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CorporateUnited States2024Franchise Agreement Dispute for International Brand
Matter Value
Successfully Resolved
$2.5M
Successfully Resolved
Client Context
A US-based hospitality-franchise operator with approximately 200 franchised restaurant locations across North America and Asia, including 12 in Vietnam. The brand is well-recognised internationally with established trademarks registered in Vietnam. The company's Vietnam franchise programme was operated through a master-franchisee structure with bilateral agreements directly between the US franchisor and each individual restaurant operator.
01
The Challenge
A Vietnamese franchisee, operating two locations in Hanoi for approximately five years, fell into substantial arrears on royalty payments and committed a series of brand-standard violations (menu modifications without approval, sub-par interior maintenance, unauthorised promotional materials). The franchisor terminated the franchise agreements following the contractual procedure: written notices, cure periods, formal termination.
The terminated franchisee responded by continuing to operate the two restaurants under variations of the brand name (slight modifications to the trademark), continuing to use the franchisor's recipes and operating systems, and continuing to project an association with the franchisor in marketing and consumer-facing communications. The franchisee's argument was that the modifications to the brand name distinguished its operations from the franchisor's — an argument unsupported by Vietnamese trademark law.
The franchisor faced a dual problem: ongoing trademark infringement undermining the brand in Vietnam, and a potential precedent that other terminated franchisees might follow. There was also the financial dimension: approximately USD 2.5M in unpaid royalties, ongoing fees, and damages for the brand harm.
02
Our Approach
We pursued a coordinated multi-track strategy:
(1) **Trademark infringement proceedings** — administrative complaint to the Vietnam Intellectual Property Office and civil claim at the Hanoi Provincial People's Court for trademark infringement, seeking damages and injunctive relief.
(2) **Contract enforcement** — civil claim for the unpaid royalties and damages for breach of contract.
(3) **Injunctive relief** — emergency application for an injunction prohibiting the former franchisee from continuing to use any brand element, including modified names, recipes, operating systems, or promotional language suggesting association with the franchisor.
The injunction application was supported by:
- evidence of trademark registration in Vietnam covering all current and modified usage;
- side-by-side comparison of the franchisor's protected materials and the franchisee's continued use;
- evidence of consumer confusion (review-site comments, press references treating the operations as franchisor-affiliated);
- evidence of irreparable harm (brand value, ongoing reputational damage).
The court granted the injunction within fourteen days of filing. The administrative complaint to the IP Office produced a finding of infringement within two months.
With both proceedings going against the former franchisee, we engaged in negotiation. The franchisee's counsel indicated willingness to settle subject to discussion of the unpaid royalty quantum and the specific cessation requirements.
03
The Outcome
Settlement concluded eight months after engagement. Terms:
(1) Cessation of all use of the franchisor's trademarks, recipes, and operating systems within thirty days, including changing all signage, menus, packaging, promotional materials, and online presence.
(2) Payment of USD 1.85M to the franchisor — substantially the unpaid royalties plus partial damages for brand harm.
(3) Three-year non-compete preventing the former franchisee from operating any restaurant business within a defined radius of the existing franchisor locations.
(4) Dismissal of all proceedings on completion.
The former franchisee complied within the thirty-day period; the two locations were re-branded to a new (unrelated) concept. The franchisor's brand integrity in Vietnam was preserved, and no other Vietnamese franchisees attempted similar conduct in the subsequent two years.
Lessons & Generalisable Insight
Franchise disputes benefit enormously from parallel administrative and civil proceedings. The IP Office's administrative track is faster and cheaper than civil litigation and produces enforceable findings; the civil track preserves the option of substantial damages. Pre-emptive trademark registration covering both the brand and reasonably foreseeable variations is the foundation of all of this — without registration, the dispute would have been substantially harder. Franchise agreements should include detailed post-termination obligations covering the specific elements (signage, recipes, operating systems, online presence) that need to be unwound, with clear timelines and contractual penalties.
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