Franchising vs. Licensing & Distributorship
Starting a franchise program, offering and selling franchises, or buying a franchise, each entail several overlapping legal practice areas. It’s valuable to select the right franchise attorney to guide you through this process.
The legal landscape is constantly changing. Recently the Federal Trade Commission revised its franchise rule. State legislatures often amend their franchise laws. Given the ever-changing and complex playing field, smart business owners select a franchise lawyer who stays current and actively works in the field, and is also well-versed in other business practice areas.
Here are some of the basics of franchises, licenses and distributorships:
A distribution agreement is typically a contract between a manufacturer, producer or importer and an independent contractor who sells or distributes the products. A typical distributorship involves fewer controls and less guidance from the supplier. Distributorships can be excusive or non-exclusive, can involve a range of obligations and support, and can be for varying lengths of time.
Licenses typically refer to a grant of rights for one person or company to use intellectual property such as a trademark, image, name, logo, patent, know-how, copyrighted content like a story or song or image, a fictional character, indicia of a live person or deceased famous person, or some other intangible property.
A licensor seeks revenue in the form of royalties or other kinds of payments. The licensee seeks permission to use the licensed property, and is willing to pay for the right to do so. Licenses can take a variety of forms. They too can be exclusive or non-exclusive, subject to many kinds of restrictions and limitations, and also for varying lengths of time.
A franchise is a special kind of combined license and distributorship, in which several elements are present.
One party, the franchisor, grants another party, the franchisee, a right to distribute goods or services, under a marketing plan or marketing program. The arrangement includes a license to use a trademark or other identity associated with the franchisor. In exchange, the franchisee pays some form of fee. The offer and sale of franchises is highly regulated by both federal and state laws.