Technology in franchising: new challenges for franchisors - part two
Author: Magdalena Konig
Applies to: England and Wales
As detailed in our previous article 'Technology in franchising: new challenges for franchisors - part one', technology can be utilised in a vast number of ways to and by franchisors. That being said, it also creates questions for a franchisor to consider.
Protecting the brand
If a franchisor opts to operate a central websites/app for the benefit of the entire franchise network, it should also consider what functionality is to be offered. For example, should such a website enable online transactions (eg Domino's online ordering system) and if so, how are such transactions to be allocated? Will local franchisees will be empowered to fulfil local orders? How will revenue/profit be split between franchisor and franchisee?
If a franchisor opts to authorise franchisees to procure and/or operate their own separate, local websites/apps, it should consider the extent to which it should own the intellectual property rights in any such websites and how it will control a franchisee's content and online activities.
In either case, franchisors should ensure their franchise documentation governs ownership rights in any websites developed and operated by or for a franchisee and the franchisor's control over such websites. Given that the crux of any franchise business is the applicable franchisor's brand, it is advisable that a franchisor ensures it has rights to monitor and approve technology and content utilised by a franchisee in this manner. However, the approach taken by a franchisor may depend on the franchisor's commercial drivers; for example, is brand protection (ie IPR protection) or brand awareness (ie via multiple and local sites) more important? The drafting should also reflect who pays for what and in what proportions/amounts, in order to minimise the potential for disputes.
These same challenges in respect of control apply to social media, which is now a marketing force to be reckoned with, as franchisees may well expect franchisors to either provide for a centrally run and managed social media marketing campaign (which can include local social media accounts managed centrally) or enable franchisees to operate local franchisee social media accounts.
At the same time, franchisors should also be mindful that use of, and the global reach of, the internet is argued by franchisees to de-value the historical concept of 'franchise territories'. As such, franchise documentation should appropriately address how a franchisee's exclusive territory is to be safeguarded, if at all, in this digital age.
Franchisors may consider undertaking technology procurement to assess prospective technology solutions and throughout this exercise it is crucial that the franchisor carefully considers the responsibility/obligation split between itself and any applicable provider.
It is also imperative that franchisors consider anti-virus protection, firewalls, updates (whether they're automatic or not) and back-ups (again, whether these should be automatic or not). In respect of cloud-based technology particularly, franchisors will need to be comfortable that, and ensure, their documentation with its technology suppliers provides for applicable protections for the franchisor (and that these are capable of being flowed down to the franchisee). For example, cloud-based suppliers should be under obligations to back up commercially valuable data, and maintain appropriate digital security via protecting connections to the franchisors' IT systems or infrastructure (ie via the use of anti-virus software).
The increased use of technology in franchising businesses may increase the complexity of franchise system management. However, there are clear benefits to adopting strategic technology into a franchise offering. Franchisors will need to continue to adapt to changes in existing technology and newly available technology and ensure that their franchise documentation provides sufficient protection to equip the businesses to face the challenges posed by utilising such technology. In particular, if embarking on technology procurement franchisors should:
- Review existing franchise documentation to ensure franchisor access to franchisee customer data through cloud-based analytics is sufficiently addressed, including any relevant data protection issues.
- Identify and address potential brand risks arising from a franchisee's use of technology or website content which has not been procured/developed by the franchisor.
- Consider controls around franchisee use of social media for business promotion purposes - eg should social media interaction be limited to social media accounts maintained by the franchisor?
- Review terms proposed with prospective technology suppliers to ensure an appropriate level of service and security is to be provided.