FDD Item 14: Patents, Copyrights, and Proprietary Information Explained
Item 14 of the franchise disclosure document discloses patents, pending patent applications, copyrights, and proprietary information that are material to the franchise. It also explains how those rights relate to the franchise and what limits or protections apply to the franchisee’s use of them. Item 14 covers intellectual property not addressed in Item 13, which handles trademarks. Item 14 is governed by 16 CFR 436.5(n).
What Is Item 14 of the FDD?
Item 14 is the patents, copyrights, and proprietary information section of the franchise disclosure document. It tells prospective franchisees whether the franchisor owns rights in, or holds licenses to, intellectual property that matters to the franchise and what rights and limits come with using it.
The disclosure requirements are codified under 16 CFR 436.5(n) and enforced by the Federal Trade Commission.
Item 14 sits next to Item 13 but covers different ground. Item 13 discloses the principal trademarks a franchisee is licensed to use. Item 14 covers patents, pending patent applications, copyrights, and confidential information such as trade secrets, recipes, formulas, or business methods.
A franchisor may have no material patents or pending patent applications. Even when no separately identified material patents or registered copyrights apply, Item 14 may still need to describe proprietary information or trade secrets communicated to franchisees.
What Must Be Disclosed in Item 14?
Item 14 begins by identifying patents, patent applications, copyrights, and proprietary information that are material to the franchise. It then explains their relationship to the franchise, any limitations on their use, and the protections or obligations that apply.
Ownership and Materiality
The franchisor discloses whether it owns rights in, or licenses to, any patents or copyrights that are material to the franchise. It also discloses any pending patent applications that are material.
Materiality depends on the intellectual property’s relationship to the franchise and whether information about it would matter to a prospective franchisee’s evaluation of the offering.
Patent, Application, and Copyright Details
For each material patent, patent application, or copyright, the franchisor describes its nature and relationship to the franchise.
For each material patent, the franchisor states its type, number, issuance date, title, and duration.
For each material pending patent application, the franchisor states its type, serial number, filing date, and title.
For each material copyright, the franchisor states the registration date and number, its duration, and whether it can and will be renewed.
Current Determinations
Item 14 describes any current material determination by the United States Patent and Trademark Office, the United States Copyright Office, or a court concerning a material patent or copyright.
The franchisor identifies the forum and matter number and explains how the determination affects the franchised business.
Pending Proceedings
If a material proceeding is pending before the United States Patent and Trademark Office or a court, Item 14 states the forum, case number, claims asserted, issues involved, and any effective determinations.
With counsel’s consent, the franchisor may include counsel’s opinion regarding the proceeding. Item 14 may contain a summary if counsel consents and the full opinion is attached to the disclosure document.
Agreements, Protection, and Infringement
Beyond the identifying details, Item 14 discloses the agreements and responsibilities that govern how the intellectual property is used and defended.
The Debtor's Relationship
If an agreement limits the franchisee's use of a patent, patent application, or copyright, the franchisor states the parties to the agreement, its duration, the extent to which it may affect the franchisee, and its other material terms.
These arrangements may include licenses from third parties that place conditions on how the franchise system or its franchisees use the intellectual property.
The Franchisor's Duty to Protect and Defend
Item 14 discloses whether and to what extent the franchisor must protect a patent, patent application, or copyright and defend the franchisee against claims arising from its authorized use.
The disclosure addresses whether the franchisee must notify the franchisor of an infringement claim, whether the franchise agreement requires the franchisor to take affirmative action after receiving notice, who controls the litigation, and whether the franchisor must participate in the franchisee's defense or provide indemnification.
It also explains what rights the franchisee has if the use of the intellectual property must be modified or discontinued.
Known Infringement
If the franchisor knows of patent or copyright infringement that could materially affect the franchisee, Item 14 describes the nature of the infringement, where it is occurring, how long it has continued to the extent known, and any action the franchisor has taken or expects to take.
This gives candidates notice of disputes that could affect the intellectual property used in the franchise system.
Proprietary and Confidential Information
Item 14 also covers confidential information the franchisor treats as proprietary, separate from formally registered patents and copyrights.
If the franchisor claims proprietary rights in confidential information or trade secrets, it describes the general nature of that information and the terms under which the franchisee may use it.
The rule calls for a general description rather than disclosure of the protected information itself. A franchisor can state that a formula, recipe, method, system, or process is treated as a trade secret without revealing the secret.
Common Mistakes Franchisors Make With Item 14
Confusing Item 14 With Item 13
Franchisors sometimes place trademark information in Item 14 or place patent, copyright, and proprietary information in Item 13.
Principal trademarks belong in Item 13. Patents, pending patent applications, copyrights, and proprietary information belong in Item 14. Keeping the disclosures separate helps avoid gaps and duplication.
Overlooking Proprietary Information
A franchisor with no material patents or separately identified copyrights may still hold trade secrets or confidential systems that require disclosure.
Treating Item 14 as empty because there are no registered rights can be a mistake when the franchise system relies on a recipe, formula, method, process, manual, or other proprietary information.
Assuming the Franchisor Must Defend Every Claim
Item 14 does not create an automatic duty for the franchisor to defend the franchisee or protect the intellectual property.
Instead, it requires the franchisor to disclose what obligations it has, if any, who controls related litigation, whether indemnification is available, and what the franchisee must do to receive protection.
Outdated Intellectual Property Details
Patent terms expire, pending applications change status, copyright registrations may change, and legal proceedings or licensing restrictions may arise.
Item 14 should be reviewed whenever the FDD is updated so that registration numbers, dates, durations, proceedings, agreements, and known infringement disclosures remain accurate.
How Item 14 Connects to Other FDD Items
Item 14 reads most closely with Item 13, which covers principal trademarks. Together, they describe the intellectual property a franchisee may use, with Item 13 handling trademarks and Item 14 handling patents, patent applications, copyrights, and proprietary information.
The franchisee’s duty to protect trademarks and proprietary information may also appear in the Item 9 obligations table, which commonly points to Items 13 and 14.
Restrictions on how the franchisee uses the system and what products or services it may offer may connect to Item 16.
The franchise agreement and other agreements the franchisee must sign are generally included as exhibits under Item 22. Item 14 separately summarizes material agreements that limit the use of disclosed patents, patent applications, or copyrights.
Franchise Genesis
How Franchise Genesis Helps Franchisors Prepare Item 14
Item 14 requires a clear account of the intellectual property behind the franchise and the rights that come with it. Getting it right means separating patents, patent applications, copyrights, and proprietary information from the trademarks disclosed in Item 13.
It also means stating the required details for each material right, identifying agreements that limit use, describing any proceedings or known infringement, and explaining the franchisor's protection and defense obligations without revealing trade secrets.
Franchise Genesis works with franchisors to prepare a franchise disclosure document that is accurate, compliant, and built to support franchise sales.
Experienced franchise attorneys are included in the development program. They help franchisors identify intellectual property that is material to the system, disclose the required patent, copyright, and proprietary information details, and keep Item 14 aligned with the franchise agreements and supporting documents.
Questions
Frequently Asked Questions
What is Item 14 of the FDD?
Item 14 discloses patents, pending patent applications, copyrights, and proprietary information that are material to the franchise. It also describes their relationship to the franchise, the franchisee’s rights to use them, and any limits or protections that apply. Item 14 is governed by 16 CFR 436.5(n).
How is Item 14 different from Item 13?
Item 13 discloses the principal trademarks a franchisee is licensed to use. Item 14 covers other intellectual property, including patents, pending patent applications, copyrights, and confidential information such as trade secrets, recipes, formulas, or systems.
Does every franchisor have Item 14 disclosures?
Not necessarily. A franchisor may have no material patents or pending patent applications. It may still need to disclose material copyrights, proprietary information, or trade secrets used in the franchise system.
Does Item 14 require a franchisor to reveal its trade secrets?
No. The rule requires only a general description of proprietary information. A franchisor can state that a formula, method, process, or system is treated as a trade secret without disclosing the protected information itself.
Does Item 14 require the franchisor to defend the franchisee?
Not automatically. Item 14 discloses whether and to what extent the franchisor must protect the intellectual property, defend the franchisee, control litigation, or provide indemnification.
What does Item 14 disclose about known infringement?
If the franchisor knows of patent or copyright infringement that could materially affect franchisees, Item 14 describes its nature, location, known duration, and any action the franchisor has taken or expects to take.
Does Item 14 need to be updated when intellectual property changes?
Yes. Patent terms expire, applications change status, copyright registrations may change, and proceedings or licensing restrictions may arise. Item 14 should be reviewed whenever the FDD is amended so the disclosures remain accurate.