One may be easier than the other, depending on who is looking, but the details of each of them make them complex. Edit or create new comparisons in your area of expertise. 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. The arrangement includes a license to use a trademark or other identity associated with the franchisor. To learn more about licensing vs. franchising get the guide. 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. 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. 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. To learn more about converting your license system to a franchise, click here. The licensee is governed by the licensor’s terms of use as prescribed in the licensing agreement for the licensed product. 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. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. Franchising is a popular way to start a business because it’s much less risky than creating a business from scratch. The FTC (Federal Trade Commission) definition of franchising consists of three \"legs\": 1. So the government requires franchises to be registered and for franchisers to disclose all risks to potential franchisees. In addition to possibly lowering your marketing costs, this can help your business break into new, previously inaccessible markets. 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. 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. 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. Licensing vs. Owning a franchise allows an individual to be self-employed while also investing in a proven system with training and support. This is particularly common with intellectual property. When buying a franchise, a businessman should look at balance sheets and bottom lines and compare it to similar franchises in similar areas. The Franchiser maintains significant control of, or provides significant assistance to, the franchisee’s operation methods. Licensing vs Franchising Infographics. 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. 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. By Melissa Eva. The Franchisee’s goods and/or services are to be offered and sold under the trademark of the Franchiser 2. Licensing does not require registration, whereas registration is a must in the case of franchising. The franchiser also typically ensures that branches do not cannibalize each other's revenues. 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. Considering Licensing vs. Franchising vs. For a company looking to expand, franchising and licensing are often appealing business models. We will now turn to the differences between licensing and franchising. Licensing deals with Products & Goods like software patented technologies etc. 10. licensing versus franchising. General Association. Franchising Your Business Chuck Modell May 17th, 2019. 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. There are many merchandises which bear these characters on it; like bags, cups, bottles, etc. Hence putting the above in a tighter perspective, we can define the terms as. Licensing. The legal definition of a franchise, however, is probably broader than you think. Neither franchising or licensing is easy. Licensing is a broad term that businesses use for contracting purposes. A license is a limited legal relationship. 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. The offer and sale of franchises is highly regulated by both federal and state laws. Risks of Becoming an “Accidental Franchisor” If a licence agreement is actually a franchise agreement, then the Franchising Code of Conduct will apply. 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. It brings a ready-made customer base and often comes with client listings. The degree of autonomy is very less for the franchisee in the operational matters of the business. -, Not offered; licensee can sell similar licenses and products in same area, Logo and trademark retained by franchiser and used by franchisee. The Franchiser maintains significant control of, or provides significant assistance to, the franchisee’s operation methods.The definition is importan… One party, the franchisor, grants another party, the franchisee, a right to distribute goods or services, under a marketing plan or marketing program. Licensing vs. Licensing of intellectual property (IP) is at the heart of a franchise contract. Both can be a route to successful expansion, as an alternative to organic growth and with less risk. Lewitt Hackman’… If you read this far, you should follow us: "Franchising vs Licensing." franchiselawsolutions.com . A popular debate among those seeking to expand their current business is the pros and cons of licensing and franchising. Franchising is mostly related to service businesses like food chains, service centers of automobiles, etc. 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. 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. Franchising: Which Path Is Right for You? A franchise is a more extensive legal relationship that includes a license. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. Licensing can be especially benefic… 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. But which model is better – franchising vs 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. There is no technical support or assistance provided by the licensor in most cases. Franchising and licensing both provide enticing benefits to businesses. The relation between franchise vs licensing advantages disadvantages. Franchising vs. licensing is a question we are asked all the times. With licensing and franchising, other people are marketing your business for you and paying you for this privilege. 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. Next Article Differences between Licensing and Franchising. In exchange, the licensee pays royalty fees to the licensor. Legal Difference Franchising is based on securities law while licensing falls under the purview of contract law. Franchisor exercises enormous control over the business of the franchisee in terms of quality of service provided, marketing & selling strategies, etc. 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. Examples of licenses include a company using the design of a popular character, e.g. Licensing and franchising are merely two of those options. Mickey Mouse, on their products. 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. Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts. A licensor will grant a licensee the right to use their intellectual property but the licensor will not provide … Franchising is mostly related to service businesses like food chains, service centers of automobiles, etc. Both are effective means to rapidly grow an existing business, and both have certain benefits. Franchising is a much broader concept since it involves a greater degree of control by the franchisor. Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. Franchising. Every one knows about franchising and licensing. A lawyer knows what matters. Compare Licensing vs Franchising a Business Costs Franchising a Business Overview. Franchising vs Licensing. 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. Unclear about the differences between licensing and franchising? 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. Today we attempt to understand the differences between Licensing vs Franchising. The franchisor assists in setting up the service provider with adequate skill & knowledge to emanate its brand to the customers. 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. Licensor does not have control over the ultimate use of its intellectual property rights. immediately comply with franchise laws, or (b.) Anyone selling a license should ensure that their Intellectual Property is protected by law and specify what rights it grants the licensee. Do you know the legal definition of a franchise? 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. 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. 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. Franchising and licensing have some similarities, but they are quite different. Licensor, however, has no autonomy over the business of the licensor. 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. a company using Microsoft Office on its computers. When you are pondering the question of licensing vs. franchising, it is important to bear in mind the place of legal counsel. When you franchise your brand or business, you retain an enormous amount of power. Franchising … These licenses are usually non-exclusive, which means they can be sold to multiple competing companies serving the same market. Licensing deals with Products & Goods like software patented technologies etc. In exchange, the licensor receives payments from the licensee. The Franchiser requires the franchisee to make a minimum payment of $500 or more, and 3. Licensing is governed by a licensing agreement, which involves a one-time transfer of property or rights for a fee. as a franchise lawyer you would think that i … Franchising & Licensing - What are they? 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. There is a few licensing which are quite similar to franchising. This kind of arrangement is referred to as licensing. Here we discuss the top difference between Licensing and Franchising along with infographics and comparison table. re-adjust the operations to comply with licensing laws and avoid franchise laws. Franchising USA is a monthly digital publication bringing you all the latest news, expert advice, and information from the world of franchising. There is a reduced risk of failure, on-going research and develop, and a semi-monopoly in a certain territory. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. and how can you benefit from them? This package can contain items such as trade marks and trade names, copyright, designs, patents, trade secrets, business know-how, store design etc. The heavy initial investment by the franchisee to meet the quality standards of the franchisor. Often times, the terms licensing and franchising are used interchangeably to define a similar business relationship. Diffen LLC, n.d. 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. In such a situation, the licensor needs to either (a.) a typical franchising arrangement would involve numerous licensing agreements to transfer the use of intellectual property rights. \ '' legs\ '': 1 service business, and information from the assists... 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