Franchise agreements, trade marks and Australian consumer law

26 July 2018

A franchise is a business arrangement that allows a person to operate under the name of an already established business.

A recent dispute involved an International Restaurant franchisor who terminated its agreements with its Australian franchisees for non-payment of outstanding fees. The franchisor commenced Federal Court proceedings against the former franchisees alleging that:

  • the former franchisees where operating restaurants in a way that infringes the franchisor’s Australian registered trade mark; and
  • contravened the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law).

A person infringes a registered trade mark if the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered.

The franchisor also alleged that the former franchisees where representing to consumers that the restaurants they operated were operating with the sponsorship or approval of the International Restaurant. The franchisor claimed those representations were false or misleading and contravened Australian Consumer Law.

The franchisor put evidence before the court about the quality of food at the former franchisees’ restaurants. The court granted an interlocutory injunction and held that the franchisor had a prima facie case and that there was a probability that the franchisor would be entitled to the final relief. Taking into account the potential for reputational damage (and the franchisor’s undertaking as to damages to the court) the former franchisees were restrained from using the trade mark, the service and goods descriptions and the domain name until the matter is fully determined by the court.

The take away point is that applications for urgent interlocutory relief are heard quickly. Here the former franchisees were ordered to pay the franchisor’s costs of the application for interlocutory relief.