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What Is the Difference between Franchise and Licensing Agreement

(c) Payment of an Initial Royalty – You will receive an advance payment or fee, i.e. At the time of granting your license or entering into an agreement, you will receive a fee, i.e. You will get an upfront fee, whether or not you have a franchise fee, a license fee, an inventory fee or whatever you call it. To end this discussion, there is another point to develop, that is, in general, franchising is relatively strict than licensing, as franchisors usually set strict rules for the operation of the business by the franchisee. Licensing and franchising have similar advantages. Licensees also benefit from less risk, as they typically enter the market with a known quantity and an integrated customer base. However, they enjoy much more freedom than franchisees. The greatest advantage of the licensing model is that the licensee bears the development costs and risk associated with engaging in activities abroad. In the field of high technology, many companies offer technical know-how through this agreement, such as Ranbaxy Laboratories Ltd. looking for partners to overcome its various technologies such as breathing, urology, etc. However, the exchange of technological know-how with foreign companies is a little riskier for technology companies.

While franchising and licensing have some similarities, they are two very different agreements that mean different things to you and your brand. In this franchise vs license comparison, we explain the differences between the two, as well as the pros and cons of each. Which one is best for you depends on the degree of control you want to keep in running your business and the support you want. When you license a brand, you get the brand awareness it has received, but you`re pretty much alone to run the business. Again, this may not matter if you already have an established business. By the term license, we mean a business model in which the licensor grants the licensee the right to use the intellectual property, label it or manufacture a company`s product for royalties. The licensing company then makes a huge capital investment to start its operations. When starting a franchise, there are many more legal hurdles and regulatory requirements to follow than with a license agreement. The main disadvantage of licensing over franchising is the restrictions. A license only gives access to the use of certain protected trademarks, nothing more. While this makes the deal limited, it could be all the needs of your business. It is also important to ensure that you have taken these steps to protect your intellectual property when entering into a license agreement.

For example, with a license agreement, you will have to rent the building yourself or own, perform all your own marketing and training activities. In a franchise, the franchise fee would cover the costs of leasing and expansion, and that would likely bring you national brand marketing and the franchise would likely have training for you and your employees. If you`re dealing with franchise and licensing agreements, it`s probably because you want to grow your business franchise or lend your brand to another company to use. Knowing the differences between these two trade agreements is essential before entering into a legally binding agreement. Calvin Klein works with a number of manufacturers under licensing agreements. This means that Calvin Klein has licensed or borrowed its brand and trademarks from certain manufacturers who then use the brand to sell their products. Calvin Klein products such as underwear, perfumes and jeans are all manufactured and marketed under licensing agreements. Licensing agreements range from obtaining the right to use software and applications to using another company`s name or trademark to sell products. To give an example, Disney allows the use of its beloved characters to companies that sell products such as t-shirts, lunch boxes, and children`s pajamas. When comparing franchising and licensing, the question often arises as to whether licensing is an alternative to franchising or not.

The answer to this question is that no, licensing is not an alternative to franchising. The reason for this is that franchise laws generally define a franchise as a relationship that involves (a) the licensing of a trademark, (b) some degree of control over business operations (i.e., standards and specifications), and (c) payment of an upfront payment. . . .