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What constitutes parallel imports or grey goods?

It is commonly said that “imitation is the sincerest form of flattery”. However, in the franchise business, imitation may prove disastrous to the company being imitated.

A franchise may be defined as a process whereby a franchisor gives a franchisee a license empowering the franchisee to use the franchisor’s business name, trademark, model, and services. In other words, a joint venture is created between the franchisor and the franchisee.

In competitive industries like the clothing industry, it may be better to acquire a franchise having an established and proven business model than starting a new company. The South African industry, especially fast-food, is dominated by franchises.

The biggest advantage that a franchise confers is brand recognition. Brand recognition plays an import role in the success of a franchise. A brand can be considered as a company’s greatest asset because it plays a major role in how consumers remember the company.

Most people can easily identify a brand by looking at their logo. For example, if you see an accentuated letter M in yellow colour, McDonald’s immediately comes to mind or if I say “it’s finger-licking good”, you immediately think of KFC.

Generally, consumers consider products from good brands to be of better quality and this eases the consumer’s decision-making process. The average consumer would take a product from a supermarket shelf without any scrutiny simply because the product is branded by a company with good reputation.

Over the years, it has become common for companies to imitate popular words, phrases and/or images belonging to their competitors. Imitators rely on the reputation of well-established brands because a company’s reputation in most cases influences demand for the company’s products. Imitators mislead the average consumer into assuming that their products are associated with that of the company being imitated.

As a result, brand dilution occurs whereby the original brand suffers because of the imitation. In turn, this may negatively impact the company’s revenue and decrease consumer’s trust.

A popular way that companies may protect their brands are by registering their trademarks. A registered trademark can be obtained for word, logos, slogans and/or phrases. A registered trademark allows an owner to institute legal proceedings against imitators as well as seek compensation for damages that may have been caused by the imitation. The burden of proof needed is reduced when a brand has a registered trademark.

Another advantage of having a registered trademark and indicating it on your product with symbol ®, is that it increases consumer’s confidence for the companys’ brand. Companies are always advised to register their trademarks and brands especially if franchising is being considered. Should you have any questions or concerns regarding obtaining or enforcing a trademark, please contact www.nma-ip.com