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The Zest

Opening a second location or franchising your studio: what the trademark has to do first

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Before a second location in a new market, and well before you sell a franchise, your studio name should be federally registered, or at least filed, and owned by the right entity. A registration gives you priority across the country from your filing date, which is what makes the name worth expanding under. If you franchise, the federal franchise rule requires you to tell buyers whether your main trademark is registered, and to warn them if it isn't.

Why expansion changes the trademark question

A single studio in one neighborhood can run for years on an unregistered name without trouble. The name only has to work where your clients are. Expansion asks the name to work somewhere new, and that's where the gaps show up.

Here is the part that surprises studio owners. Someone in another city may already be using your name, or something close to it, for fitness classes. If they were there first, they may have rights in their area that your later registration doesn't erase. You may never have heard of them, because they had no reason to cross your path until you moved toward them.

What a federal registration does for a growing studio

Three provisions do most of the work.

First, nationwide priority. Under 15 U.S.C. § 1057(c), once your mark registers, the filing date of your application counts as "constructive use of the mark, conferring a right of priority, nationwide in effect," for the services in the registration. In plain terms, the law treats you as if you'd been using the name everywhere in the country from the day you filed.

Second, constructive notice. Registration on the Principal Register "shall be constructive notice of the registrant's claim of ownership." Someone who starts using a confusing name after you register can't claim they didn't know.

Third, a presumption in your favor. A registration is prima facie evidence that the mark is valid, that you own it, and that you have the exclusive right to use it for the listed services.

The nationwide priority has limits, and they're the reason to file before you expand. It doesn't reach anyone who used the mark before your filing date, or who filed their own application first. And the statute protects a good-faith earlier user, but "only for the area in which such continuous prior use is proved." That's why the order matters: search the name nationally, file, then grow. I wrote about where those earlier users stand in the article on prior user rights, and why a state registration doesn't do the same job in the article on Florida versus federal trademarks.

Who owns the name once there are two studios

Many owners open each location as its own LLC. That's often sensible for the business, but it raises a trademark question: which entity owns the name?

Trademark law handles multiple users through control. The statute calls them related companies, meaning "any person whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods or services." Under 15 U.S.C. § 1055, legitimate use by a related company "shall not affect the validity of such mark or of its registration." The Trademark Manual of Examining Procedure (TMEP) puts it simply: "The essence of related-company use is the control exercised over the nature and quality of the goods or services."

So one entity should own the mark, and each location should use it under a license from that owner, with quality standards the owner enforces. I covered the choice of owner in the article on whether you or your LLC should own the trademark.

Franchising: the trademark is the first element

The Federal Trade Commission's franchise rule defines a franchise by three elements. The first is that "The franchisee will obtain the right to operate a business that is identified or associated with the franchisor's trademark." The other two are that the franchisor exerts significant control or gives significant assistance in the franchisee's method of operation, and that the franchisee makes a required payment.

That definition applies to "any continuing commercial relationship or arrangement, whatever it may be called." Calling it a license or a partnership doesn't change the analysis. A deal where another studio pays you to open under your name and follow your system can meet all three elements.

The TMEP treats franchisees the same way it treats any licensee: "Stores that are operating under franchise agreements from another party are considered 'related companies' of that party." Your quality control is what keeps their use counting as yours.

What the franchise disclosure says about your trademark

The franchise rule requires a disclosure document with numbered items. Item 13 covers trademarks. It requires you to identify each principal trademark licensed to the franchisee and state whether it's registered with the USPTO.

If your principal mark isn't on the Principal Register, the rule requires this statement, word for word: "We do not have a federal registration for our principal trademark. Therefore, our trademark does not have many legal benefits and rights as a federally registered trademark. If our right to use the trademark is challenged, you may have to change to an alternative trademark, which may increase your expenses."

That paragraph goes in front of every prospective franchisee. The franchise rule has many other requirements that are outside what I cover here. This is only the trademark piece.

What this means for your studio

If expansion is in the next year or two, put the trademark work first:

  1. Run a full search of the name across the country, not just your city.
  2. File a federal application in Class 41 for your classes and trainings, plus any other classes you'll sell in.
  3. Decide which entity owns the name, and have each location use it under a written license with standards.
  4. If you're considering franchising, have the registration in hand or well underway before your disclosure document is drafted.

The filing date is the one thing you can't go back and change, and every month before you file is a month someone else can start using a similar name in a market you want.

If you want to talk through clearing and registering a studio name before you expand, you can see how the search and filing packages work on the services page, and the FAQs page answers most of what comes up before a first call.

Book a free 15-minute discovery call with the attorney (opens in a new tab)

(No legal advice is given on the discovery call. It's a chance to tell me what you're building and hear how the process works.)

Sources

This article is general information, not legal advice. Reading it does not create an attorney-client relationship.

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