Licensing and franchising are two forms of business agreements that typically involve the license of a trademark and the shared use of brand elements, technologies or systems in the operation of a business. License agreements are more limited than franchise agreements and involve the shared - licensed - use of a trademark, technology, or business system between businesses that operate independent of one another and use their own individual and distinct brands. Franchise agreements are broader than license agreements and, in addition to licensing the use of a trademark, regulate and control the entire branding and operations of franchised businesses that operate under a singular brand and using the same systems, supply chain, and operating procedures.
In each licensing example, the underlying business operations of the licensor and licensee are distinct from one another and, unlike franchising, the degree of control that the licensor possesses over the licensee is limited to the underlying trademark or technology that is the subject of the license. Using the McDonalds and Disney Happy Meals example, although Disney will have say and control over how McDonalds uses Disney's trademarks on McDonalds Happy Meals, Disney does not have control over McDonald's overall business operations.
Examples of franchises include restaurants like McDonalds, retailers like GNC, healthcare providers like American Family Care, service providers like RE/MAX, and many other businesses and industries. To learn more about franchising read our Ultimate Guide to Franchising Your Business.
Because points one through three are common to both licensing and franchising agreements, establishing whether a franchise relationship exists typically relies on the fees received at the time of sale and the level of control an agreement grants to a franchisor over the operations of a franchisee.
The advantage that licensing has over franchising is that license agreements are basic legal agreements that, typically, are not regulated and are less expensive to create. Franchise agreements are regulated by federal and state franchise laws, require FDD disclosure, registration within franchise registration states and, compared to license agreements, involve more legal steps and legal expense. The disadvantage of licensing is that license agreements are extremely limited in what they can regulate and control and, license agreements cannot be used to achieve the multi-unit expansion of a trademarked brand with uniform systems and quality control standards.
The difference between licensing and franchising is extremely narrow and is determined by the degree of control created by the underlying agreement. Franchising is used to achieve the multi-unit expansion of a brand through franchised locations that maintain and operate under uniform systems and standards. Licensing is used to monetize trademarks and other intellectual property assets by allowing licensees to use the licensed assets within independently operated businesses. Licensing is not an alternative to franchising and if a license agreement includes the license of a trademark and control over the underlying business operations, it may qualify as a franchise agreement.
This is an online course for soon to be franchise owners, franchise company employees, franchisees and consultants. Sponsored by the International Franchise Association (IFA), it offers a comprehensive introduction into franchising for individuals considering purchasing a franchise. This course covers a wide variety of topics including franchising laws & regulations and the advantages and disadvantages of franchising.
The best advocate for you, in a franchise dispute, is a franchise attorney. As franchising is a highly specialized field, you should hire an attorney with experience representing franchisors or franchisees.
American Association of Franchisees & Dealers (AAF&D) A national non-profit trade association representing the rights of franchisees throughout the U.S. whose mission is to bring fairness to franchising. www.aafd.org
American Franchise Association (AFA) A representative organization for franchisees which advocates changing the rules and laws governing franchising on both the state and national levels. www.franchise.org
New York State Bar Association (NYSBA) Franchise Law Committee This committee was formed to provide a forum for those attorneys who actively practiced franchise laws and those who are interested in such laws. It seek to inform the general public to the fact that there is a large number of knowledgeable attorneys within the State who practice in this field. This site contains many interesting articles on franchising written by committee members. www.nysba.org
One of the most passive and lucrative ways to make money is licensing your product, idea or service. In fact, it can be considered one of the fastest ways to become a millionaire. In this article, I will talk more about licensing and what you need to know about it.
So, what is licensing? Licensing is a legal agreement made between a licensor and a licensee. The licensor is the owner of a product, idea or service. The licensee is the organization that will manufacture, market, and sell a product, service, or idea. In exchange for the rights to the product or idea, the licensor will receive a royalty.
In either case, the goal with all products and services is, of course, to make a profit. An important consideration is whether or not you will be able to bring in more revenue by starting your own business and producing the product or service yourself, or if licensing to another company is going to provide you with a more significant return for all of your hard work (Abedi, 2018).
Often, licensing is a more lucrative choice for certain products and industries, especially when considering the costs of starting a new business (both time and money), and because licensing gets your product or or service in front of an already established customer base and much wider audience (Abedi, 2018).
In essence, the reason a licensing deal seems like an obvious choice is because you collect a percentage of the revenue generated, and you do not have to do any of the work. You can sit back, relax, and check your mailbox for that ever-elusive return on your investment as the funds begin to roll in.
Much of the decision pertaining to whether or not you choose to license is dependent upon your goals. If you prefer to have complete control over your invention, including branding, promotion, and packaging or design, you may not want to go the licensing route because you will likely lose control over these aspects.
The main difference lies in the idea that licensing refers to granting another entity permission to utilize your invention, idea, or technology in order to create a product that will benefit (via revenue) both parties in the agreement. It is generally a one-time transfer of intellectual property. A franchise, on the other hand, involves ongoing assistance and a mutual relationship between two parties (Sharma, n.d.).
Licensing and franchising are both simple and simultaneously complex. A lot goes into the end result, and the decisions about how to proceed should be made with caution. It is generally recommended that you seek the assistance of an attorney who is well versed in areas of licensing agreements to ensure that your agreement is properly negotiated.
Many think that franchising and licensing are same, but the fact is that they are different, only the advantages of franchising are similar to those of licensing. The first and foremost difference between licensing and franchising are that the former is mainly associated with the production and marketing of goods while the latter is related to the service business.
There are several ways of entering the global arena to serve the foreign market; that helps to earn better returns for the company. This can be done by transferring skills and product offering, which they acquire from their unique competencies to the foreign market. The five major ways of entering a foreign market are exporting, licensing, franchising, forming joint ventures or establishing a wholly owned subsidiary.
The greatest advantage of licensing model is that the licensee bears the developmental cost and the risk associated with launching foreign operations. In the sphere of high technology, many companies provide technical know-how through this arrangement like Ranbaxy Laboratories Ltd. is in search of partners, for out-licensing its diverse technologies such as respiratory, urology, etc. However, sharing technological know-how with foreign companies is a bit riskier for technology-based companies.
We define franchising as a strategy mainly used by service companies, that allows the franchisee to use a business model, processes or brand name for a fee, to conduct business, as an independent branch of the parent company (franchisor).
As in the case of licensing, the franchiser does not bear the development cost and the risk of commencing operations overseas, because such costs are expected to be borne by the franchisee only. Hence, by using this strategy a company can quickly mark its presence globally, at a low cost. The best examples of this arrangement are McDonald Restaurant and Kentucky Fried Chicken of United States that entered India through this strategy.
Although there is a big disadvantage of this arrangement, lack of quality control, a basic belief of franchising is that the brand name indicates its quality to consumers. This is due to the geographical distance and the increased number of franchisees. To overcome this problem franchisers set up joint ventures or wholly owned subsidiaries to maintain the standard quality in their products and services.
To end up this discussion, there is one more point to unfold, i.e. in general franchising is comparatively stringent than licensing because usually, franchisers set strict rules, regarding the operation of the business by the franchisee. 2b1af7f3a8