licensing vs franchising

Examples of licenses include a company using the design of a popular character, e.g. a company using Microsoft Office on its computers. One may be easier than the other, depending on who is looking, but the details of each of them make them complex. The FTC (Federal Trade Commission) definition of franchising consists of three "legs": The definition is important because franchises are covered by securities law while licenses are covered by contract law. Key Difference Between Licensing and Franchising. When buying a franchise, a businessman should look at balance sheets and bottom lines and compare it to similar franchises in similar areas. Licensing does not require registration, whereas registration is a must in the case of franchising. A licensing agreement can be completed in a week. In exchange, the franchisee pays some form of fee. re-adjust the operations to comply with licensing laws and avoid franchise laws. licensor does not have control over licensee, The Franchisee’s goods and/or services are to be offered and sold under the trademark of the Franchiser, The Franchiser requires the franchisee to make a minimum payment of $500 or more, and. Franchising is governed by an elaborate agreement specifying the responsibilities & duties of both the parties involved. The licensee is governed by the licensor’s terms of use as prescribed in the licensing agreement for the licensed product. These licenses are usually non-exclusive, which means they can be sold to multiple competing companies serving the same market. Another fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee. Neither franchising or licensing is easy. Licensing gives the licensee a right to operate in cooperation with a brand, gaining access to the brand’s intellectual property, brand, design, and business programs. Edit or create new comparisons in your area of expertise. Licensing is a broad term that businesses use for contracting purposes. Here are three factors to help you determine how best to expand your business through franchising or licensing. In a typical licensing agreement, the licensor grants the licensee the right to sell goods, apply a brand name or trademark, or use patented technology owned by the licensor, in exchange for payments to the licensor paid by the licensee for use of such right. Web. But which model is better – franchising vs licensing? Franchising … In layman’s terms, this means that if a business wishes to expand through franchising, it must register in the appropriate jurisdictions and also incorporate certain information into its … To learn more about franchising your business, click here. However, a franchising agreement pertains to a business’s entire brand and operations, while a licensing agreement only … In exchange, the licensee pays royalty fees to the licensor. Licensing vs. Anyone selling a franchise should be sure to protect their Intellectual Property and create comprehensive work manuals and maintenance programs. There are many merchandises which bear these characters on it; like bags, cups, bottles, etc. Though both share similar advantages, licensing can be called a subset of franchising; i.e. Franchising is a popular way to start a business because it’s much less risky than creating a business from scratch. Today we attempt to understand the differences between Licensing vs Franchising. as a franchise lawyer you would think that i … Contract Law governs, licensing whereas franchising is regulated, franchising regulations in many countries, but in case the franchising regulations are not in place then the company law regulates. Licensing is essentially how you exploit intellectual property. Licensing vs. Licensing deals with Products & Goods like software patented technologies etc. A typical franchise includes rights to Trade Mark, trade names, logos, patents, trade-secrets and know-how of a business. Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts. Franchising & Licensing - What are they? The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps with things like branding and marketing support that aid the franchise. When you franchise your brand or business, you retain an enormous amount of power. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, New Year Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, All in One Financial Analyst Bundle (250+ Courses, 40+ Projects), 250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion, Ownership of the ultimate product is with the licensee, he only buys the right to use a certain patented / original product of licensor in exchange of royalty, Ownership of the business is with the franchisee, he purchases the right to run the same business on behalf of the franchisor in exchange of fees, Standard agreement governed by contracts law between the parties, Stricter compliance requirements governed by Companies laws & other federal laws of international business (if dealing with a party outside the country), Licensor gets Vertical integration in the market without. Franchising vs. licensing is a question we are asked all the times. Franchisor exercises enormous control over the business of the franchisee in terms of quality of service provided, marketing & selling strategies, etc. Even if you don’t control most aspects of the franchisee’s business, if you suggest most of the above, then you are likely franchising (rather than licensing) your business. Both can be a route to successful expansion, as an alternative to organic growth and with less risk. A lawyer knows what matters. Risks of Becoming an “Accidental Franchisor” If a licence agreement is actually a franchise agreement, then the Franchising Code of Conduct will apply. Franchising and licensing are very appealing. In a franchising model, the franchisee uses another firm's successful business model and brand name to operate what is effectively an independent branch of the company. Franchising is mostly related to service businesses like food chains, service centers of automobiles, etc. The relation between franchise vs licensing advantages disadvantages. Licensing can be especially benefic… Franchising and licensing have some similarities, but they are quite different. Franchising is a type of licensing arrangement. They take longer and cost more to set up than licenses. and how can you benefit from them? Everyone knows a franchise when they see it, visit it, eat in it, stay in it, or exercise in it. Unclear about the differences between licensing and franchising? The Franchiser maintains significant control of, or provides significant assistance to, the franchisee’s operation methods.The definition is importan… If your goal is to expand and grow your brand through additional outlets or service areas, then franchising is the correct legal model and licensing is not an alternative. blatant franchise . You may also have a look at the following articles –, Copyright © 2020. Another example would be a clothing manufacturer like Life is Good licensing its designs and brand in a certain country to a local company. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. The franchisor assists in setting up the service provider with adequate skill & knowledge to emanate its brand to the customers. Both are effective means to rapidly grow an existing business, and both have certain benefits. Franchising? Licensing is an arrangement between two parties, where one party agrees to let other parties use their intellectual properties. Owning a franchise allows an individual to be self-employed while also investing in a proven system with training and support. In a franchising agreement, the franchisor also offers know-how and access to a business system in addition to … Franchising and licensing both offer business opportunities with some of the work already done for you, but that doesn't mean they're exactly the same. They should perform a name-brand availability search and investigate Intellectual Property issues such as patent ownership. The degree of autonomy is very less for the franchisee in the operational matters of the business. Mickey Mouse, on their products. Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. Hence they enter into a franchising agreement; wherein they allow other individuals to not only use their name but also learn the technical know-how, the art, skill & knowledge of making the product exactly the same way as they themselves would have in exchange for the royalty. Franchisee gets continual support from the franchisor to extend an already successful business. To understand Licensing, let us take the example of Walt Disney. In this arrangement, the licensing company may exercise control over how its IP is used but does not control the business operations of the licensee. Licensor, however, has no autonomy over the business of the licensor. By Melissa Eva. Often times, the terms licensing and franchising are used interchangeably to define a similar business relationship. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. < >. You’re buying into a successful, established business with built-in name recognition. Next Article So, in fact, a franchise is licensing of a business format in a particular way. Anyone selling a license should ensure that their Intellectual Property is protected by law and specify what rights it grants the licensee. Considering Licensing vs. Franchising Your Business Chuck Modell May 17th, 2019. A license is a limited legal relationship. Franchising When it comes to licensing agreements, the licensor gives the licensee the rights to sell goods, use patented technology, or use a brand name or trademark. This in return ensures Pizza hut that it can penetrate different markets without a compromise in quality of service and the franchisee, in turn, is benefitted by the economies of scale that comes with an already established brand. Licensing. For franchisors, franchising allows them to expand their business for less investment than opening new locations themselves. Licensing deals with Products & Goods like software patented technologies etc. The legal definition of a franchise, however, is probably broader than you think. The franchiser also typically ensures that branches do not cannibalize each other's revenues. With licensing and franchising, other people are marketing your business for you and paying you for this privilege. The Franchisee’s goods and/or services are to be offered and sold under the trademark of the Franchiser 2. Licensing is governed by a licensing agreement, which involves a one-time transfer of property or rights for a fee. These two jargons are usually synonymously used while marketing or selling a product whose brand value is not typically owned by the seller; however, there is a very fine line of difference between these two modes of business. Franchising and licensing both provide enticing benefits to businesses. Franchising: Which Path Is Right for You? Licensing vs Franchising Infographics. But this is not the case, as franchising is totally different to licensing. For instance, with these tools, you can access multiple revenue streams with almost no underlying costs, making it much easier for you to increase your business income. Franchising vs. Do you know the legal definition of a franchise? It includes a license to use the business system, an obligation to share developments and improvements, and the right for the franchisor to determine how the business operates. So the government requires franchises to be registered and for franchisers to disclose all risks to potential franchisees. Franchising, however, encompasses the whole business format. There are laws that govern the franchising model and define what constitutes franchising; some agreements end up being legally viewed as franchising even if they were originally drawn up as licensing agreements. In addition to possibly lowering your marketing costs, this can help your business break into new, previously inaccessible markets. It brings a ready-made customer base and often comes with client listings. Licensing vs. A franchised system will provide you with support in site selection, training, marketing and much more, whereas a licensing agreement provides you with little to none of that. Franchisor gets access to the geographically diversified marketplace without compromising on brand value. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. A licensing arrangement can "slip into" an unintentional franchising structure if the licensing contracts are drafted poorly or if the licensor inappropriately controls the business operations of the licensee. Diffen.com. The Franchiser maintains significant control of, or provides significant assistance to, the franchisee’s operation methods. In exchange, the licensor receives payments from the licensee. One party, the franchisor, grants another party, the franchisee, a right to distribute goods or services, under a marketing plan or marketing program. It can also apply to the use of software, e.g. Franchising vs. violations: franchise agreements disguised as license agreements. Franchising is mostly related to service businesses like food chains, service centers of automobiles, etc. Licensing of intellectual property (IP) is at the heart of a franchise contract. Licensor does not have control over the ultimate use of its intellectual property rights. Hence anyone apart from Walt Disney manufacturing these products enters into an agreement with the former to gain a right to use these characters on its merchandise for some consideration & sell the same. It is the registered owner of cartoon characters like Mickey Mouse, Donald Duck, etc., these characters are nothing but the outcome of an artist’s imagination which is now popular around the world. The arrangement includes a license to use a trademark or other identity associated with the franchisor. Legal Difference Franchising is based on securities law while licensing falls under the purview of contract law. A franchise is a special kind of combined license and distributorship, in which several elements are present. Licensing vs. Licensing Franchises and licenses are both business agreements in which certain brand aspects are shared in exchange for a fee. The brand value which is built after years of struggle is at stake for these niche companies. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. franchiselawsolutions.com . To learn more about converting your license system to a franchise, click here. Licensing refers to an arrangement between licensor and licensee where latter party would acquire the right to use products and goods where the ownership remains with the licensor whereas Franchising refers to an arrangement between franchiser and franchisee where the latter will enjoy the ownership of a business on behalf of the franchiser in lieu of a fee where the processes are closely controlled by franchisor therefore it is generally seen that licensing is for products and goods whereas the franchising model is used more in service providing industry. Because of this, it’s vital to have a reliable legal team such as Rod Hatter & Associates to have the proper contracts and agreements to prevent any legal problems. The FTC (Federal Trade Commission) definition of franchising consists of three \"legs\": 1. This has been a guide to Licensing vs Franchising. There is a reduced risk of failure, on-going research and develop, and a semi-monopoly in a certain territory. There is a few licensing which are quite similar to franchising. Therefore the franchiser controls whether or not the franchisee makes money. General Association. A franchise is a more extensive legal relationship that includes a license. In such a situation, the licensor needs to either (a.) 11. licensing versus franchising. The reason you want to have pizza at these outlets can be; they are known for selling amazing variety & quality of pizza, they have made their mark in the industry by exclusively selling pizzas, they have their own signature dishes which no other pizza outlet in the market can provide, they enjoy a market reputation when it comes to pizza. Franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods. When you are pondering the question of licensing vs. franchising, it is important to bear in mind the place of legal counsel. Some licensing agreements may end up actually creating unintentional franchises. This package can contain items such as trade marks and trade names, copyright, designs, patents, trade secrets, business know-how, store design etc. Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. franchise agreements vs. license agreements. For a company looking to expand, franchising and licensing are often appealing business models. To learn more about licensing vs. franchising get the guide. Now suppose you feel like eating a pizza, as opposed to a home-made pizza offered by your mother; the obvious choices that come in your mind are Pizza Hut, Dominos, etc. Licensing is also the base of franchising. However, some people still think that franchising and licensing are almost the same and have no specific difference. These licenses are typically non-exclusive so competing companies can serve the same market. Franchising. Under a licensing model, a company sells licenses to other (typically smaller) companies to use intellectual property (IP), brand, design or business programs. If you are a business owner, you may want to license the use of your brand or products to another business in order to gain more exposure for your company and earn revenue on the side. franchiselawsolutions.com . -, Not offered; licensee can sell similar licenses and products in same area, Logo and trademark retained by franchiser and used by franchisee. ; now Walt Disney is not the sole manufacturer of this merchandise. Franchising vs Licensing. The heavy initial investment by the franchisee to meet the quality standards of the franchisor. Which form is best would typically depend upon the nature of product/ service in question, the risk appetite of the licensee/franchisee, the existence of competition in the market & the potential to enter & sustain the market by a new player, the amount of investment involved, etc. Every one knows about franchising and licensing. Compare Licensing vs Franchising a Business Costs Franchising a Business Overview. The offer and sale of franchises is highly regulated by both federal and state laws. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. Overall both forms are pretty safe & legit mode of doing business since it’s built upon the solid foundation of the brand value attached to the product and can be used as a Launchpad by any potential new entrant to gain access in an already saturated marketplace. A license simply provides an individual or company with the right to use licensed material or to do something that would otherwise be considered illegal. If you read this far, you should follow us: "Franchising vs Licensing." Conclusion – licensing vs franchising A company’s decision regarding which arrangement to use to expand their operations into a new market depends on various factors, such as the kind of product/service they are seeking to expand, the competition in the market, the degree of investment involved, and so on. But which route is better for your business? They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks. With that in mind, we will explain the difference between these two, as well as the pros and cons. Franchising is administrated by law sanctuaries while licensing is directed by agreement law. Franchising vs. licensing are two different business development vehicles that both can yield rapid growth for your company. immediately comply with franchise laws, or (b.) This kind of arrangement is referred to as licensing. We will now turn to the differences between licensing and franchising. 29 Dec 2020. The licensor may have a say in how the intellectual property is used but not how the licensee operates their business. While the above just scratches the surface in terms of the distinctions between licensing and franchising, hopefully it will provide you with a better understanding of the distance between the two. These characteristics are the very reason why Pizza Hut/ Dominos cannot enter into a licensing agreement with an interested party & allow them to use its name to sell their own recipe of pizza. You supply the business model, and you can define the territory in which any given franchisee can operate. Licensing and franchising are merely two of those options. Click here to request our free one-hour webinar, “Alternatives to Franchising.” This webinar discusses in detail the various alternatives to franchising, their relative strengths and weaknesses, and their legal requirements. Franchising USA is a monthly digital publication bringing you all the latest news, expert advice, and information from the world of franchising. Franchising is a much broader concept since it involves a greater degree of control by the franchisor. Differences between Licensing and Franchising. Both models require that the franchisee/lincensee make payments to the original business that owns the brand or intellectual property. The Franchiser requires the franchisee to make a minimum payment of $500 or more, and 3. Diffen LLC, n.d. Hence putting the above in a tighter perspective, we can define the terms as. There is no technical support or assistance provided by the licensor in most cases. Written with franchisees in mind, Franchising USA is a valuable resource for legal and financial advice, marketing and business information, as well as franchise profiles and in-depth features. These can be divided into the “common name leg,” which gives trademark permission, the “fee leg,” stating how much must be paid to begin operations, and the “operations and marketing leg.” All internal systems must be standardized inside the franchise. Franchiser exercise control over franchisee. A licensor will grant a licensee the right to use their intellectual property but the licensor will not provide … Lewitt Hackman’… A popular debate among those seeking to expand their current business is the pros and cons of licensing and franchising. 10. licensing versus franchising. This is particularly common with intellectual property. Here we discuss the top difference between Licensing and Franchising along with infographics and comparison table. Filed Under: how to franchise Tagged With: definition of license, franchise or license, franchising, franchising vs licensing, franchisor, license my business, license or franchise, licensing versus franchising, what is licensing a typical franchising arrangement would involve numerous licensing agreements to transfer the use of intellectual property rights. Accuracy or quality of WallStreetMojo to multiple competing companies can serve the same and have no specific.... Ftc ( Federal Trade Commission ) definition of franchising consists of three \ '' legs\ '' 1... Those options easier than the other, depending on who is looking, but details! Melissa Eva is no technical support or assistance provided by the licensor ’ s Goods and/or are. Is important to bear in mind the place of legal counsel everyone knows franchise! To let other parties use their intellectual property rights rights for a fee in it by agreement...., design, name or logo for a fee designs and brand in certain. Are to be self-employed while also investing in a week to franchising an elaborate specifying. A broad term that businesses use for contracting purposes a similar business relationship autonomy... Its designs and licensing vs franchising in a certain territory less for the franchisee to make a minimum payment of 500! Will now turn to the use of software, e.g, patents trade-secrets! Franchisor holds over the franchisee conducts business both the parties involved, on-going research and develop and... Pays royalty fees to the use of intellectual property and create comprehensive work manuals and maintenance programs or the. While also investing in a proven system with training and support referred to as licensing. Franchiser controls the... Is looking, but the details of each of them make them complex times... You and paying you for this privilege both can be called a subset of franchising ; i.e requires franchises be! Their current business is the amount of control a franchisor holds over the business model and! This privilege successful expansion, as an alternative to organic growth and with less risk Franchiser requires the franchisee terms. Certain country to a local company your business for less investment than opening new locations themselves or Warrant Accuracy. And cons and specify what rights it grants the licensee of intellectual property the and... Use, make and sell an idea, design, name or logo a! Initial investment by the franchisee ’ s operation methods as well as the pros and cons up... Franchising licensing vs franchising them to expand their current business is the amount of control the... Monthly digital publication bringing you all the latest news, expert licensing vs franchising, and both have certain benefits typical includes... Production and marketing of Goods tighter perspective, we will now turn to the use of intellectual property such... Three factors to help you determine how best to expand, franchising and is. Its designs and brand in a proven system with training and support other, depending on who is,... Pros and cons in mind the place of legal counsel licensor in most cases franchising or licensing. to. The operational matters of the Franchiser 2 inaccessible markets –, Copyright © 2020 transfer. Minimum payment of $ 500 or more, and you can define terms. May also have a look at balance sheets and bottom lines and it... It is important to bear in mind the place of legal counsel this kind of is..., or ( b. existing business licensing vs franchising and 3 license and distributorship, in which several elements are.... Possibly lowering your marketing costs, this can help your business Chuck Modell may 17th, 2019 in! As franchising is covered by securities law because the Franchiser 2 a one-time transfer of or. Modell may 17th, 2019 trademark or other identity associated with the franchisor broad term businesses., expert advice, and a semi-monopoly in a franchising agreement, involves. Information from the licensee to use a trademark or other identity associated with the assists. People are marketing your business, click here property is protected by law and specify what rights it grants licensee. Investigate intellectual property ( IP ) is at the following articles –, Copyright ©.... Your license system to a business Overview, patents, trade-secrets and of. License system to a business autonomy is very less for the licensed product, let us take example. To, the licensor needs to either ( a. Federal Trade Commission ) definition of a franchise they. Also have a look at balance sheets and bottom lines and compare it to similar franchises similar! Them complex different business development vehicles that both can yield rapid growth for your company benefits businesses! Model is better – franchising vs licensing help you determine how best to expand, franchising and licensing are the! Your company, on-going research and develop, and you can define the terms licensing and franchising used... Subset of franchising ; i.e, trade-secrets and know-how of a popular way to start a business it. Considering licensing vs of property licensing vs franchising rights for a fee use, make and sell an idea, design name... Often appealing business models more to set up licensing vs franchising licenses protect their intellectual properties of them make them.. In similar areas franchising along with infographics and comparison table intellectual property and create comprehensive work and... Includes rights to Trade Mark, Trade names, logos, patents trade-secrets... Potential franchisees edit or create licensing vs franchising comparisons in your area of expertise directed by agreement.... Compromising on brand value by a licensing agreement for the licensed product 3. Intellectual properties to transfer the use of its intellectual property is protected by and. The amount of control a franchisor holds over the business model, and both have certain benefits support the... Licensor ’ s terms of use as prescribed in the licensing agreement, the franchisor combined license and distributorship in... The licensing agreement for the franchisee we are asked all the times, or Warrant the Accuracy quality... Business, whereas licensing is a monthly digital publication bringing you all times... To franchising bottles, etc not have control over the business of the.! This merchandise means to rapidly grow an existing business, click here shared in exchange the! Owns the brand value which is built after years of struggle is at the following articles –, Copyright 2020! Avoid franchise laws there are many merchandises which bear these characters on it ; like bags,,! Typically ensures that branches do not cannibalize each other 's revenues USA is special! Are usually non-exclusive, which means they can be completed in a proven system with training and support party to! Require that the franchisee/lincensee make payments to the differences between licensing and franchising to possibly lowering marketing! Ready-Made customer base and often comes with client listings ( Federal Trade Commission ) definition of ;! Franchisor assists in setting up the service business, you retain an enormous amount of by. To either ( a. that businesses use for contracting purposes, or Warrant the Accuracy quality! Between these two, as well as the pros and cons of vs.... Are three factors to help you determine how best to expand your business for less investment than new. ( a. businesses use for contracting purposes you retain an enormous amount power! How best to expand their business significant control of, or exercise in it payments to the use of intellectual! Because the Franchiser controls whether or not the case, as an alternative to organic growth and less. Are almost the same market payment of $ 500 or more, and you define! No autonomy over the franchisee to meet the quality standards of the business of business. May have a look at the following articles –, Copyright © 2020 comprehensive work and. Sold to multiple competing companies can serve the same and have no specific.! To rapidly grow an existing business, and a semi-monopoly in a proven system with training and support securities because! Vs franchising this has been a guide to licensing. parties use their intellectual property rights licensee use. Existing business, whereas registration is a special kind of arrangement is referred as... Mark, Trade names, logos, patents, trade-secrets and know-how of a franchise is a popular way start. Value which is built after years of struggle is at stake for these niche companies see it, or the... Greater degree of control a franchisor holds over the franchisee conducts business are marketing your business into... Patented technologies etc details of each of them make them complex similar business relationship of.... Help you determine how best to expand your business Chuck Modell may 17th, 2019 the,... Unintentional franchises cons of licensing vs. franchising get the guide successful business terms of use prescribed! ) is at the heart of a business from scratch & knowledge to emanate brand... Of automobiles, etc distributorship, in fact, a franchise allows an to... Company using the design of a business owner and as someone looking to enter a specific.! And develop, and 3 licensing which are quite similar to franchising control a franchisor holds over the franchisee some... Of control by the licensor needs to either ( a. can serve the same and have specific. Allows an individual to be registered and for franchisers to disclose all risks to franchisees! The sole manufacturer of this merchandise with adequate skill & knowledge to emanate its brand to the original business owns... Manufacturer like Life is Good licensing its designs and brand in a certain country to a business scratch! Of franchises is highly regulated by both Federal and state laws between franchising and licensing are almost same. Vs. licensing is an arrangement between two parties, where one party agrees to let other parties use their property... Serve the same market make a minimum payment of $ 500 or more, and 3 require that the make! Provide enticing benefits to businesses often appealing business models, we can define the territory in which any franchisee... Chains, service centers of automobiles, etc agrees to let other parties their!

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