If you are considering buying a franchise, there are a few things you need to note before you do. First, part of the franchise purchase entails licensing the rights to use the franchisor’s intellectual property, including trademarks.
Knowing the difference between licensing and franchising is key. Even franchise law professionals agree that knowing the difference between a license and a franchise can be critical. Understand that while every franchise is a license, a license may not be a franchise. If you require more information on this from a legal professional, consider speaking to Jonathan N. Barber of Franchise.Law. Either way, this article considers the meaning of these two terms and what differences may exist between them.
License vs. Franchise: Definition
A license is a contract that creates a relationship between two parties for one party’s right to use the property. “Property” can include trademarks, technology, copyrights, and patents, among other things. Foot Locker’s license to use and sell Nike shoes is one example of how licensing works. Basically, the company takes a license to sell another company’s products at their store.
On the other hand, a franchise has to do with a relationship between one party, the franchisor, and the franchisee. The franchisor permits the franchisee to develop their business using licensed patents, technology, trademarks, and copyrights, among other things.
License vs. Franchise: How Are They Different?
License and franchise are different in their respective ongoing obligations. For example, in a franchise, the franchisor exercises a certain level of control over the franchisee. The franchisee, in turn, agrees to pay an initial and ongoing fee while ensuring they follow the franchisor’s requirements.
For a better understanding, below are some of the key differences between a license and a franchise:
General Association
Where licensing deals with goods and products such as software and patented technologies, franchising is mostly related to service businesses such as automobile service centers.
Control
Licenses and franchises are also different in terms of the degree of control they afford. A license is governed by the licensor’s terms of use, outlined in the licensing agreement. The licensor does not have autonomy over the licensee’s business.
On the other hand, a franchisor has more or less total control over the franchisee’s business. This is particularly so regarding aspects such as selling strategies, marketing, and the quality of service provided.
Their Processing
The franchising process is overseen by an elaborate agreement that specifies the duties and responsibilities of both the franchisor and the franchisee. Conversely, licensing is controlled by a licensing agreement that involves a one-time property transfer or rights transfer in exchange for a fee.
Also, in franchising, the franchisor assists in setting up the service provider with the right skill and knowledge for emanation to customers. However, in licensing, the licensor only provides technical assistance or support in most cases.
Ownership
In franchising, the franchisee owns the business as they have purchased the right to run the same company on the franchisor’s behalf. In licensing, however, the licensee owns the outcome, buying only the right to the licensor’s patented product or a royalty.
There are some major differences between the two, especially in terms of functionality and control over the business. Knowing these differences can help you make the informed choice of choosing between the two.
Conclusion
As the article discusses, franchises and licenses have much in common, but they are two significantly different things. There have been cases where businesses licensed their concept rather than franchising it, thereby losing some of the potential of the concept. It can create many problems, especially if one or both parties overstep their boundaries or if the process is done incorrectly.
If you want to franchise or license your business, you should speak with an experienced attorney. Someone well-versed in these topics can best guide you through the advantages and disadvantages. Either way, this article should serve as a knowledgeable resource for deciding whether to go for licensing or franchising.
