A franchise agreement does not end on the day it expires: it ends when the franchisee stops using the brand. Spain’s Supreme Court has just upheld an award of more than 410,000 dollars against a real estate agency that kept trading under the name of an international luxury network after its contract expired, and has extended that award to the director who had personally guaranteed the contract. We explain the case and the lessons for franchisees and franchisors.
When a franchise relationship breaks down, the franchisee is often tempted to keep trading with the same sign, website and social media while negotiating or deciding what to do. It is an expensive mistake. Supreme Court Judgment 1464/2026 of 22 September (Civil Chamber, cassation appeal 6161/2023, reporting judge Nuria Auxiliadora Orellana Cano) shows how high the bill can go.
1. The case: a luxury real estate franchise that never switched off
In July 2017 a company on the Costa del Sol signed a franchise agreement with the licensee of a well-known international luxury real estate brand. That agreement was linked to another one waiving a debt of more than 1.7 million dollars left by related companies under an earlier franchise. The company’s sole director signed an annex personally guaranteeing all the franchisee’s obligations.
The contract expressly stated that, on termination, the franchisee had to stop using the trade marks immediately and that continued use would amount to trade mark infringement.
From November 2019 the franchisee stopped paying royalties. It acknowledged the debt, blamed the pandemic and proposed a new payment schedule, but did not pay within the deadlines it was given. Nor did it meet the conditions for renewal: 90 days’ notice, payment of the renewal fee and being up to date with payments. The contract expired on 28 July 2020. The franchisor notified it and asked it to remove the brand; the reply was that the client intended to keep using it.
And it did: on five websites, on all its social media and in its four offices, on exterior signs, brochures, business cards and email signatures.
2. From the trial court to the Supreme Court
The trade mark licensee sued the company and its director. The defendants failed to file a defence on time and were declared in default.
- EU Trade Mark Court no. 2 of Alicante (judgment 81/2022 of 30 May): found against the company but acquitted the director, on the basis that the trade mark owner’s authorisation to sue only mentioned the company.
- Provincial Court of Alicante, Section 8, EU Trade Mark Court (judgment 294/2023 of 26 May): limited the infringement to the period after the contract ended and extended the judgment to the director. Both were ordered, jointly and severally, to pay 410,731.94 dollars and 10,509.34 euros, to stop using the brand, to withdraw and destroy all materials and to publish the judgment in two newspapers, on their websites and on their social media for at least four weeks.
- Supreme Court: dismisses the director’s appeal, upholds the Provincial Court’s judgment and orders her to pay the costs.
3. What the Supreme Court decided
The director’s appeal had a single argument: the licensee could not sue her because the trade mark owner had only authorised it to sue the company.
The Court rejects it. Under article 25(3) of Regulation (EU) 2017/1001 on the European Union trade mark and article 48.7 of the Spanish Trade Marks Act, a licensee may bring infringement proceedings as provided in the licence agreement and, failing that, with the owner’s consent. An exclusive licensee may also sue if it asks the owner to act and the owner does not do so within an appropriate period, which by reference to article 117.3 of the Spanish Patents Act is three months.
None of those provisions requires any formality for the consent or the identification of the persons to be sued. It is enough that the owner has consented to the licensee defending the brand against the infringing acts. That authorisation also allowed the licensee to sue the director, who was accused of using the marks after the contract had ended.
4. While the contract is alive, non-payment is not trade mark infringement
There is an important nuance. The franchisor argued that infringement began when the franchisee stopped paying, because from then on its permission to use the brand had been revoked. The Provincial Court did not accept this and limited the infringement to the period after termination. The franchisor also appealed that point, but its appeal was not admitted, so the Supreme Court has not ruled on it.
In practice, non-payment of royalties while the contract is in force is a breach of contract, claimed as a debt. Trade mark infringement, with everything it entails, arises once the contract has ended and the use continues. That is why it is so important for the contract to state clearly when and how it ends if the franchisee stops paying.
5. How the damages were calculated
The owner of an infringed trade mark may choose, among other criteria, a lump sum covering at least what the infringer would have had to pay for a licence to use it lawfully (article 43.2(b) of the Spanish Trade Marks Act). This is known as the hypothetical royalty.
Here, the calculation used the fixed parts of the earlier licences between the same parties: 100,000 dollars for each year of use, the agreed minimums on revenue and 8,333.33 dollars for each month of 2022 until the use stopped. In other words, whoever keeps using the brand without paying ends up paying at least what the contract would have cost, without any of its benefits.
6. Lessons for franchisees
- When the contract ends, remove the brand immediately. Signs, website, social media, brochures, cards and email signatures. Negotiating does not authorise continued use.
- Check renewal conditions well in advance. Notice periods, fees and payment requirements usually have deadlines that cannot be fixed once missed.
- Weigh the scope of a personal guarantee. Signing as guarantor exposes the director, and here the director ended up jointly and severally liable.
- Always defend the claim. Here the defendants were in default. Defending late, or not at all, severely limits what can be argued later.
7. Lessons for franchisors
- Agree post-termination obligations. Immediate cessation of use of the brand and treating continued use as infringement, as this contract did.
- Regulate what happens if the franchisee stops paying. Formal notice, a period to catch up and termination, so as not to depend on the contract expiring.
- Check the chain of authorisations. If the franchisor is a licensee rather than the owner of the brand, the licence or an authorisation from the owner should allow it to defend the brand in court.
- Document pre-contractual information and the system being granted. Franchising in Spain is regulated by article 62 of the Retail Trade Act.
8. Practical cases
Case 1. The franchisee that switches banner
A restaurant franchisee decides not to renew and to join another chain. Until the new sign arrives, it keeps the old one “for a few weeks”. If the contract has already ended, every day of use can be claimed as infringement, with damages calculated at least on the fee it would have paid.
Case 2. The director who guaranteed the contract
The director of a franchisee company signed, years ago, the personal guarantee the franchisor asked for. The company closes with debts. That guarantee may make the director personally liable, and if the brand is still being used, the judgment may reach the director directly, as happened here.
Case 3. The master franchisee that wants to sue
A company operates a foreign group’s brand in Spain as licensee. One of its franchisees keeps using the brand after termination. Before suing, it should check what its licence says about legal action and, if it says nothing, obtain the owner’s consent. According to the Supreme Court, that consent does not need to identify each defendant.
Summary: the key points
- In Judgment 1464/2026 of 22 September, Spain’s Supreme Court upholds the judgment against a franchisee and its director for continuing to use the brand after the franchise agreement ended.
- The judgment includes 410,731.94 dollars and 10,509.34 euros, cessation of use, withdrawal of materials and publication of the judgment in the press, online and on social media.
- The trade mark licensee may sue with the owner’s consent, and that consent requires no formalities or identification of defendants.
- While the contract is in force, non-payment is a breach of contract; trade mark infringement arises when use continues after termination.
- Minimum damages equal the royalty that would have been paid to use the brand lawfully.
Do you need advice on a franchise agreement?
At Quikprokuo we advise franchisors and franchisees on drafting and reviewing franchise agreements, on their termination and on the disputes that follow. If you are considering joining a network, you may also be interested in our analysis of know-how in franchise contracts and the advantages and disadvantages of franchising. We will tell you how things stand, not what you want to hear.
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