Franchising in the UAE: How Trademark Licensing powers Business Expansion

This article was written by Daksha Shasheesh, Legal Intern at ABS Partners.

Franchising is one of the most effective ways for a business to expand. In the United Arab Emirates, global brands in sectors such as food and beverage, retail, healthcare, hospitality, and fitness have successfully expanded into the market through franchise models rather than by operating their own local subsidiaries.

The cornerstone of the franchising business model is intellectual property, particularly trademarks and trademark licensing. While customers mainly associate a franchise with a product or service, the important aspect is actually the ability to license a “recognised brand” and combine it with a business operating style suited to the local environment. The majority of the legal foundation of franchising therefore lies in proper trademark licensing.

Unlike most countries, the UAE does not have any law dedicated specifically to franchising. Instead, it relies on a combination of laws. The UAE Civil Code (Federal Law No. 5/1985 on the Civil Transactions Law, as amended) and the Commercial Transactions Law (Federal Decree-Law No. 50/2022) regulate the contract or agreement for franchising and trade licensing. The Commercial Agencies Law (Federal Law No. 3/2022) regulates commercial agencies, including franchises, but only applies to qualifying registered franchise agreements. The UAE Trademark Law (Federal Decree-Law No. 36/2021) governs the issues around trademark registration, protection and licensing. Finally, the UAE Competition Law (Federal Decree-Law No. 36/2023) regulates any exclusivity clauses or pricing restrictions in franchise agreements. Businesses expanding within the UAE through the franchising model must carefully structure their agreements to ensure adequate protection of their intellectual property while complying with this applicable legal framework.

This article examines how trademark licensing facilitates business expansion through franchising, the legal framework governing franchise arrangements in the UAE, common legal issues faced in cross-border trademark licensing, the distinction between a master franchise model and a direct franchise model, and the key considerations for UAE businesses licensing their trademarks internationally for the first time.

Franchising

Franchising is essentially a contractual arrangement in which an established company, such as a global brand (the franchisor), licenses its brand name, business processes and trademarks to a separate independent entity (the franchisee), who operates the business and pays the franchisor fees or royalties in exchange. The most valuable asset being licensed here is the trademark. It allows customers to associate the products or services with an established brand, and the franchisee benefits from the reputation and goodwill already owned by the brand.

Importantly, a franchise is more than a simple trademark licence. While a trademark licence permits the use of a mark under certain conditions, a franchise agreement combines trademark licensing with the management of business systems, quality control, training and marketing assistance, along with the standard boilerplate clauses that decide how the agreement actually operates.

How Global Brands Enter the UAE Market

Global brands, meaning international businesses with a presence abroad, generally seek to expand into the UAE through this business expansion model. Companies typically choose to expand into the UAE for a number of reasons. Its business-friendly environment is consistently improving — for example, by allowing 100% foreign ownership of most companies (except in limited sectors) and by offering advanced free zones that are commercially efficient, whether for setting up a business or operating one. Even where a company decides to franchise to an entity operating on the mainland, it still benefits from a large and diverse consumer base. This also makes the UAE strategically one of the best gateways to the Middle East market. Many international businesses use the UAE as a base for expanding into the wider Gulf Cooperation Council (GCC) countries, such as Saudi Arabia, Kuwait, Bahrain and others. Rather than establishing wholly owned operations, international franchisors often partner with established UAE businesses that possess local market knowledge to expand into the market.

In practice, the usual market entry process for a company opening a franchise in the UAE involves registering the trademark and securing trademark protection under the UAE Trademark Law (Federal Decree-Law No. 36/2021). Global brands may also be able to take advantage of international frameworks such as the Madrid Protocol, which allows foreign brand owners in any of the Madrid System’s member territories to gain trademark protection in the UAE by designating the UAE in their WIPO Madrid System application, and the Paris Convention, incorporated in Article 11 of the UAE Trademark Law, which further allows businesses to claim priority based on an earlier trademark application filed in another member state, provided subsequent applications are filed within six months. Once this is done, the trademark receives legal protection under local law. The business must then choose a suitable entity with local expertise as a franchise partner, followed by negotiation of the franchise agreement and the trademark licensing agreement. Once the franchisor and franchisee reach an agreement, the franchisee is granted the right to use the trademark, along with support for operating the business and provision of training. The franchisor also sets up a system to monitor quality and standards.

This allows the franchisor to retain ownership of the trademark while expanding the business without significant cost or burden, and with the benefit of local expertise.

The UAE Legal Frameworks Governing Franchise and Trademark Licensing

The UAE’s franchise agreements are governed through a combination of several legal instruments.

1. UAE Trademark Law

The principal legislation governing trademarks is Federal Decree-Law No. 36 of 2021 on Trademarks. The law provides details on what counts as a trademark, registration processes, and the duration of protection for registered trademarks. It grants the owner the exclusive right to use the registered mark, license others to use the mark, prevent third parties from using identical or confusingly similar marks, and commence infringement proceedings where their trademark rights are violated. For franchisors, trademark registration is particularly important because contractual rights alone cannot provide the same level of protection against third-party infringement.

Trademark licences should clearly define the scope of permitted use, duration, geographical territory, quality control requirements, permitted goods and services, termination rights and post-termination obligations in order to be effective.

2. UAE Civil Transactions Law

Franchise agreements are contracts and are therefore subject to Federal Decree-Law No. 5 of 1985 (Civil Transactions Law), as amended. The Civil Transactions Law establishes general principles governing contractual freedom, good faith performance, formation and interpretation of contractual obligations, and remedies for breach and termination.

3. Commercial Transactions Law

Commercial franchise arrangements may also fall within the scope of Federal Decree-Law No. 50 of 2022 (Commercial Transactions Law) where the relationship involves commercial activities. This legislation governs commercial obligations, business transactions and related contractual arrangements.

4. Competition Law

Certain franchise restrictions may also fall under Federal Decree-Law No. 36 of 2023 on the Regulation of Competition. Franchisors frequently impose restrictions relating to pricing, territorial exclusivity, sourcing requirements and non-compete obligations; where applicable, these restrictions must comply with UAE competition law.

5. Commercial Agencies Law

Another important consideration is Federal Law No. 3 of 2022 Regulating Commercial Agencies (the Commercial Agencies Law). The UAE does not have specific legislation for franchise arrangements, but some franchise arrangements may fall under the Commercial Agencies Law depending on their structure. Not all franchise arrangements will fall under this law. To qualify, the franchisee must typically be a UAE national (or a company wholly owned by UAE nationals) and hold exclusivity for the whole of the UAE or a specific emirate. Such arrangements must be registered if the business intends to operate within the statutory regime, and upon registration, rights are conferred on both the agent and the principal.

6. International Frameworks

Franchising frequently involves cross-border expansion, so international intellectual property treaties can also come into play. The UAE is a member of the Paris Convention for the Protection of Industrial Property, the Madrid Protocol, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). These international frameworks simplify trademark protection across multiple jurisdictions and provide efficient processes for protecting internationally recognised brands.