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Spotlight: intellectual property for franchises in Japan | Lexology

Spotlight: intellectual property for franchises in USA | Lexology

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Intellectual property

i Overview

In franchising, a well-known brand is the most valuable asset of the business. It is, therefore, essential to protect and reinforce brand trademarks when expanding the franchise business.

If a franchisor fails to apply for and register its trademarks and if a third party who conducts a similar business using commercial indications that are similar to the franchisor’s trademarks emerges, the franchisor will need to claim its rights under the Unfair Competition Prevention Act (UCPA). Under the UCPA, a plaintiff must prove that an indication is well known or famous among consumers and proving this could be time-consuming. Furthermore, if the third party has already registered a trademark similar to the franchise system brand or trademarks and has already been using the trademark in products or services similar to those of the franchisor, there is a possibility that the third party may seek an injunction preventing the franchisor from using the franchisor’s own brand and trademarks.

In fact, in the decision rendered on 10 September 2012 (see the website of the courts in Japan for the INAIL case), the Tokyo District Court granted an injunction suspending the use of signage and other materials and ordered the destruction of the signage and other materials, among other orders, based on the third party’s infringement of the registered trademark of the plaintiff, against the defendant who operated a franchising business using a similar mark.

Based on the foregoing, a franchisor should apply for and register its brand or trademarks after deliberating whether it is possible to register the brand or trademarks. Most franchisors follow these practices.

ii Brand search

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A ‘trademark right’ means an exclusive right to use a trademark, registration of which has been accepted by the Japan Patent Office following an examination by the Japan Patent Office (registered trademark), for certain products or services (designated products or services)7 that arise as a result of the registration of establishment of such a right.8 A trademark holder has the exclusive right to use the registered trademark for the designated products or services without any interference by others (exclusive right to use) and, in cases where others use the registered trademark or a similar trademark for identical or similar designated products or services, a trademark holder also has the right to suspend such use and claim damages (prohibition right).9

The common method of determining whether a trademark has been registered is to use a database such as that available from the Japan Platform for Patent Information (formerly the Industrial Property Digital Library). However, because there is a time lag between actual registration and the updating of the database, a prospective applicant often obtains a copy of the trademark registry for important trademarks. A copy of the trademark registry may be applied for and obtained at the Japan Patent Office by submitting an issuance request in a designated form and paying a fee of ¥800 per case in ordinary cases. If, in relation to the trademark that a franchisor uses in its franchise business, the franchisor desires to register a new trademark or considers the registered scope to be insufficient, the franchisor should investigate whether there are any trademarks of other companies that have already been registered and consult with experts (such as patent attorneys and attorneys) about the possibility of infringement based on the result of the investigation.

Franchisors often use domain names when carrying out a franchise business. Japan Registry Services manages the database of Japanese domain names comprehensively and multiple registrars accept applications for the registration of individual domain names.

iii Brand protection

A person who desires to register any trademark must submit to the Commissioner of the Japan Patent Office an application for registration that provides the applicant’s address, name (or name of its representative if the applicant is an entity), date of submission, designated products or designated services and categories of the designated products or designated services, together with documents indicating the trademark and necessary written explanations thereof.

In Japan, if there has been any application for registration of a trademark that is identical or similar to another trademark, the person who first applied for registration is entitled to the trademark, not a person who has simply started using the trademark first. For details of the procedures for registering trademarks, please refer to the website of the Japan Patent Office (http://www.jpo.go.jp/tetuzuki_e/t_gaiyo_e/tr_right.htm).

iv Enforcement

Infringement of a trademark refers to an incident where a person without authorisation uses a trademark identical or similar to any registered trademark for designated products or designated services (the designated products or services). The use of an identical or similar trademark for identical or similar designated products or services will constitute an infringement of a trademark (whereas use of an identical or similar trademark for dissimilar designated products or services or use of a dissimilar trademark for identical or similar designated products or services will not constitute an infringement). In summary:

  Identical trademark Similar trademark Dissimilar trademark
Identical designated products or services Infringement Infringement
Similar designated products or services Infringement Infringement
Dissimilar designated products or services

In the Kozo Sushi case,10 in which a third party filed an action against a franchisor, the court rendered a decision on the standards for determining similarity between trademarks, which relates to the issue of identity or similarity of trademarks in cases of infringement. With respect to similarity between the Plaintiff’s ‘Kozo’ (in Japanese) trademark and the Defendant’s ‘Kozo Sushi’ (in Japanese) and ‘KOZO SUSHI’ trademarks, the Supreme Court opined that similarity between trademarks must be observed comprehensively in consideration of impression, recollection and association that business partners and consumers may have with respect to a trademark based on its appearance, concept and designation and that actual circumstances of transactions of the products concerned must be investigated and similarity between trademarks must be determined based on specific transactions. The court further opined that similarity in appearance, concept or designation of trademarks may provide certain standards by which to determine whether products using a particular trademark cause misunderstanding or confusion as to the origin of the products; however, trademarks may be said to be dissimilar if, despite similarity in their appearance, concept or designation, there are other aspects of the trademarks that are significantly different or there is no misunderstanding or confusion as to the origin of the products based on the specific circumstances of the transactions. In actual practice, when finding similarity of combined trademarks, as in the Kozo Sushi case, examination of similarity with other trademarks by extracting part of the combined trademarks may often become an issue.11 According to the precedents, when examining ‘specific circumstances of the transactions’, the Court tends to take into account not only the manner of the handling of products and other general aspects of the business environment, but also the degree of fame of trademarks, existence of other trademarks, use and manner of use of trademarks and other unique circumstances of trademarks.

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v Data protection, cybercrime, social media and e-commerce

The laws and regulations relating to cybercrime, e-commerce and other internet-related activities that apply to general commercial transactions under Japanese law also apply to franchising activities in Japan. The increasing regulatory trend to protect personal data is also noteworthy.

The Act on the Protection of Personal Information (APPI) of 2003, as amended, sits at the centre of Japan’s regime for the protection of personally identifiable information.

An amendment to the APPI, which was fully implemented on 30 May 2018, significantly changed the regime to eliminate ambiguity in the regulatory framework and facilitate the proper use of personal data by businesses and to strengthen the protection of privacy. It also aims to address global data transfers and harmonise Japan’s data protection regime with that of other major jurisdictions.

In recent years, while social networking sites have become increasingly popular, there have been many cases where the brand reputation of restaurants and other franchise systems were damaged because of information posted by employees and customers with malicious intent.

Under the law, the personal, economic and social reputation of an entity is protected just like honour of any individual,12 therefore an entity may file an action for defamation. However, it is extremely difficult to restore a brand’s reputation once it has been damaged. Therefore, it is important to prevent such an occurrence by providing seminars for the employees of franchisors and franchisees, as well as establishing internal rules and guidelines.

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