Doughnot forget about your franchisees!

The recent social media discussions around the well-known dessert company, Doughnut Time, are a reminder to franchise owners and licensors to take note of and carefully consider their franchise agreements.

Background 

Doughnut Time is an Australian company that has been franchised globally in order to sell its popular doughnuts (including in the UK (the "UK Franchisee")). In November 2024, Doughnut Time found itself involved in controversy in the UK when the founder of another company - Feyi Flowers - alleged that the UK Franchisee CEO, Thomas Anderson, had 'stolen' her brand, due to: (i) a purchase he made from Feyi Flowers; and (ii) the UK Franchisee's later association with a newly launched company - Fond Flowers. Fond Flowers is believed to have been created by Mr Anderson's partner, and has product branding similarities with Feyi Flowers' products, which is what led to the allegations of brand copying.

The story went viral online and most people, not knowing about the global franchise structure of Doughnut Time, assumed that the entire organisation was complicit in this alleged copying by Fond Flowers. The UK Franchisee’s official Instagram page (@doughnuttime_uk) had also collaborated with Fond Flowers in a social media giveaway, solidifying the link between the Doughnut Time and Fond Flowers brands.

The issue caused further confusion when the UK Franchisee's stores were rebranded to Rodeo Doughnuts in January of this year, with many questioning whether Doughnut Time had tried to avoid controversy with a quiet UK rebranding. In reality, it seems as though Doughnut Time had ended its relationship with the UK Franchisee prior to any of the accusations by Feyi Flowers (although this had not been publicly announced at the time). In any event, a later announcement that Doughnut Time Germany had acquired the rights to the Doughnut Time brand in the UK went under the radar for most of the public.

There is still some confusion as Rodeo Doughnuts continues to sell a small number of doughnuts with the same names as those traditionally associated with Doughnut Time doughnuts, and Doughnut Time has had to publish a recent video answering the public's questions about the relationship between the two.

Considerations 

This is a clear reminder for organisations to stay alert to the perception of their brand, particularly where run by a franchisee. When agreeing the contractual relationship, we suggest that franchisors should be aware of the following practical points: 

• Social media: A franchisor should have sole control over the main social media page of the company and should specify whether any others may be set up in its name by a franchisee. Where franchises are divided by territory, ensure that any permitted social media pages for each territory are separate. In the event the franchisor and franchisee relationship ends, a contentious issue may be who should retain control of social media pages which reference the brand's name and are associated with the brand (as, on most platforms, the name can easily be changed while the account stays the same). Usually, the franchisor will want to keep the online following associated with its brand in a specific territory, but there may be exceptions, e.g. if there is a later intention to sell off part of the business to that franchisee, this may not be such a key requirement.
• Collaborations: Consider how much discretion a franchisee will have to collaborate with other brands – both for profit, or just for publicity. If approval is required from the franchisor, ensure this is specified in any agreement between the parties.
• Consider all IP: It will not be debatable that the franchisor owns and will continue to own the branding of the company. However, agreements should be clear about ownership of: (i) any IP created in the course of the relationship; and (ii) any IP in products or services named and sold under the franchisor's brand.
• Notification: Aim to include an obligation on the franchisee to provide details of any potential damage to the reputation of the licensed brand as soon as it becomes aware of the risk. This will provide the franchisor with early notice of any problems and enable it to take swift action.
• Publicity: Public statements can make clear where franchisors and franchisees are no longer associated to help minimise any confusion from the general public and enable continued use of the brand in a territory. Ensure that the announcements are properly publicised on the relevant social media platforms and not just through the press. Additionally, decide beforehand who will have control over what any statement will say.
• Termination: In the unfortunate event that the franchisor wants to end the relationship, it should ensure it can do so at short notice where there is a risk of the franchisee damaging the reputation of its brand. It should also ensure it has termination for convenience rights on a longer notice period, which will assist where the franchisor wants to terminate a franchise agreement, but continue to preserve the relationship with the franchisee.

And remember – this works both ways! Franchisees should pay close attention to potential reputational issues with the brand they are licensing, as this is the brand they are choosing to associate themselves with.