declining sales and difficulties obtaining products from the franchisor. The franchisee eventually notified the franchisor that the agreement would be terminated and began selling independently prepared meal kits.

The franchisor then claimed that the franchisee had continued using its trademark and demanded damages.

This illustrates an important distinction: the right to terminate a franchise agreement and the obligations arising after termination are separate legal issues.

For more information about the contractual relationship itself, see Pureum Law Office’s guide to Korean franchise agreements.

What Must a Franchisee Do After Termination?

A franchisee generally receives the right to use the franchisor’s trademarks and other business marks as part of the franchise relationship. When that relationship ends, the contractual right to use those marks also ordinarily ends.

Accordingly, a franchisee may need to remove or stop using storefront signs, online branding, telephone listings, packaging, menus, and other materials displaying the franchisor’s marks.

These obligations should be reviewed under the franchise agreement and Korea’s Fair Transactions in Franchise Business Act.

Trademark Use After Franchise Termination Can Lead to Damages

Even where a franchisee has valid grounds for terminating the agreement, continuing to display the former franchisor’s trademark can create a separate dispute.

In the meal-kit matter, another important issue was that the franchisor had allegedly failed to supply products that were central to the franchise business. Depending on the facts, a serious failure to perform essential contractual obligations may support termination.

However, the franchisee had also continued operating at the same location while the existing signage had not yet been completely removed.

That can complicate an otherwise strong termination claim.

Franchisees should therefore document the termination process carefully and remove franchise branding as quickly as reasonably possible. Evidence showing that removal work has already been commissioned or started may also become important if a damages claim follows.

Pureum Law Office’s Korean Franchise Law guide explains additional protections and obligations applicable to Korean franchise relationships.

If you are considering terminating a franchise agreement, review both your right to terminate and your post-termination obligations before taking action.

At Pureum Law Office, we advise franchisors and franchisees on Trademark Use After Franchise Termination, franchise agreements, termination disputes, and post-termination obligations.

If you have received a demand for damages or are preparing to terminate a franchise relationship, contact Pureum Law Office or email ask@pureumlawoffice.com.

Let us help.