Saudi Arabia, as the largest economy in the Middle East, offers an attractive and fast-growing market for businesses aiming to expand their brands through trademark licensing and franchising. However, businesses must navigate a complex and evolving legal landscape governed by the Saudi Trademark Law, Franchise Law, and various Ministry of Commerce (MoC) regulations to ensure full compliance.
This article outlines how businesses can license or franchise their trademarks in Saudi Arabia, the key legal requirements, procedural steps, and best practices to mitigate risks and protect intellectual property rights.
This blog is a part of our The Ultimate Guide to Intellectual Property Law – ATB Legal blogpost.
Understanding Trademark Licensing in Saudi Arabia
What is Trademark Licensing?
A trademark license is an agreement where the trademark owner (licensor) permits another party (licensee) to use its registered trademark under specified conditions, without transferring ownership. Licensing can be:
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- Exclusive – only the licensee may use the mark in a specified territory or sector.
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- Non-exclusive – the licensor may allow multiple licensees to use the mark.
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- Sublicensable – the licensee is allowed to further license the trademark, subject to the original licensor’s consent.
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Legal Basis for Licensing
Trademark licensing in Saudi Arabia is governed by the Trademark Law (2023 amendment) and its Implementing Regulations, administered by the Saudi Authority for Intellectual Property (SAIP).
Key Legal Requirements:
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- The trademark must be registered with SAIP in Saudi Arabia.
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- A written license agreement is required.
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- Recordation of the license with SAIP is optional but strongly recommended for enforceability against third parties.
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Registration of Trademark Licenses with SAIP
Although not mandatory, recording a license agreement with SAIP is essential to:
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- Make the license enforceable against third parties.
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- Enable the licensee to take legal action against infringers.
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- Avoid challenges to the use of the mark in case of non-use cancellation actions.
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Documents Required for License Registration:
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- Copy of the registered trademark certificate.
- A legalized and notarized license agreement in Arabic (or a certified Arabic translation).
- Power of attorney (if filed through an agent).
- Completed SAIP application form.
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Procedure:
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- Submit the documents through the SAIP portal.
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- Pay the prescribed fee.
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- If all documents are in order, SAIP records the license and issues a confirmation.
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Franchising in Saudi Arabia
What is Franchising?
Franchising is a broader commercial arrangement where the franchisor licenses its entire business model, including trademarks, know-how, systems, and operational methods, to the franchisee, in return for fees and royalties.
Saudi Arabia passed its first comprehensive Franchise Law (Royal Decree No. M/22 of 2019), effective from April 2020, regulating franchise relationships.
Key Features of the Saudi Franchise Law
Applicability:
Applies to all franchise agreements where:
- The franchise is operated in Saudi Arabia, and
- At least one party is a Saudi resident or company.
Key Requirements:
- Franchise Disclosure Document (FDD): Franchisors must provide a disclosure document to the franchisee at least 14 days before executing the franchise agreement.
- Mandatory Registration: The franchise agreement must be registered with the Ministry of Commerce (MoC).
- Written Franchise Agreement: A written agreement in Arabic (or with certified Arabic translation) is mandatory.
- Experience Requirement: Franchisors must demonstrate operational experience and business success before franchising in Saudi Arabia.
Disclosure Document (FDD) Requirements
The FDD must include:
- Corporate information about the franchisor.
- Trademark and IP details.
- Description of the franchise system.
- Financial performance (optional but recommended).
- Obligations of both parties.
- Training and support provided.
- Fees, royalties, and payment terms.
- Termination, renewal, and transfer provisions.
- Litigation and insolvency history.
Failure to comply with disclosure requirements can render the agreement voidable and may expose the franchisor to civil liability.
Franchise Agreement Requirements
A valid franchise agreement must:
- Be in writing and governed by Saudi law.
- Specify the scope, territory, and duration of the franchise.
- Clearly outline IP usage rights, training, fees, and termination clauses.
- Comply with Shariah law principles.
Registration Procedure with Ministry of Commerce
Documents Required:
- Franchise Agreement (in Arabic).
- Franchise Disclosure Document.
- Proof of trademark registration (if applicable).
- Commercial registration of both parties.
- Power of attorney (if filing through a representative).
Steps:
- Submit documents via the MoC Franchise Portal.
- Pay registration fee.
- The MoC reviews and approves the registration.
- A Franchise Registration Certificate is issued.
Key Differences Between Licensing and Franchising
| ASPECT | TRADEMARK LICENSING | FRANCHISING |
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| Scope | Right to use a trademark | Right to use trademark + full business model |
| Governing Law | Trademark Law (SAIP) | Franchise Law (MoC) |
| Registration | Optional with SAIP | Mandatory with Ministry of Commerce |
| Disclosure Obligation | Not required | Mandatory disclosure document (FDD) required |
| Control | Less operational control by licensor | Greater control by franchisor over operations |
| Fees | Royalty or fixed fee for trademark usage | Franchise fee + ongoing royalties + marketing fees |
Legal Risks and Best Practices
Common Legal Risks
- Non-registration of trademark license: May render the license unenforceable against infringers or third parties.
- Inadequate disclosure in franchising: Can result in contract cancellation and legal liability.
- Violation of Shariah principles: Clauses such as interest (riba), uncertainty (gharar), or unfair termination can be voided under Shariah law.
- Misuse of trademark by licensee/franchisee: May damage brand reputation and lead to loss of rights.
Best Practices
- Register your trademarks in Saudi Arabia before licensing or franchising.
- Record trademark licenses with SAIP even if not legally required.
- Comply strictly with the Franchise Law and MoC disclosure obligations.
- Include robust IP protection clauses in agreements, including quality control, audit rights, and dispute resolution.
- Engage a local legal advisor to draft and review documents in Arabic and ensure compliance with local laws.
Dispute Resolution and Enforcement
Disputes arising from trademark licenses or franchise agreements in Saudi Arabia can be resolved by:
- Negotiation or mediation – encouraged under Saudi practice.
- Litigation – before the Commercial Courts.
Trademark infringement actions are handled by SAIP and may involve:
- Administrative actions and fines.
- Injunctions and destruction of infringing goods.
- Compensation for damages through the courts.
Ensuring Legal Compliance and Brand Protection in the Kingdom
Trademark licensing and franchising are effective mechanisms for expanding your brand presence in Saudi Arabia, but they require meticulous planning and strict legal compliance. With the growing emphasis on transparency, consumer protection, and Shariah-compliant commercial conduct, businesses must align their licensing and franchising strategies with the current legal and regulatory frameworks.
By ensuring proper trademark registration, clear contractual terms, and adherence to disclosure and registration procedures, companies can tap into the Kingdom’s robust market while safeguarding their brand assets.
