Intangible elements of franchising in Spain

published on 26 June 2024 | reading time approx. 5 minutes

A franchise agreement is a contract under which a company – the franchisor – grants another natural person or legal entity – the franchisee – the right to use a system to market products or services.

This article is part of the article series “Franchising”. It is a cross border collaboration and is intended to highlight the key elements of a franchising agreement in selected countries. To the article series “Franchising” »

The intangible elements of a franchise are the non-physical assets that add value to the brand and the company. In Spain, as in any other country, these elements play a crucial role in the success of a franchise business. Below are some of the most important intangible elements of a franchise in Spain:

The brand »
The Know-how »
Conclusion »

The brand

The brand is one of the most valuable and fundamental intangible elements of a franchise business, both in Spain and in any other country. Below we explain the importance and main aspects of the brand as an intangible element in the context of a franchise business in Spain:

The importance of branding in a franchise company

Recognisability and differentiation: Branding creates a unique identity that sets the franchise company apart from its competitors. A recognisable brand name and a distinctive logo help to attract the attention of consumers and create an emotional connection with them.
Reputation and trust: A strong, well-established brand conveys trust and credibility. Consumers tend to favour companies with well-known and trustworthy brands, which can lead to more customer traffic and sales.
Marketing and advertising: The brand is the backbone of marketing and advertising strategies. A recognised brand facilitates the promotion of new products or services and makes it possible to use national or regional marketing campaigns.
Perceived value: Consumers are often willing to pay more for products and services from brands that they perceive to be of high quality. The brand can add significant value to the product or service offered.

Legal protection of the trademark

In Spain, trademark protection is mainly regulated by the Trademark Act, which is based on the regulations of the European Union. Trademark protection covers several aspects:

Trademark registration: Registration of the trademark with the Spanish Patent and Trademark Office (OEPM) is essential in order to obtain legal protection. Registration gives the owner the exclusive right to use the trademark in relation to the registered goods or services.
Intellectual property rights: Registration of the trademark enables the franchisor to protect its intellectual property rights and to take legal action against any unauthorised use of the trademark.
Licence to use: In a franchise agreement, the franchisor grants the franchisee a licence to use the brand. This licence must be clearly defined in the franchise agreement and the conditions for use must be specified.
Quality control: To maintain brand integrity, the franchisor must ensure that franchisees comply with the defined quality standards. This includes regular checks and audits to ensure a consistent customer experience at all franchise locations.

Concession of the use of the trademark and distinctive symbols

As regards the concession of the use of the brand and distinctive symbols, this involves the concession of the brand together with the different elements of the corporate image, such as lettering, logos, slogans, corporate colours, typographies, etc. to the franchisee, and uniform appearance in the franchised premises.

To this end, it is very important to define the limits of the concession of use or licence for the distinctive symbols and to always limit them to the duration of the legal business between franchisor and franchisee.

In short, the brand is a crucial intangible asset in a franchise business in Spain. The protection, management and strengthening thereof are crucial to the success and sustainability of the franchise business model.

The Know-how

Corporate know-how is defined as a body of non-proprietary expertise, derived from the franchisor's experience and verified by the franchisor, that is secret, substantial and identifiable.

From the definition itself, it is possible to derive the characteristics that must be present in such a body of knowledge for it to be considered as such for the purposes of the franchise agreement:

Practical: In the sense that it is an organisational method and knowledge derived from the franchisor's experience. To this end, the franchisor has pilot centres to test and confirm the satisfactory outcome of the franchise model.
Secret or original: Not in the strict sense that each individual component of the know-how must be completely unknown or inaccessible outside the franchisor's company, but in the sense that the know-how in its entirety or in the configuration and composition of its components is not generally known or easily accessible, which justifies the clauses on the confidentiality of the information transmitted and the non-competition clause during the contract and upon termination thereof.
Material: It must be information relevant to the sale of goods or the provision of services to the end consumer, in particular the presentation of goods for sale, the transformation of goods in the context of the provision of services, relations with customers and administrative and financial management. In short, the know-how must be useful to the franchisee and enable it to improve its competitive position and in particular its results or help it to enter a new market.
Evolutive or dynamic: In the sense of the need for constant updating by incorporating improvements and developments that justify the franchisor providing continuous commercial or technical support to the franchisee during the term of the contract.
Identified: It must be described in a manner sufficiently complete to verify that it meets the conditions of secrecy and substantiality. It may be described in the franchise agreement itself, in a separate document or in any other appropriate form.

Franchise know-how is usually contained in a document called the operations manual, which describes all aspects of the operations of the business and the franchisor's general philosophy for achieving success. It is a highly technical manual that must contain those fundamental aspects that make the franchisee a true extension of the franchisor's commercial and technical ideology.

For this very reason, the content of the operations manual is difficult to standardise and depends on the type of franchising. Thus, in the case of distribution and service franchising, it will contain instructions for setting up and opening a branch (furnishings and decoration) and subsequent start-up (sales methods, product presentation, transport, forms of presentation of services, guide prices, even uniforms for employees, etc.). In the case of production franchising, it includes guidelines for the purchase of raw materials and the subsequent processing thereof, industrial machinery and equipment, etc.

Know-how is covered by or coincides with the concept of trade secrets. This identification has led to the definition of know-how as “knowledge or body of technical knowledge which is not in the public domain and which is necessary for the manufacture or marketing of a product, for the provision of a service or for the organisation of a business unit which therefore gives the know-how holder an advantage over competitors which they endeavour to preserve by preventing the disclosure there of”^[1].

Know-how is non-patented practical knowledge that is based on the franchisor's experience and has been verified by the franchisor, that can be protected as a trade secret, that is substantial and identifiable, that has a has a tangible value and can be regarded as a genuine intangible asset that can be the subject of a legal transaction^[2].

Conclusion

In Spain, the legislation on franchising and the protection of these intangible elements is clear and is mainly governed by the Commercial Code and other regulations on intellectual and industrial property. Franchisors must ensure that these intangible assets are well protected and managed in order to guarantee the success and sustainability of the business model.

[1] (TS 21-10-05, EDJ 171684)

[2] (TS 4-10-20, EDJ 575447)