A charity’s brand is what enables the charity to be recognised by the general public and distinguished from other charities and organisations. It is closely linked to its reputation which in turn impacts its ability to attract fundraising and ultimately achieve its charitable purposes. It is a unique and valuable asset – indeed, the Charity Commission considers that a charity’s brand is one of its most important assets – it is therefore incumbent on charity trustees to take good care over its management and protection.
In particular, the Charity Commission, while recognising the benefits that commercial relationships and partnerships can bring to charities and beneficiaries, considers there to be inherent risks to a charity’s brand and reputation in any arrangement where the charity allows itself to be associated with other organisations, especially non-charities. Trustees are expected to consider those risks very carefully before entering into such arrangements, and apply appropriate decision making and controls (see Guidance for charities with a connection to a non-charity and our comments below).
There are certain legal tools available to assist trustees with the protection and management of the charity’s brand. We touch on these briefly here, and conclude with some points to be borne in mind when licensing the brand.
At its core a charity’s brand comprises its name and logo. These "marks" are invaluable to the charity as a means of indicating where goods and services have originated from that charity.
A trade mark registration provides the charity with a set of exclusive rights to use that name or logo in relation to the goods and services for which it has been registered in the territory that it has been registered in. This is particularly helpful if the charity needs to stop another organisation from using the same name or logo or one that is confusingly similar.
Not having a registered trade mark makes protecting the charity’s brand more difficult. However, if the charity has used its name and built up goodwill (ie recognisability of that charity by the public under that name or logo) it will have unregistered rights. These rights can be used to prevent other organisations trading with the same or similar name by bringing a claim under the law of passing-off.
To rely on passing off the charity will need to be able to demonstrate that it has goodwill and that another organisation is misrepresenting to the public that it is the same or associated with the charity, damaging the charity’s goodwill. Although the origins of passing-off lie in the commercial world, it has been recognised for many years now that charities can acquire "goodwill" and bring a passing-off action if that goodwill is damaged. However, while passing-off may be useful and should not be overlooked, it places a heavy burden on the charity bringing the claim to evidence its rights. The rights obtained from registering a charity’s name or logo as a trade mark are stronger than those under passing off.
For this reason trustees would be expected at least to consider protecting their charity’s name and / or logo by means of trade mark registration, and many hundreds of charities have in fact done so.
When registering a trade mark it is important to carefully consider the goods and services to be covered by the registration and the territories in which protection is needed. Normally this is assessed by looking at the commercial reality of what the charity and its trading subsidiary is offering in terms of goods and services, and where they are operating. It is also important to consider the charity’s future plans (at least within the next five years or so).
Many charities set up trading subsidiaries, typically to ring-fence the charity against risks associated with non-charitable trading, gain tax efficiencies and because of the restrictions on a charity’s ability to engage in “non-primary purpose trading”.
In many cases, the trading subsidiary will need the right to use the charity’s name and logo in order to trade and raise funds for the charity. Use of the charity’s name and logo by even its own trading subsidiary should be protected and must be in writing – the Trade Marks Act 1994 provides that a licence of a registered trade mark is not effective unless it is in writing signed by or on behalf of the grantor. The licence can be exclusive or non-exclusive (or both, depending on the scope of rights granted). The licence should include a number of control mechanisms to ensure that use by the trading subsidiary is consistent with the charity’s aims and will not cause reputational harm. The licence can also provide a means of ending use by the trading subsidiary of the name or logo should the trading subsidiary fail or be sold. A charity should also not be subsidising its trading subsidiary and therefore it must charge the trading subsidiary a reasonable market value fee (except where it is satisfied that the trading subsidiary is using the marks in furtherance of the charity’s charitable purposes).
Secondly, consideration should be given as to whether it is appropriate for the trading subsidiary to be set up with a name that is similar or makes use of the charity’s name. In most cases it will be, provided that the licence to the subsidiary contains sufficient controls. Where the activities of the trading subsidiary are particularly risky it might be prudent not to include the charity’s name to help avoid the name and goodwill of the trading subsidiary being intertwined with the charity’s name and risking reputational damage to the charity should the company fail, but this may not always be realistic given that subsidiaries exist to raise funds for their parent charity and need to be able to trade off the charity’s name.
Just as with any asset, a charity’s brand can be used to further the interests of the charity and a partnership between the charity and a commercial organisation can be a useful way of achieving this.
A commercial partnership often involves the charity and commercial organisation entering into an agreement to raise funds for the charity. It will typically involve the charity allowing the organisation to use its name and logo to promote the organisation’s own products or services. Where these benefits are being provided to a non-charity (or any organisation not carrying out activity in furtherance of the charity’s own charitable purposes), the charity should secure a market rate return, typically in the form of a royalty or other payment. If not, the trustees may be providing a private benefit or acting outside their charity’s purposes and be in breach of trust. They may also be exposed to a risk of challenge from HMRC as such royalties and fees are subject to VAT.
These kinds of arrangements can have benefits for both the charity and organisation. For the charity, such arrangements can, for example, have the benefit of raising crucial funds and the charity’s profile and message.
However, there are inherent risks in entering into this kind arrangement – a charity’s failure to recognise the value of its name and reputation, and failing to take adequate steps to protect them before entering into the partnership, ranks high among such risks. To mitigate the risk the Charity Commission expects that trustees:
- consider the likely risks as well as the potential benefits of such an arrangement;
- ensure that a tightly drafted agreement is in place between the charity and the commercial partner that sets out clearly on what terms the commercial partner may use the charity’s trade marks and for how long, whether the trade marks can be sub-licensed, and on what grounds the charity can terminate (typically the charity will want a right to terminate with immediate effect if there is a threatened or actual risk to the charity’s reputation due to the commercial partner’s use of the brand). Often such an agreement will refer to the charity’s brand guidelines, values and policies, and require the commercial partner’s use of the brand to be consistent with those. Clear monitoring, financial reporting and audit terms are also advisable to enable the trustees to monitor the arrangement and ensure that charity is receiving the income that it should;
- consider if commercial partner’s activities are consistent with the charity’s core work, aims and values. Unflattering media press stories (and Charity Commission cases) demonstrate the damage that can be caused to a charity’s reputation by a perceived clash between a commercial partnership and a charity’s core work and brand.
Licensing other charities and “social franchising”
We have recently advised a number of charities on their licensing arrangements with other charities or not for profits, both in the UK and overseas. These raise a number of distinct questions, depending on the history and nature of the relationships.
Often the use of branding by “related” charities or not for profits overseas has evolved informally. However, as noted above, where registered trade marks are concerned a licence to use them is not effective unless in writing. Unlicensed use creates a risk that ownership of the brand becomes fragmented and diluted. This may not matter if the relationship is such that a written licence can easily be put in place, but if not this could pose problems for recovering control of the brand.
In such situations it is just as important to have considered how the brand should be owned, and by which organisation, and the terms on which it should be licensed as when dealing with non-charities.
Again, as when licensing non-charities, the terms of any licence need careful thought. A particular issue is the extent to which the licensee charity may want or need to permit use of the marks in connection with non-primary purpose trading (for example, a sponsorship agreement).
Further along the spectrum of complexity is the social franchise model. The franchisor may or may not be a charity but the franchisor and its franchisees will often be not-for-profit companies with aligned socially beneficial objectives. Similar to a commercial franchise, the franchisor will offer a franchise "package" to franchisees, who are appointed under a carefully drafted agreement which refers to detailed operational procedures and policies set out in a manual or handbook. In some ways it is an extension of standard charity brand licensing which, as noted above, needs to ensure adherence to the charity’s policies by the licensee, but a franchise goes further in providing franchisees with elements of the platform needed to commence operations. The model is seen as one way in which a franchisor could achieve a more rapid expansion and impact then it would be able to achieve alone. How tightly the franchisor regulates its franchisees and their use of the social franchise brand will vary but, however strict or flexible the franchisor wishes to be, the terms should be in writing and be clear, referring to the social franchise handbook and other guidelines as required.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, May 2022