The numbers tell a frank story. According to data compiled from USPTO records, approximately 86 to 90 per cent of patent applications receive at least one office action rejection before allowance and the single most preventable cause of those rejections is inadequate prior art searching before filing. Of all first-action rejections at the USPTO, roughly 21 per cent are for lack of novelty under Section 102, and nearly 47 per cent are for obviousness under Section-103. Both of these are, at their root, prior art problems – and both can be anticipated, and in many cases avoided, with a properly conducted patentability search.

After decades of working on patent matters across sectors ranging from pharmaceuticals and biotechnology to software and mechanical engineering – and managing a portfolio of over 65,000 patent applications across India and Southeast Asia – I have seen the same mistakes recur with a frequency that is almost predictable. The good news is that they are all avoidable. Here are the five that matter most.

Mistake 1: Searching Only Patent Databases

This is probably the most common error, and it is also the most understandable one. Patent databases – USPTO’s Patent Public Search, EPO’s Espacenet, WIPO’s Patentscope, India’s InPASS – are the natural starting point for any prior art search. They are purpose-built, searchable, and organised. The problem is that they represent only a fraction of the prior art universe.

A significant body of prior art lives in non-patent literature, or NPL as practitioners call it. This includes peer-reviewed journal articles, conference papers, PhD dissertations, technical white papers, product manuals, standards documents, and even YouTube demonstrations and GitHub repositories. An invention that was described in a 2018 journal paper, publicly presented at an IEEE conference, or detailed in a product brochure long before your priority date is prior art – regardless of whether a patent was ever filed around it.

In technology-intensive fields – biotechnology, pharmaceuticals, artificial intelligence, semiconductor design – NPL is often where the most relevant prior art lives. Academic researchers routinely publish findings years before commercial entities think to file patents. If your search covers only patent databases, you may be walking into the examiner’s office with a blindfold on.

Mistake 2: Relying on Keywords Alone

Keyword searching feels intuitive. You know what your invention does, so you type what it is into the database search bar and look at the results. The difficulty is that the same invention can be described in dozens of different ways by different inventors, in different countries, at different points in time. An ‘antibody-drug conjugate’ in one patent family may be described as a ‘targeted therapeutic payload delivery system’ in another. A ‘convolutional neural network for image segmentation’ in one application may appear as a ‘deep learning-based visual parsing algorithm’ in a filing from a different jurisdiction.

Relying solely on keywords produces two related problems. The first is false negatives – highly relevant prior art that your search fails to surface because the language used is different from your chosen terms. The second, which is less discussed, is search fatigue: keyword-only searches often return enormous volumes of irrelevant results, leading searchers to curtail their review before they have found what matters most.

Patent classification systems exist precisely to solve this problem. The Cooperative Patent Classification (CPC), jointly developed by the USPTO and EPO and now adopted by China, Korea, and several other major offices, organises all patents by technical subject matter rather than language. The International Patent Classification (IPC), used under the WIPO system, provides the global equivalent. A well-constructed patentability search uses classification codes to identify the relevant technical neighbourhood, and then applies targeted keywords within that neighbourhood –  rather than using keywords as the only search mechanism.

Mistake 3: Searching Only One or Two Jurisdictions

Many applicants – particularly those filing first in India – focus their patentability search on Indian databases, and perhaps a brief look at the USPTO. The reasoning is understandable: they are most immediately concerned with patentability in their home jurisdiction, and the Indian InPASS database is the most convenient starting point. But this approach fundamentally misunderstands how prior art works.

Prior art is global. A patent filed in Japan in 2015, a utility model registered in China in 2017, a patent application published in Germany in 2019 – any of these can be cited by a patent examiner anywhere in the world to reject your application for lack of novelty or obviousness. Patent examiners, particularly at the USPTO and EPO, conduct thorough multi-jurisdictional searches as standard practice. If you have not searched where they will search, you will be surprised by what they find.

According to WIPO’s 2025 World Intellectual Property Indicators, 3.7 million patent applications were filed globally in 2024 – a 4.9 per cent increase and the fastest growth rate since 2018. China alone accounts for over 1.6 millions of those filings annually. The Chinese patent database CNIPA, Japan’s J-PlatPat, Korea’s KIPRIS, and the European Patent Register all contain vast archives of prior art that simply do not appear in a keyword search of the USPTO database alone.

Mistake 4: Defining the Invention Too Narrowly for the Search

One of the subtler – and more consequential – mistakes in a patentability search is defining the invention too narrowly when formulating the search. This happens in a predictable way. The inventor describes their specific embodiment: a particular mechanism, a specific compound, a named process step. The search is built around those specific parameters, and the results reflect what is already known about that exact configuration. The search looks clean. The invention appears novel. Everyone feels encouraged.

Then the patent examiner, who is not constrained by the inventor’s self-description, conducts their own search. They search for the underlying technical concept-the function the invention performs, the problem it solves, the principle on which it operates. And they find prior art that the inventor’s narrowly framed search completely missed.

A prior art search should be conducted at the level of the broadest reasonable interpretation of the inventive concept, not at the level of the specific embodiment you intend to claim. If your invention is a new type of drug delivery capsule with a specific polymer coating, your search should cover not just that polymer, not just capsule drug delivery, but the broader landscape of controlled-release mechanisms, oral drug delivery systems, and polymer-based pharmaceutical carriers. The question to ask is not ‘Has anyone done exactly this?’ but ‘Has anyone solved this problem in any way that would render my approach obvious?’

This broader framing matters because patent examiners frequently combine references in obviousness rejections. Under Section 103 of the US Patent Act – which accounts for nearly 47 per cent of all rejections – an invention can be rejected not because any single prior art document discloses it, but because a combination of two or more existing documents would have made it obvious to a person of ordinary skill in the field. A narrow search that looks only for exact matches will not surface these combination arguments before the examiner does.

Mistake 5: Treating the Patentability Search as a One-Time Exercise

The final mistake is one of timing and process rather than methodology. Many inventors and companies treat the patentability search as a single event: something done once before filing, reported once in a memo, and then set aside. In reality, the prior art landscape evolves continuously, and a search that was thorough in January may be materially incomplete by October if significant new filings have been published in the interim.

Patent applications are typically published 18 months after their filing date. This means that at any given moment, there is an 18-month window of filed-but-unpublished applications that are invisible to your search – but which may become citable prior art during examination if the examiner’s search date is later than your own. In fast-moving fields like artificial intelligence, where AI-related patent filings have increased by 33 per cent since 2018 and now appear in 60 per cent of all technology subclasses according to recent USPTO data, the landscape can shift materially within weeks.

There is also the question of freedom to operate. A patentability search and a freedom-to-operate search are related but distinct exercises. A patentability search asks whether your invention is novel and non-obvious in light of the prior art. A freedom-to-operate search asks whether practising your invention would infringe any existing, in-force patents. Conflating the two – or substituting one for the other – is a surprisingly common and potentially costly error, particularly for companies moving towards product commercialisation.

Why All of This Matters More Now Than Ever

There has never been more at stake in getting a patentability search right. Global patent filings hit 3.7 million in 2024 – the fastest growth rate since 2018 – and the USPTO’s pending backlog reached a record 1.2 million applications by the end of that year. Examination timelines at the USPTO now average 23 to 24 months for standard applications, and the cost of prosecution routinely runs into tens of thousands of dollars even before you consider litigation risk.

In India, where IP filings grew 44 per cent between 2020-21 and 2024-25 and the startup ecosystem continues to expand rapidly, the stakes of a poorly conducted patentability search are equally significant. A rejection on novelty or obviousness grounds that was entirely foreseeable had the search been done properly – means wasted filing fees, prosecution costs, and most importantly, lost time. In a competitive market, losing 12 to 18 months to a predictable prosecution problem is a real business cost.

A well-conducted patentability search is not a bureaucratic formality. It is one of the most consequential pieces of strategic analysis you will commission in the lifecycle of an innovation. Done properly, it is not just a gate-check before filing – it is a source of genuine competitive intelligence.

Author: Vipasha Srivastava. In case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD. 

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Intellectual property means creations of the human mind. It covers inventions, books, art, designs, symbols, names, and images used in business. In today’s world, intellectual property rights are very important. Because many businesses earn money from ideas, brands, and technology, not only from physical property. So, IP laws play an important role in protecting these creations. It gives the creator the right to use and earn from their work for a fixed time.

Intellectual property allows the owner to earn money. But they can earn money through licensing, not by selling the Intellectual property. In licensing, the owner of the intellectual property is called the licensor. The licensor grants another person permission to use the intellectual property. For this permission, the licensor earns royalties or license fees.

Licensing is very important in a different way. For startups, it helps them bring their technology to market. They can work with big companies that already have factories and distribution systems. For brand owners, licensing helps them sell their products in new markets or product categories. They can do this without spending too much money. For creators and innovators, licensing helps them earn a steady income from their work. Consumers can also benefit from licensing. They get better access to good-quality products, new technology, and original regional products.

Meaning of IP Licensing

Intellectual property licensing is a part of a contract. In this contract, the owner of the intellectual property gives permission to another person or company to use it. The owner who gives permission is called the licensor. The person or company who gets permission is called the licensee. The ownership of the intellectual property stays with the licensor. The licensee has the right to use it only under the terms of the contract.

A license is a type of “permission” or permit granted by the owner. Without this permission, using the intellectual property may be treated as infringement. This permission is not unlimited. It is given with some rules and conditions. These rules are written in the licensing agreement. They may include: where the intellectual property can be used, for how long, which products or services are covered, and how much royalty or license fee must be paid.

Legal Framework for Different Types of IP Licensing in India

In India, intellectual property is controlled and managed by the Department for Promotion of Industry and Internal Trade (DPIIT). DPIIT controls and manages the offices that handle patents, trademarks, designs, and geographical indications. The legal rules governing intellectual property in India are taken from Indian laws, court decisions, and international agreements such as the TRIPS Agreement.

1.     Trademark Licensing

In India, trademark licensing is governed by the Trade Marks Act, 1999. A trademark covers a special sign, name, logo, or symbol. Trademark licensing allows another person or company to use the trademark with permission from the owner. The Trade Marks Act provides for the concept of a registered user. A registered user is a person other than the trademark owner who is allowed to use the trademark, it mentions under Sections 48 to 53 of the Act.

Quality control is important in trademark licensing. If the trademark owner gives permission to use the trademark but does not check the quality, it is called a naked license. A naked license can create legal problems. It may show that the trademark has lost its special identity. In such cases, the trademark registration may be cancelled or corrected under Section 57 of the Trade Marks Act.

2.     Copyright Licensing

Copyright licensing in India is governed by the Copyright Act, 1957. It protects original works like books, art, music, films, sound recordings, and computer software. It is used in the software industry through user license agreements and SaaS models. It is also used in the media industry for OTT platforms and music streaming.

Under Section 30 of the Copyright Act, the copyright owner can give a license to another person. This license must be in writing. It must also be signed by the copyright owner or their authorised agent. The owner can grant a license for existing or future work. After the 2012 changes in the law, authors of musical and literary works have the right to receive royalties.

Section 19 of the Copyright Act says that every assignment or license must clearly mention important details. It must mention: which rights are given, for how long, and in which area or country the rights can be used. If the agreement does not mention the time period, the law will treat it as 5 years. If the agreement does not mention the place, the law will treat it as limited to India only.

3.     Patent Licensing

Patent licensing in India is governed by the Patents Act, 1970. Patent licensing helps in using new technical inventions in business, in fields like medicine, electronics, and biotechnology. This is especially important in India’s generic medicine industry.

The Patents Act recognises two types of licenses: Voluntary licenses and compulsory licenses. A voluntary license is given by the patent owner. It must be in writing. It must also be registered with the Controller of Patents under Section 68. A compulsory license is given under Section 84. In this type of license, the government can allow another person to use the patent without the patent owner’s permission. This can happen when: Public needs are not being met, the invention is too costly, the invention is not being used or made in India

If the patent owner does not supply the product or keeps the price too high, their exclusive rights may become weaker under the law. So, patent licensing is not only a business decision. It also helps make sure that the invention is available to the public and used in industry.

4.     Design Licensing

Industrial designs protect the appearance of a product. In India, design licensing is governed by the Designs Act, 2000. This is important in industries where a product’s appearance matters a lot.  Examples include cars, luxury products, and electronic goods.

Section 30 of the Designs Act requires a design license to be registered with the Controller of Designs. The license should be registered within 6 months of the date of the license agreement. A design is protected for 10 years at first. It can be extended for 5 more years by paying the required fee.

5.     Geographical Indications Licensing / Authorised User Rights

Geographical Indications, or GI, are governed by the Geographical Indications of Goods Act, 1999. It does not belong to one person only. It belongs to a group of producers from a specific place. Examples include Banarasi Sarees and Darjeeling Tea.

GI protects the reputation of a place or region. Because of this, Section 18 of the GI Act does not allow the sale, transfer, or normal licensing of a registered GI. Instead, the law uses the idea of an Authorised User.

Any producer from the specific geographical area can apply to become an Authorised User of a GI. After registration, the authorised user can use the GI tag for selling the goods. But they must follow the quality rules and production methods mentioned in the GI registration.

Types of IP Licences

In India, different businesses have different needs. Because of this, there are many types of licensing models. Each model has different benefits and risks for both the licensor and the licensee.

1.     Exclusive Licence

An exclusive license gives only one licensee the right to use the intellectual property. In this type of license, no one else can use it. Even the licensor cannot use it during the license period, if the agreement says so. The licensee may also take responsibility for selling the product and protecting the intellectual property rights. This type of license is common in the pharmaceutical industry. For example, one company may allow another company to make and sell a particular medicine in a specific area.

2.     Non-exclusive Licence

In a non-exclusive licence, the owner of the IP can still use the IP. The owner can also give the same rights to many other people or companies. This type of licence is common in software, digital content, and franchise businesses. The main aim is to reach more users and grow the market.

3.     Sole Licence

In this licence, the IP owner gives rights to only one licensee. The IP owner can also use the IP themselves. But the IP owner cannot give the same licence to any other person or company. This type of licence is often used in joint ventures.

4.     Territory and Time-based Licences

A licence can be restricted to a specific area. It can apply to one state, many states, or the whole country. A licence can also be restricted for a specific time. It may be for a few months or for many years. For example, movie distribution rights are often granted for a specific area and period.

5.     Royalty-based Licence

Most business licences in India use a royalty system. In this system, the licensee pays money to the IP owner. This payment may be a fixed amount. It may also be a percentage of sales. Sometimes, it is based on targets, like the number of products made. This helps the IP owner earn money when the licensee earns money from using the IP.

Important Clauses in an IP Licensing Agreement

A licensing agreement is an important legal document. It should clearly mention the rights and duties of both parties. This helps avoid future disputes. In India, some important clauses should be included in a good licensing agreement.

1.     Grant of Licence 

This clause explains which IP is included in the agreement. It should clearly mention the IP details, such as registration number and description. It should also state the type of licence. The licence may be exclusive, non-exclusive, or sole. For copyright, it should clearly mention the rights given, such as copying, translation, or adaptation.

2.     Scope of Use and Restrictions

The scope clause explains how the IP can be used. It clearly says what use is allowed. For example, a patent may be used only for animal medicine, not for human medicine. A trademark may be used only for clothes, not for shoes. It should also say what is not allowed. For example, the licensee cannot copy the software design or change the logo.

3.     Territory and Duration

The agreement should clearly mention the area where the licence will apply. It should also mention how long the licence will continue. If the time period is not clear, the licence may end earlier under copyright law. The agreement should also explain how the licence can be renewed or extended. This helps the business continue without problems.

4.     Royalty and Payment Terms

This clause explains how royalty will be calculated. It should also mention when the payment will be made. It should clearly state the payment currency. The licensor should have the right to check the licensee’s financial records. This helps the licensor make sure that sales and income are reported correctly.

5.     Quality Control

This clause is very important for trademarks and geographical indications. It gives the licensor the right to set quality standards. The licensor can also approve samples and inspect the business place. If this clause is not included or followed, the brand value may become weak. It may also create legal problems for the trademark.

6.     Ownership and IP Protection

The agreement should clearly say that the licensor is the only owner of the IP. The licensee only gets permission to use the IP. The licensee should not question the validity of the IP. The agreement should also mention who will pay the cost of keeping the IP registration active. It should also say who will take legal action if someone else misuses the IP.

Confidentiality and Trade Secrets

When licensing includes technical knowledge or business methods, the agreement should have strong protection rules. These rules help keep secret business information safe. This is important because patents or copyrights may not protect this type of information.

Termination and Post-termination Obligations

The agreement should clearly say when it can end. It may end because of breach of contract, insolvency, or non-payment. It should also explain what will happen after the agreement ends. It should mention how much time is given to sell the remaining stock. It should also say whether digital assets and confidential materials must be returned or destroyed.

Dispute Resolution and Governing Law

In India, the agreement should clearly say that Indian law will apply. It should also mention which court will handle any dispute. For example, the dispute may be handled by courts in New Delhi or Mumbai. Many parties choose arbitration because it is usually faster than civil court.

Conclusion

IP licensing in India helps owners earn money from inventions, brands, and creative works. It allows the IP owner to let others use the IP without giving up ownership. For businesses, licensing helps them use new technology and known brands. This helps them compete in the market. A licensing agreement must be clear and must follow Indian IP laws. It should clearly mention the scope, time period, area, royalty, and quality control. If these points are not clear, legal problems may happen. Copyright rights may be lost. A trademark may be cancelled if quality is not controlled. A patent licence may also be given to another party in some cases. So, a licensing agreement is not just a formality. It is an important legal document. It protects both the licensor and the licensee. If licensing is done carefully and legally, it can turn creative ideas into business value.

Author: Ankit Kumar, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD. 

References / Endnote

1. World Intellectual Property Organisation (WIPO). “Understanding Intellectual Property.” https://www.wipo.int/about-ip/en/
2. Licensing Executives Society International (LESI). “Principles and Practices of IP Licensing.”
3. The Copyright Act, No. 14 of 1957, § 30, India Code (1957).
4. The Patents Act, No. 39 of 1970, § 68, India Code (1970).
5. Dep’t for Promotion of Indus. & Internal Trade, National Intellectual Property Rights (IPR) Policy, Gov’t of India, https://www.dpiit.gov.in/ministry/about us/details/Title%3DNational-Intellectual-Property-Rights-%28IPR%29-Policy-ITMwETMtQWa
6. The Trade Marks Act, No. 47 of 1999, § 2(1)(zb), India Code (1999).
7. The Trade Marks Act, No. 47 of 1999, §§ 48–53, India Code (1999).
8. The Trade Marks Act, No. 47 of 1999, § 57, India Code (1999).
9. Raman Mittal, Analysis of the Mysterious Element of Quality Control in Trademark Licensing, 15 J. Intell. Prop. Rts. 285, 285–92 (2010).
10. The Copyright Act, No. 14 of 1957.
11. The Copyright Act, No. 14 of 1957, §§ 19, 30, India Code (1957).
12. The Patents Act, No. 39 of 1970.
13. The Patents Act, No. 39 of 1970, § 68,84 India Code (1970).
14. The Designs Act, No. 16 of 2000, India Code (2000).
15. The Designs Act, No. 16 of 2000, § 30, India Code (2000).
16. S.S. Rana & Co., Licensing Design Rights in India, Licensing Design Rights in India
17. World Intell. Prop. Org., Looking Good: An Introduction to Industrial Designs for Small and Medium-sized Enterprises 5–7, WIPO Pub. No. 498.1(E) (2019).
18. The Geographical Indications of Goods (Registration and Protection) Act, No. 48 of 1999, India Code (1999).
19. The Geographical Indications of Goods (Registration and Protection) Act, No. 48 of 1999, §§ 18, India Code (1999).
20. Geographical Indications Registry, Registered Geographical Indications, Office of the Controller Gen. of Patents, Designs & Trade Marks, Gov’t of India, https://ipindia.gov.in/registered-gls.htm (last visited Apr. 30, 2026).

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Understanding the Core Relationship

To understand franchising as trademark licensing, consider the foundational principle of trademark law: a mark’s value lies in its ability to consistently signal quality and origin to consumers. In a simple trademark license, the owner permits another party to affix the mark to specific goods or services, typically with basic quality oversight to prevent dilution. Franchising elevates this into a comprehensive ecosystem. The franchisor does not merely license the logo or name; it licenses a proven business format, recipes, marketing strategies, store layouts, supplier lists, and customer service protocols, all tied inexorably to the trademark. This ensures that a Domino’s pizza in Kolkata tastes identical to one in Mumbai, reinforcing consumer trust and brand equity.

Legal Framework in India

In India, this relationship is governed primarily by the Trademarks Act, 1999, which mandates that all licenses, including those in franchise agreements, be documented in writing and registered with the Trademark Registry within six months of execution. Registration under Section 48 creates public notice, allowing the licensee to oppose third-party claims and ensuring the franchisor retains control. Without it, the licensee’s rights weaken against subsequent users, as established in the Supreme Court’s ruling in Hardie Trading Ltd. v. Addisons Paint & Chemicals Ltd. (2003), where an unregistered licensee lost priority. The agreement must delineate the trademarks’ scope, word marks, logos, slogans, even color schemes, and impose quality controls, such as mandatory ingredient sourcing or mystery shopper audits. Failure to enforce these risks “naked licensing,” where uncontrolled use leads to mark genericide, like “escalator” once owned by Otis Elevator.

Key Differences from Pure Licensing

What sets franchising apart from pure licensing is the franchisor’s extensive oversight, which permeates every operational facet. Franchisees receive detailed operations manuals, often thousands of pages long, dictating everything from uniform colors to POS system configurations. This control serves dual purposes: protecting the trademark under Section 49 of the Trademarks Act, which requires licensors to monitor usage, and replicating business success. Payments reflect this depth: an initial franchise fee (Rs 10-50 lakh) covers training and setup, followed by royalties (4-12% of sales) and marketing contributions (2-5%). Unlike a manufacturer’s license for, say, Disney characters on toys, where control ends at product specs, franchising demands uniformity across service delivery, making termination swift for non-compliance.

Historical Developement

Historically, franchising evolved from 19th-century licensing models, like Singer Sewing Machines training dealers in the 1850s, but exploded post-World War II with Ray Kroc’s McDonald’s system in 1955, turning a single burger stand into a global empire. India entered this arena after 1991 economic liberalization, with Domino’s launching in 1996 and McDonald’s following suit. Today, over 5,000 brands operate 10 lakh franchise outlets, growing at 30% annually per FICCI estimates, driven by low entry barriers for entrepreneurs and scalable brand leverage for franchisors.

The franchise agreement forms the legal backbone, blending contract law under the Indian Contract Act, 1872, with IP protections. A typical grant clause might read: “The Franchisor grants a non-exclusive, non-transferable license to use the Brand Marks solely at the Approved Location per Brand Standards.” Territory clauses prevent overlap, exclusive for urban centers, non-exclusive in suburbs, while non-compete covenants bar franchisees from rival ventures within 10-50 km for 2-5 years post-termination. Indemnity provisions shield the franchisor from misuse liability, with franchisees bearing costs for local infringements. Renewal options, often at 50% of initial fees after 5-10 years, hinge on performance metrics like minimum sales thresholds.

Courts have rigorously enforced these structures. In Pizza Hut International LLC v. Deepa Enterprises (Delhi High Court, 2015), the court granted an injunction against an ex-franchisee using confusingly similar logos, emphasizing trademark protection’s primacy. Similarly, McDonald’s Corporation v. McCurry (Delhi High Court, 2016) halted phonetic mimicry despite menu differences, underscoring that franchising licenses the entire brand experience. Franchisees have won protections too: Domino’s Pizza v. Fast Food Nation (Bombay High Court, 2020) struck down unreasonable supply mandates as anti-competitive under the Competition Act, 2002, Section 3, balancing power dynamics.

Managing Risks

Risks abound on both sides. For franchisors, poor franchisee selection leads to brand damage, mismanaged outlets erode goodwill, triggering consumer complaints under the Consumer Protection Act, 2019. Franchisees face vendor lock-ins, where 60-80% procurement from approved suppliers inflates costs. Termination clauses provide exit ramps: curable defaults get 30-60 days cures; incurable ones, like insolvency or mark misuse, end agreements immediately, requiring signage removal within weeks and inventory repurchase. Post-termination audits ensure no lingering IP use.

Sectorally, food and beverage dominate (60% of franchises), where central kitchens enforce recipe fidelity, but retail, education, and fitness adapt the model. GNC v. Multiwell Lifesciences (Delhi High Court, 2022) invalidated unearned renewal fees as unfair practices, highlighting evolving judicial scrutiny. Globally, India’s model mirrors the US Federal Trade Commission’s Franchise Disclosure Document requirements, though without mandatory pre-sale disclosures, relying on FICCI’s voluntary templates.

Economically, franchising monetizes trademarks efficiently: a Rs 20 lakh initial fee across 100 outlets yields Rs 200 crore upfront, plus 8% royalties on Rs 1,000 crore system sales. Franchisees achieve 25-35% EBITDA margins with 18-24 months’ paybacks on Rs 2 crore investments. Compliance layers, FSSAI for food safety, GST input restrictions, local Shops Act registrations, add complexity but ensure legitimacy.

In essence, franchising transforms trademarks from static assets into revenue engines, licensing not just symbols but scalable success formulas. Through rigorous controls, registered agreements, and judicial safeguards, it balances expansion ambitions with brand integrity, propelling India’s franchise sector toward 3% GDP contribution by 2030. For entrepreneurs, success demands due diligence: audit franchisor FDD equivalents, negotiate supply flexibilities, and prioritize territories with proven demand. This symbiotic model underscores why franchising endures as trademark licensing’s gold standard, mutual prosperity rooted in unwavering consistency.

Author: Amrita Pradhan, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD. 

References

1. The Trademarks Act, 1999, §§ 48–50.
2. Pizza Hut International LLC v. Deepa Enterprises, Delhi High Court (2015).
3. McDonald’s Corporation v. McCurry Restaurant (India) Pvt. Ltd., Delhi High Court (2016).
4. Federation of Indian Chambers of Commerce & Industry (FICCI), Model Franchise Agreement (2024), https://ficci.in.
5. The Competition Act, 2002, § 3.

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Software has become an essential part of modern technology. Numerous inventions in the modern world rely on computer programs, computer systems, and automated systems. Online services, banking technology, telecommunications, and artificial intelligence are some of the industries that strongly depend on software-based solutions. Due to this growing reliance on software, there is a highly significant legal issue: is patenting software in India possible? The Indian patent law addresses this concern with the help of Section 3(k) of the Patents Act, 1970. This provision enumerates some of the things that are not considered inventions in a bid to protect the patent system.

This may seem to imply initially that software cannot be patented in India. However, the actual situation is more complicated. Patent applications that involve software are still filed regularly before the Indian Patent Office. Some of these applications claim that the software works together with hardware or produces a technical improvement in the functioning of a system. Because of this, the actual question is not whether software is part of an invention. The more important question is whether the invention is only a computer program or whether it provides some kind of technical solution. The purpose of the blog is to examine the meaning of Section 3(k), the position taken by the Indian Patent Office, as well as the way the courts have interpreted it in relation to software patents.

Laws of the Patents Act

The law of patents in India is stipulated in the Patents Act, 1970. In order to receive a patent, an invention must satisfy certain basic conditions. It must be new, it must involve an inventive step, and it must be capable of industrial application. In spite of meeting these conditions, there are still some subject matters that the Act does not offer protection for under patent law. Under Section 3 of the Act, these are the exclusions.

The purpose of these exclusions is simple. Some ideas or discoveries should remain available for everyone to use. The law therefore prevents patents from being granted over such subject matter. Section 3(k) is one of these exclusions. According to it, a mathematical or business method or a computer program per se or algorithms are not inventions.

The main concern behind this provision is that pure software or algorithms are often abstract in nature. If such ideas were patented, it would limit the freedom of programmers and developers.

Nevertheless, the legislation does not necessarily dismiss all software-related inventions. The major issue is whether the invention is only software or part of a technical system.

Meaning of “Computer Program Per Se”

The words “per se” are significant for the interpretation of Section 3(k). This is generally translated as “by itself.”. This means that the law mainly excludes computer programs in their pure form. A simple software program or algorithm, which does not involve any technical application, is typically covered by this exclusion.

For example, if someone claims a patent over a mathematical formula or a basic computer algorithm, it would normally be rejected. Such subject matter is treated as an abstract idea rather than a technical invention. But things become different when software is used as part of a larger system. Many modern technologies combine software with hardware or with other technical processes.

For example, software that controls a machine, manages communication networks, or improves the performance of a computing system may raise different issues. In such situations, the invention may not be treated as a computer program by itself. Due to this, attention tends to shift to whether there is a technical effect or a technical problem being solved by the invention.

Strategy of the Indian Patent Office

Since a large number of patent applications are related to software, the Indian Patent Office has issued the Guidelines for Examination of Computer Related Inventions (CRI Guidelines). These guidelines help patent examiners deal with patent applications that involve computer programs or digital technologies. According to the general approach reflected in these guidelines, the examiner first looks at the actual substance of the invention. If the invention is simply a computer program or algorithm, it is usually rejected under Section 3(k).

However, if the invention shows a technical effect or involves software working together with hardware, the application may be examined further. A technical effect may appear in various forms. It can include improvement in the operation of a computer system, faster processing operations, better network communication, or improved security functions. The rationale of these guidelines is to create a balanced approach. They try to prevent patents from being granted over abstract software ideas, while still allowing protection for genuine technological inventions.

Judicial Interpretation

The interpretation of Section 3(k) has also been considered by the courts in India. One important decision in this area is Ferid Allani v. Union of India – Delhi High Court – 2019. In this case, the Delhi High Court looked at the rejection of a patent application that involved a computer-related invention. The Court said that Section 3(k) should not be interpreted in a way that blocks technological innovation. The Court pointed out that many modern inventions involve software in some form. Because of this, rejecting every invention that includes a computer program may not be appropriate.

Rather, the Court indicated that the important question while examining the issue is whether the invention demonstrates a technical contribution or technical effect If such a technical contribution exists, the invention should not be rejected simply because it involves software. This decision highlighted the need for a practical and balanced interpretation of Section 3(k).

Practical Issues

Even with the existing guidelines and court decisions, the patentability of software in India is not always clear. One reason is that the idea of technical effect is not clearly defined in the Patents Act. This concept can be interpreted differently by different patent examiners.

Another issue is the drafting of patent applications. In some cases, applicants show their software inventions as hardware systems in order to avoid rejection under Section 3(k). This can sometimes make it difficult to clearly understand what the invention is about.

Technological developments also create new challenges. Fields such as artificial intelligence, machine learning, blockchain technology, and digital platforms rely heavily on software systems. Deciding whether such inventions fall within the exclusion under Section 3(k) can sometimes be difficult.

Because of these factors, the law relating to software patents in India continues to develop.

Conclusion

Section 3(k) of the Patents Act plays an important role in determining whether software-related inventions can receive patent protection in India. The provision clearly excludes computer programs per se, which shows the intention to prevent patents over abstract software ideas and algorithms. Meanwhile, the phrasing of the provision implies that not all inventions that include software are automatically excluded. If an invention shows a technical contribution or technical effect, it may still be examined under the normal requirements of patent law.

The approach used by the Indian Patent Office and the observations made by the Delhi High Court in Ferid Allani v. Union of India show that the focus should stay on the technical nature of the invention not just on the mere presence of software. As technology keeps evolving, issues about software patents will probably remain important in Indian patent law. The challenge for the legal system is to encourage innovation while ensuring that abstract ideas and basic programming concepts remain free for public use.

Author: Aadarsh Yadav, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD. 

References 

1. The Patents Act, 1970, § 3(k), Government of India.
2. Ferid Allani v. Union of India, Delhi High Court, 2019.
3. Guidelines for Examination of Computer Related Inventions (CRI), Office of the Controller General of Patents, Designs and Trade Marks, Government of India.
4. Office of the Controller General of Patents, Designs and Trade Marks, Manual of Patent Office Practice and Procedure, Government of India.
5. World Intellectual Property Organization (WIPO), Patent Protection and Computer-Related Inventions.
6. Intellectual Property India, Computer Related Inventions (CRI) Guidelines, available at: https://ipindia.gov.in

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The term “franchise” originates from the Norman French word “franchise,” which is derived from the French word “frank,” meaning a free man, liberated to engage in employment. The English term “franchise” was originally employed to denote the liberation from any prohibition, permission, or privilege. This term refers to the ability of a company to engage in or refrain from engaging in activities for which it would typically not have authority.^[1]

Franchising is a proven approach for facilitating effective worldwide collaboration between food and beverage enterprises, such as restaurants and coffee shops, and real estate investors, including hotel and shopping center proprietors. Global companies like Burger King and Domino’s Pizza, together with robust local brands such as Jamie’s Italian and Costa Coffee, are employing franchise and management agreements to effectively expand in both established economies and emerging countries.^[2] India is the second-largest franchise market globally, after the United States, with over 4,600 active franchisors and 150,000 to 170,000 franchisees in 2017.^[3]

When food and beverage (F&B) companies enter markets in Southeast Asia, Non-Disclosure Agreements (NDAs) and Licensing Agreements (LAs) become an important legal instrument. NPAs protect sensitive business information, while licensing agreements clarify the conditions under which franchised intellectual property – trademarks, branding, recipes, and technology – can be used. Both legal instruments protect important assets while maintaining trust between the franchisor and local stakeholders.

This blog post compares NDA and licensing agreement models across countries in Southeast Asia and identifies important legal provisions, upcoming legal developments, and the impact of global Franchising laws in the F&B industry. Due to the rapidly evolving legal environment in Southeast Asia, businesses need to remain vigilant and flexible. This article provides new ideas and potential obstacles facing businesses when trying to operationalise laws governing businesses in Southeast Asia.

LEGAL PROVISIONS

Unlike the United States and Australia, which have specific and systemic rules covering franchise castings, most countries in Southeast Asia do not have dedicated franchise laws and instead use laws covering contract, competition, and intellectual property. The following are the main legal rules and issues:

1. LICENSING AGREEMENTS: ONE SIZE DOESN’T FIT ALL

Licensing agreements are vital for any food and beverage franchise. Local franchisees are allowed to use a brand’s trademark, recipes, operations manual, and trade secrets; however, the rules around these licenses vary considerably across Southeast Asia. Agreements are critical to facilitate brand consistency and to make sure royalty payments are being made.

LEGAL FRAMEWORK:

Malaysia

Franchising and licensing started in Malaysia in the 1900s; A&W was the first food and beverage franchise to enter the country in 1967, then KFC entered the country in 1973.

With the introduction of franchising and licensing in Malaysia, some institutions were set up, such as the Malaysian Franchise Association (MFA), the Ministry of Entrepreneur and Co-operative Development (MECD), and the International Franchise Association (IFA). These institutions, along with government laws and regulations, manage the entire process of franchising and licensing from issuing permits to managing operations and even terminating contracts.

Franchises in Malaysia are governed by the Franchise Act 1998, which was amended in 2020 and came into effect on 8 October 1999. The FA 98 gives legal provisions for the definition of a franchise and prescribes rules for the business structures that fit within this definition. The FA 1998 requires all franchise businesses operating in Malaysia to be registered with the Registrar of Franchises (ROF). Franchise businesses that do not comply are regarded as offenders.^[4]

Indonesia

Franchising in Indonesia is governed by the Government Regulation No. 35 of 2024 on Franchising (GR 35/2024). Licensing with relation to franchising and intellectual property is regulated under applicable laws of trademark, copyright, and patent.^[5]

Thailand

The scope of franchising law in Thailand is broad and complex. Unlike many other countries, Thailand does not have a separate piece of franchise law. The franchise business model operates under a web of existing laws and legal frameworks, primarily the Civil and Commercial Code governing contracts, the Trade Competition Act on fair competition, and various laws on intellectual property such as the Trademark Act, Copyright Act, and Patent Act; there is no standalone franchise law.^[6]

Vietnam

The legal framework regulating franchising in Vietnam is principally defined by the Commercial Law, approved by the National Assembly on June 14, 2005. The regulations are elaborated in Decree No. 35/2006/ND-CP, promulgated by the Government on March 31, 2006, and then modified by Decrees No. 120/2011/ND-CP (December 16, 2011) and No. 08/2018/ND-CP (January 15, 2018). The agreements are required to be submitted to the Ministry of Industry and Trade. The Law on Technology Transfer, enacted on June 19, 2017, and revised in 2023, includes pertinent laws on franchising activities. ^[7]

2. NON-DISCLOSURE AGREEMENTS (NDAS): MORE THAN A FORMALITY

Non disclosure agreements (NDAs) are often executed before the initiation of franchising negotiations, particularly before the franchiser has disclosed proprietary recipes, operations manuals, or pricing information. NDAs make sure the franchiser’s employees do not divulge to their competition or others any confidential information.. However, the protection offered by law is different for each region.

• Singapore & Malaysia: ( Non-Disclosure Agreements (NDAs) are fully enforceable under general principles of contracts as long as they are reasonable and well drafted. The Franchise Act 1998 governs franchising and provides for franchise agreements to contain provisions for the protection of proprietary knowledge (Section 26)
• Thailand: The Trade Secrets Act strongly supports non-disclosure agreements (NDAs). The Trade Secrets Act B.E. 2545 (2002) protects proprietary trade information and requires that NDAs clearly state what constitutes a trade secret and what the obligations of the parties are.^[8]
• Indonesia & Vietnam: Recognition of Non Disclosure Agreements is limited. There may be legal repercussions for the wrongful disclosure of such information, but these consequences are likely to be rare. There is no formal law governing NDAs, leading to differing interpretations and application by courts in relation to each NDAs.

LEGAL ANALYSIS

For SEA’s delegated food and beverages franchising business, the legal environment of NDAs and licensing agreements is quite fragmented, requiring franchisors to tailor contracts to specific jurisdictions. Herein, I review my observations on the primary issues of concern.

BALANCING IP PROTECTION AND LOCAL COMPLIANCE:

The franchisors need to ensure that the licensing deals as well as nondisclosure contracts are sufficiently a general framework not to breach competition law. For example, the Franchising Guidelines (2020) issued by the Trade Competition Commission of Thailand requires franchisors to provide certain non-disclosure terms , including non-disclosure agreements ahead of time to franchisees. Such cases, for example Smash Franchise Partners, LLC v. Kanda Holdings, Inc. (Delaware, 2020)^[9] case a US court ruled that information provided without NDAs during recruitment is not protectable as a trade secret.^[10]

Therefore, franchisors should undertake IP audits of business entities and draft NDAs with precise definitions of confidential information tailored to the trade secret laws of each SEA jurisdiction. Registrations of trademarks and licenses need to be filed with local IP offices to ensure enforceability of the agreements on IP licensing.

CROSS-BORDER ENFORCEMENT CHALLENGES:

Applicability of all laws regarding license agreements, marking and non-disclosure agreements in SEA conflicts is rendered rather impossible because a lot of legal systems intervene. For instance, enforcement is less strict in Cambodia and Laos because they follow general contract law, while Vietnam and Malaysia have specific laws for franchises. The lack of harmonised IP laws in SEA increases the risk of infringement by franchisees or third parties, which is the opposite of the EU’s unified trademark system..^[11]

Franchisors should include arbitration clauses that name neutral jurisdictions like Singapore, known for its strong arbitration policies, as the jurisdiction of choice. This approach mitigates the risks of varying judicial precedent, such as in the case of McDonald’s India Private Limited v. Vikram Bakshi^[12], where the Delhi High Court emphasised that “exceptional circumstances” need to be proven in order to grant anti-arbitration injunctions.

NEW CHALLENGES FOR NDAS AND LICENSING AGREEMENTS

The growth of e-commerce and influencer advertising in Southeast Asia’s F&B industry creates new compliance problems. As Thailand’s ETDA (2023) put it, operators of digital platforms must validate advertising data, which affects franchisors’ control over online promotion management. They have to amend franchising agreements to restrict franchisees’ or influencers’ unauthorized use to digital assets, including social media content.

Franchisors should revise the licensing agreements to protect digital IP and ensure that NDAs cover online disclosures in line with emerging regulations like Thailand’s ETDA.^[13]

LEGAL POTHOLES AND HOW TO AVOID THEM

IP Licensing vs. Competition Law

Licensing agreements may contain exclusivity or non-compete clauses. In some jurisdictions, the inclusions of such clauses may contravene domestic competition law, particularly in countries such as Singapore and Malaysia. For example, clauses that improperly have the effect of preventing a franchisee from competing with other businesses may be found to be unenforceable.

Registration and Disclosure

Countries such as Malaysia and Vietnam, feature mandatory registration of licensing agreements. In some jurisdictions where registration is required, failure to properly register a license could render the agreement unenforceable or unprotected and in extreme cases may be punishable by law.

Trade Secret Enforcement is Uneven

In countries such as Indonesia and Vietnam, weak enforcement systems for trade secrets or failure to act to enforce trade secrets could undermine even well-written NDAs. in those markets. In any event, global brands need to prepare for a lack of legal certainty in Indonesia or Vietnam.

IMPLICATIONS FOR THE FOOD AND BEVERAGE SECTOR

The Southeast Asian region provides food and beverage companies a considerable growth opportunity complicated by the need to tailor contracts to fulfill compliance requirements with local laws.

• Intellectual Property Protection: Franchisors must conduct an audit of their intellectual property to substantiate ownership of trademarks, recipes, and other proprietary assets. Failing to register trademarks or license as required in Malaysia, Thailand, and Vietnam could render the agreements unenforceable against other parties and lead to brand dilution or infringement of brands who could adversely affect the prospective franchisee.
• Compliance costs: Regulatory compliance means that every NDA and license agreement must be tailored to each of the SEA countries, increasing the legal and administration costs. Small and medium-sized franchisors may find it very challenging to comply with registration requirements, such as Malaysia’s MyIPO or Vietnam’s NOIP.
• Digital Evolution: The rise of e-commerce and influencer marketing means that franchisors must review their NDAs and license agreements to include digital assets. Franchisees and influencers might misuse trademarks of the brands when flaunted on social media, which could cause potential brand reputational harm.
• Recent Developments: In Thailand’s new Franchising guidelines and Cambodia’s (2020) Law on Food Safety, there are indications that regulations on franchising and consumer protection are shifting away from being a ‘let it be’ regime to something with more prescriptive parameters. Innovations in eco-franchising, safe delivery provisions, and particularly AI in food preparation will change how licensing and NDAs are framed in the future.^[14] It is important that franchisors remain aware of these changes to avoid fines and disputes.

CONCLUSION

To effectively manage the NDAs and license agreements in the food and beverage franchising sector in Southeast Asia, a complex understanding of national laws, Intellectual Property protections, and emerging digital trends is necessary. While Malaysia, Thailand and Vietnam have developed relatively advanced frameworks, Cambodia and Laos have only general rules of contract law, which makes uniform compliance difficult.

There are even ongoing discussions in Southeast Asia on the harmonization of franchise laws related to cross border franchising. The ASEAN Economic Community promotes greater regional integration; however, the inconsistent intellectual property and contract rules represent a real barrier to actual integration. Policymakers are also discussing greater disclosure obligations to protect franchisees, as evidenced by recent changes in Thailand’s regulations. As the food and beverage continues to grow in Southeast Asia, governments will need to consider the harmonization of franchise law to enable growth in the region whilst protecting franchisees. By embracing proactive ways to prevent risk, franchisors can protect their brands and prosper in this evolving industry.

Legal nuances are complex in Southeast Asian franchising. Licensing and Non-disclosure agreements are critical tools to protect a brand image or maintain private information that can be leveraged in business. As laws develop with increasing focus on intellectual property or fair competition, food and beverage companies have to be aware, agile and legally informed. Taking a proactive legal step today can save costly disputes tomorrow.

Author: Divya Saini, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD. 

[1] Ilan Alon, Mirela Alpeza (2007). “Opportunities and Threats Regarding The Development Of The Franchising Business Model In Croatia” Seventh International Conference on “Enterprise in Transition. https://www.researchgate.net/publication/228467047_Opportunities_and_threats_regarding_the_development_of_the_franchising_business_model_in_Croatia

[2]Nishita Deka, India’s Franchise Law – A Patchwork of Statutes, Lexology (May 31, 2024) https://www.lexology.com/library/detail.aspx?g=6a643b9f-702c-470a-9e4b-3a2efa8e3813

[3] Franchise India, Current Market Landscape for Franchising in India, Franchise India (May 2, 2024), https://www.franchiseindia.com/index.php/insights/en/article/current-market-landscape-for-franchising-in-india.42281

[4]Nishita Deka, Franchising and Legal Compliance in India: Navigating the Legal Landscape, Lexology (Jan. 5, 2023),  https://www.lexology.com/library/detail.aspx?g=1798b730-b0d5-496d-8df1-626f7207207c

[5] 10 Things to Note About Indonesia’s New Franchise Regulations, Wong & Partners (Oct. 24, 2023), https://www.wnplaw.com/knowledge/10-things-to-note-about-indonesia-s-new-franchise-regulations

[6] What Are the Legal Aspects of Franchising in Thailand?, Lawzana (Jan. 2024), https://lawzana.com/articles/thailand/what-are-the-legal-aspects-of-franchising-in-thailand-123

[7] Franchising in Vietnam: Legal Framework and Registration Requirements, Vietnam Briefing (Jan. 10, 2024), https://www.vietnam-briefing.com/news/franchising-in-vietnam-legal-framework-and-registration-requirements.html/

[8]Thailand’s Trade Secret Act: Understanding the Law and Prevailing Disputes, Tilleke & Gibbins (Feb. 2024),  https://www.tilleke.com/insights/thailands-trade-secret-act-understanding-law-and-prevailing-disputes/

[9] Smash Franchise Partners, LLC v. Kanda Holdings, Inc., 2020 Del. Ch. LEXIS 263, No. 2020-0302-JTL (Ch August 13, 2020)

[10]Franchise Laws and Regulations – USA, ICLG (2024),  https://iclg.com/practice-areas/franchise-laws-and-regulations/usa

[11]Sandeep J. & Rishi Anand, Franchise Law Comparison: India and Taiwan’s Regulatory Evolution, Law.Asia (Mar. 8, 2024),  https://law.asia/franchise-law-comparison-india-taiwan-regulatory-evolution/

[12] McDonald’s India Private Limited v. Vikram Bakshi & Ors., [2016] 232 DLT 394

[13]ETDA Digital Platform Advertising Guidelines Released, The Reporter Asia (June 2024), https://thereporter.asia/eng/2024/06/etda-digital-platform-advertising-guidelines/#google_vignette

[14]How Much Is My Restaurant Worth?, Mission Peak Brokers (Apr. 2024), https://missionpeakbrokers.com/restaurant-business-values/

David Duncan & Dino Santaniello, Franchising in Southeast Asia: Key Considerations for Market Entry, 41 Franchise L.J. 2 (2021), https://www.tilleke.com/wp-content/uploads/2022/01/FLJ-41-2-Tilleke-SE-Asia-Franchising-Overview-1.pdf.

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