Protecting Brands Beyond Borders: IP, NDAs and Licensing in Southeast Asian F&B Franchising

Introduction

The commercial value of an F&B franchise does not reside in a product formula alone, it is constituted by an integrated suite of intellectual property assets: registered trademarks, trade dress, proprietary recipes, operational manuals, and accumulated system know-how. And if a franchisor licenses those assets across jurisdictions, it simultaneously exposes them to legal systems that differ materially in the scope of protection they afford and the practical ability to enforce rights once breached.

Vietnam and Indonesia’s combined consumer market size is a significant market in Southeast Asia and they are both active sites for international F&B franchise expansion. Vietnam and Indonesia’s combined consumer market is a significant market in Southeast Asia and both countries are active F&B destination countries for international brands to expand their franchise. These markets are served by McDonald’s, KFC, Starbucks and Jollibee, each of whom has a master franchise, area development, or licensing relationship. This article focuses on the legal means by which those brands secure protection of their IP rights in each jurisdiction and on the repercussions of failing to do so.

Intellectual Property Structuring in F&B Franchising

There are two classes of IPs in a mature F&B franchisor’s portfolio, each being treated differently from a legal perspective. Registered rights, trademarks, service marks and design registrations for trade dress offer territorial rights and independent basis of enforcement. Unregistered rights, such as recipes, ingredients or formulations, manuals for operations, supplier networks etc. are protected, if at all, by contractual confidentiality obligations and, if applicable, statutory trade secret regimes.

This distinction applies to the use of assets. Trademarks can also be licensed, keeping the trademark in legal ownership with the franchisor, provided there are adequate quality control provisions in the license agreement which ensure that the distinctiveness of the trademark is maintained. Trade secrets, on the other hand, cannot be licensed in the sense of a property, but only as a contractual obligation, and in the case of breach of confidentiality, or inadequate definition of confidentiality, the protection is over. In all three jurisdictions, it is necessary to register the trademark in the territory prior to market entry. According to Vietnam’s Law on Intellectual Property 2005 (amended 2019), a franchisor could be vulnerable to pre-emptive filing if it does not register its IP first. The same follows the Law No. 20 of 2016 on Marks and Geographical Indications of Indonesia, which attaches rights to the registration process.

The protection for well-known marks under the Trade Marks Act 2019 is provided, but the key method for obtaining exclusivity and enforcement is through trade mark registration. The management of Starbucks’ trademark portfolio in the region, such as its control of the use by licensed operators of all elements of its trademark by which it identifies its coffee, including the company’s siren trademark symbol and the use of its store design, is a practical example of how a trademark portfolio is central to the consistency of the brand.

NDA Enforcement and Trade Secret Protection

Non-disclosure agreements serve two purposes in franchise relationships: preventing misuse of confidential information disclosed during pre-contractual negotiations and regulating ongoing access to proprietary systems throughout the operational term. Both functions must be addressed with jurisdiction-specific precision.

Malaysia has adopted the equitable doctrine of breach of confidence from English common law. Confidentiality enforcement is based on the tripartite test in Coco v A.N. Clark (Engineers) Ltd [1969] RPC 41, which requires quality of confidence, communication in confidence and actual or threatened use without permission. This is because the scope of protection, and the remedies available, are determined by judicial discretion and not by criteria set out in legislation in the absence of a standalone trade secrets statute. Where there is risk of breach interlocutory injunctions can be granted, but the factors for establishing the necessary level of confidence in the operational know-how in a complex case need to be carefully considered.

Vietnam’s Law on Intellectual Property gives legal protection to trade secrets that meet the following requirements: the trade secret has commercial value, it is not available to the general public, and it is maintained through reasonable measures to ensure confidentiality. The difficulty in practice is in the standards for evidence: a franchisor claiming that information has been misappropriated after the termination must establish that the information is what is defined by the statute and that there is a specific activity involved in the use or disclosure of the information that amounts to misappropriation. In Vietnam, there is limited reported experience of courts in addressing complicated commercial confidentiality cases, making it a crucial need to have written agreements.

The most prescriptive of the three regimes is the Indonesian Law No. 30 of 2000 on Trade Secrets, which puts the test of protectability on technology or business data that is non-public, economically valuable, and subject to active measures of confidentiality. In addition to the remedies provided by a purely equitable approach, criminal liability of the mis appropriator acts as an additional deterrent. The region has an operational model that is unique, as KFC breaks disclosure of recipes, suppliers’ requirements and preparation instructions into separate contractual instruments, indicating the need to structure disclosure according to the different types of legal protection in each territory.

Brand Licensing and Franchise Agreements

In its legal nature, a franchise agreement is a trademark license, in addition to a disclosure instrument with regards to trade secrets and an operating governance structure. The trademark license clause should contain quality control provisions giving the franchisor rights to inspection, audit and the right to take remedial action or else the license could be interpreted as an assignment or the trademark might be subject to invalidation based on deceptive use.

The Act 1998 (as amended in 2012) on Franchise in Malaysia mandates the registration for franchising of any franchise offered or sold to any third party with the Registrar of Franchises, or the franchise is voidable at the franchisee’s option if it is not registered. The Act also sets minimum disclosure requirements and limits the termination rights for the unilateral termination. The limitations imposed on the structure of franchise agreements highlight the importance of pre-entry legal review and the need for franchisors to be mindful of their obligations when structuring a franchise.

Vietnam mandates foreign franchisors to register with the Ministry of Industry and Trade (MII&T) prior to starting franchise activities in accordance with Decree No. 35/2006/ND-CP (amended by Decree No. 08/2018/ND-CP). Indonesia’s Government Regulation 42 of 2007 requires that the agreements be registered with the government and includes a domestic sourcing requirement for raw materials, which has direct implications on the architecture of the supply chain and, indirectly, the extent of the operational know-how to be shared by the franchisor with the franchisee.

Commercial Examples and Practical Lessons

Major F&B brands are an example of how a poorly structured IP licensing can present risks on the regional level. It is clear that brand identity, the kind of trademark that can be registered, but also the unregistered get-up, is as important as the trademark itself, as McDonald’s has been consistent in insisting on registration of the trademark in each of the countries where it launches its franchises, reserving rights to its unregistered trademark elements, including the layout, the color schemes, the menu presentation and so on.

But these are challenges that affect regional franchisors such as Jollibee, which expanded into Vietnam and Indonesia from its home base in the Philippines. Wherever localized menu adaptations are made (whether as a trade secret, as a registered design or as proprietary information that is reserved by contract), they should be protected beforehand by careful legal structuring before they have been shared with sub-franchisees or local operational partnerships.

Analysis and Reform Considerations

The greatest legal concern for international F&B franchisors is the use of post-termination confidential information by former franchisees who start up competing enterprises. In Vietnam & Indonesia, enforcement of post-termination confidentiality obligations will require bringing in both statutory trade secret protection and contractual confidentiality provisions, the burden on the franchisor being on the side of the data used. This is hard to operate without a proper pre-disclosure classification of each category of proprietary information.

Governing law and dispute resolution provisions are important risk management provisions. A Governing law clause of Singapore or English law will generally be applicable in arbitral proceedings and offer access to existing trade secret and confidentiality jurisprudence. Litigation is local, institutional arbitration under SIAC or ICC rules preferable, enforcement is available under the New York Convention 1958 (to which Vietnam, Indonesia and Malaysia are all parties). If, however, a franchisor wants some preliminary injunctions to stop an existing act of confidentiality breach, then it may be necessary to have to go to court locally and the effectiveness of the local judiciary will play a crucial part in the determination of the outcome.

Without harmonized ASEAN trade secret or franchise protection laws, protection must be block-built: distinction in the confidentiality schedules; different durations of the post-publication restriction in the trademarks; quality-control provisions in the trademarks that are long enough to maintain the validity of the trademarks; and compliance with the local franchise registration requirements to ensure the non-voidability of the trademarks.

Conclusion

Legal control of an F&B franchise is legal control of IP. Trademarks are tools of brand identity, trade secrets refer to the proprietary knowledge that makes the brand valuable commercially, and franchises are the documents through which brand identity and proprietary knowledge are licensed, regulated and safeguarded across the border. The scope of the laws and the effectiveness of enforcement differ from country to country in Vietnam, Indonesia and Malaysia, but the strategic goal is consistent: register trademarks in countries before entering the market; set up confidentiality obligations with precision and precision; and incorporate trademark quality control into all licensing agreements. Franchisors that consider legal structuring as an administrative burden instead of the key tool of IP protection take chances that can be irreparable when they come to pass.

Author:- Maitraiy Soni, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.

References and Legal Authorities

Primary Legislation

1. Vietnam: Law on Intellectual Property 2005 (as amended by Law No. 36/2009/QH12 and Law No. 42/2019/QH14); Commercial Law 2005; Decree No. 35/2006/ND-CP on Franchising (as amended by Decree No. 08/2018/ND-CP).
2. Indonesia: Law No. 20 of 2016 on Marks and Geographical Indications; Law No. 30 of 2000 on Trade Secrets; Government Regulation No. 42 of 2007 on Franchising.
3. Malaysia: Trade Marks Act 2019 (Act 815); Franchise Act 1998 (Act 590) as amended 2012.
4. International: New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

Case Law

1. Coco v A.N. Clark (Engineers) Ltd [1969] RPC 41 (Ch D).

Secondary Sources and Institutional Materials

1. WIPO, WIPO Intellectual Property Handbook, 2nd edn (WIPO 2004), ch 5.
2. WIPO, Guide on Surveying the Role of Intellectual Property in Franchising (WIPO 2004).
3. Tay Pek San, ‘Franchise Law in Malaysia’ (2010) 22 Singapore Academy of Law Journal 857.
4. ASEAN Secretariat, ASEAN Intellectual Property Rights Action Plan 2016–2025 (ASEAN 2016).