Franchise business has grown rapidly in Indonesia over the last two decades. Following the entering into Indonesia of Kentucky Fried Chicken –the well known American fast food business– in the late 1970s, many franchise businesses have since the late 1980s been established and well developed in Indonesia. Local franchise businesses have since 1990s been inspired for running and developing businesses accross cities in Indonesia.
The emerging and spreading of franchise businesses in Indonesia have finally caught the attention of the Government to formally regulate franchise establishment. It is only in 1997 that the Government of Indonesia issued a Government Regulation regulating the setting up of franchise business, with detailed regulation stipulated under a Decree of Minister of Trade and Industry.
Positive development of the franchise businesses along with many inputs of law practicioners and entrepreneurs have contributed to the issuance of the latest Government Regulation No. 42 in 2007 regulating the setting up of franchise business, replacing the former government regulation. Thus the detailed regulation was also replaced, the latest one is the Minister of Trade Regulation No. 31 of 2008 on Undertaking Franchise Business.
It is under the latest Minister of Trade Regulation No. 31 of 2008 that intellectual property rights related to the franchised business are required to have been registered. Registered intellectual property rights are one of the criteria of franchise system. The former regulations did not put registration as a requirement. They only required the franchisor to mention in the franchise agreement the intellectual property rights of the franchised business.
To run franchise business in Indonesia, any intellectual property rights of the franchised business must be registered with the Directorate General of Intellectual Property Rights. As generally people will first recognize the business through its trademark and/or logo, obviously trademark and logo are the ultimate symbol of a franchised business. Therefore, registration of trademark and logo of the business is a must. This is to protect the interests of both the franchisor and the franchisee against any claim of a third party for the right to use and to enjoy the benefit of the trademark and logo in concern. Further, trademark and logo of the franchisor’s company carrying out the franchised business must also be registered. Whilst the company’s trademark and logo are commonly different from the trademark and logo of the franchised business, ignorance in registering the company’s trademark and logo will cause serious harm to the business.
Other types of intellectual property rights may also relate to a franchised business and accordingly must also be registered. If a franchised business involves an invention or a new technical method, the invention or the new technical method must be registered as a patent right. An ice cream company producing ice cream with the shape of small balls using the company’s new technical method for making the freely movable ice balls must register such new technical method as a patent right. However if it turns out that the same method has already been registered by another party, then unless the ice cream company holds license to use such registered method, it may not use the method to commercially produce the ice cream balls.
If a franchised business involves products with a new three dimensional commercial design, the commercial design must be registered as an industrial design right. Ice cream produced with the shape of small balls is one of an example of three dimensional commercial design that can be registered as an industrial design right. Failure to first register the industrial design of the ice cream balls three dimensional design, although this ice cream ball company is the first one commercially producing ice cream balls, could cause another party conducts the registration for their interest and then threatens the ice cream ball company to not produce ice cream balls. Should the ice cream ball business has been franchised, such threat will interfere with or even interrupt the product supply which, at the end, could affect the franchised business.
The franchisor shall be the one responsible for the registration. Although the Minister of Trade Regulation is silent about whose name the intellectual property rights should be registered under, it is strongly recommended that the intellectual property rights are registered under the name of the franchisor. Having any intellectual property rights registered under the name of a party other than the franchisor will most likely result in a legal dispute which will eventually harm the continuity of the franchised business.
For a franchised business entering Indonesia, although the intellectual property rights have been registered in the home country and, perhaps, in many countries other than Indonesia, they still have to be registered in Indonesia for legality to use in Indonesia and for both the franchisor and the franchisee protection against third party claiming the right to use and enjoy the benefit of the relevant intellectual property rights.
Said, Sudiro & Partners
Indonesian Attorneys at Law
Sampoerna Strategic Square
South Tower, Level 18
Jl. Jend. Sudirman Kav. 45 - 46
Jakarta 12930 Indonesia
Phone: (62-21) 575.0983
Fax: (62-21) 575.0803
P.O. BOX 8211 JKS.SB Jakarta 12920www.ssplegal.com