What Are The Differences Between Licensing & Franchising?
What Are The Differences Between Licensing & Franchising?
Should You Franchise Or License Your Business?
Licensing and franchising are two common types of business agreements with many similarities as well as some key differences in the level of control, legal regulations, and business goals. Both models usually involve the license of a trademark and use of branding, technologies, systems in business operation.
Licensing tends to be a narrower approach to shared business operation. One business grants another the rights to a technology or trademark in a specific scope, but does not give any legal authority on business operation. License agreements follow general contract law.
Franchising is a broader agreement that involves uniform systems to grow a brand under the control of the franchisor. License agreements for trademarks, processes, and intellectual property are typically included. Franchise agreements are regulated by specific federal and state franchise laws.
When you’re considering involvement in a business licensure or franchise agreement, it’s important to consult with your Arizona business attorney before making any formal agreements to ensure that you fully understand the contractual obligations and that everything is legally compliant.
What Is Licensing?
Licensing is a formal business agreement that involves permission to use a trademark, specific technology, or intellectual property asset. The licensor maintains ownership of the trademark or technology and grants the licensee a legal right to use it for a limited time and/or purpose. The licensor does not have any say over the operation of the business, and both companies continue to operate as separate, individual corporations.
License agreements can be exclusive or non-exclusive and can include a range of intellectual property assets such as a trademark, copyright, patent, music performance, and more. The agreement may be structured as a one-time fee for a specific amount of time or ongoing fees dependent on usage, number of sales, or other criteria. License agreements are governed by general contract law.
Common examples of license agreements include the use of cartoon characters by a fast food restaurant or clothing brand, the ability to listen to music through a music streaming service, or use of a patented formula, such as manufacturing and selling a specific recipe or medication.
If you wish to license your intellectual property or come to an agreement with another party regarding their intellectual property, your Chandler business lawyercan help you draft a contract and complete all of the necessary terms and documentation to ensure that your licensing agreement is mutually beneficial.
What Is Franchising?
Franchising is a type of business agreement that is similar to licensing but with distinct differences. According to the federal franchising laws, franchising must include specific elements:
The franchisee’s use of the franchisor’s trademark or other intellectual property
Franchisor’s control or substantial input into how the underlying franchise business is operated by the franchisee, and
Payment of a fee over $500
In a franchise agreement, the franchisor maintains ownership of trademarks, intellectual property, branding, trade secrets, recipes, and processes, and grants the franchisee a legal right to utilize that information and structure to form the franchisee’s own franchised business location. Unlike licensing agreements, which involve use of a trademark without control of the business operation, franchises have the intention of duplicating a brand and its business model for the sake of uniformity and consistency across a brand. The franchisor holds control, or at least significant input, over the operation of the franchised business.
Common examples of franchises include many fast food restaurants, coffee shops, hardware stores, hotels, and gas stations. Ask your Arizona franchise lawyer to examine a franchise agreement before you make any legal agreements to ensure that the franchise agreement is legal and beneficial to you, and that you fully understand your rights, obligations, and financial involvement. Franchises are governed by franchise law and the Federal Trade Commission, not solely by general contract law.
Is Licensing An Alternative To Franchising?
Licensing and franchising share many similarities, but it’s important to realize that they are ultimately separate business models and not alternatives to each other. Franchise agreements will include licensing but most licensing agreements do not create a franchise.
License agreements maintain a specific business relationship scope between two independent businesses, without the licensor having control over how the licensee operates. The shared element, technology, or intellectual property is only one small portion of the business operation.
Franchise agreements are more broad. Although there is a shared use of branding, technology, systems, and intellectual property, franchising involves significant control (or at least significant input) of operations, branding, and other elements of business management for the sake of consistency across business locations.
There can be serious legal implications that result from incorrect usage of licensing and franchising, so it’s imperative that the entire process is only agreed upon and implemented after careful consultation with an experienced Chandler franchise lawyer for the protection of all parties involved in the business agreement. Even accidental violation of franchise laws can result in government action, lawsuits, fines, and other consequences that can be disastrous to a businessperson’s reputation as well as their entire business. Entrepreneurs must ensure that their business relationships are legally defined, compliant, and mutually beneficial
Obtain Legal Guidance On Your License Agreement Or Franchise From An Experienced Business Attorney In Arizona
If you’re considering entering into a license or franchise agreement, you need legal guidance from a franchise attorney with expertise and a comprehensive understanding of the law. Denton Peterson Dunn has decades of collective experience advising businesses of all types. We are ready to put our knowledge, legal understanding, and experience to work on your behalf so that you can be assured of legal compliance in your business operations and contracts. Don’t risk a harmful or illegal business agreement! Schedule your consultation with Denton Peterson Dunn today!