difference between licensing and franchising with example

Having certain key features of a franchise while passing off as merely a licensing agreement may lead to the arrangement being regarded as an unregistered and illegal franchise resulting in potential criminal penalties. For example, when you license your product, you can increase its exposure, and your licensee will be able to sell a product without worrying about designing and manufacturing. A franchise is a satellite business of a parent company owned and operated by a separate business entity under license from the parent company. There is often confusion between the definitions of franchise and license. The total investment range varies anywhere between $73,000 and $154,000. One of the major differences when it comes to franchising vs. licensing is the limitation placed on licensing agreements. With that in mind, we will explain the difference between these two, as well as the pros and cons. For those considering investing in or owning a franchise, there is often much uncertainty. Then let us help with our guide below. Examples of well-known licensing Inventor/Coca-Cola – can opening device – royalty of £148 k per day Apple/Nokia – June 2011 – patent licence in relation to mobile communications to settle patent litigation actions; Apple/Microsoft/IBM – software licenses for the use of their respective software in operating systems. Explain each and use examples to illustrate your answer. Franchising. There is every benefit in using licensing of your business format before going down the franchising route. Licensing and Franchising. Licensing is essentially how you exploit intellectual property. For example, a person must have a doctorate in a subject that he wishes to teach in a university. Offers you a passive source of income. Permitting another party in a foreign country to produce and sell goods under one’s own trade mark, patent or copy right in lieu of some fee is termed as licensing e.g. If you are looking to transfer IP ownership, you should ensure that this transfer is in writing by way of a deed or other written agreement. The franchisee bears almost all the costs and risks in establishing foreign operations. Low control, low local knowledge, potential negative environmental impact of transportation. The organization that gives the access is licensor. In a non-exclusive license, the licensor may be licensing the IP out to more than one licensee. For example, about 90 percent of the $160 million a year in sales at Calvin Klein Inc. comes from licensing the designer's name to makers of underwear, jeans and perfume. Licensing is a broad term that businesses use for contracting purposes. In the post below, you will find a definition of each as well as their associated benefits and difficulties. The franchisee operates the business primarily for the franchisor, but for a fee. In fact, some licensing can look like franchising where the owner of the property also offers know-how and a patent. Licensing is a contractual arrangement in which one firm grants access to its patents, trade secrets or technology to another firm in a foreign country. Close Franchising: It is an agreement between two parties where one party (hereafter referred to as the franchisor) permits another party (hereafter referred to as the franchisee) to use its brand name or business model for a fee conduct the business as an independent branch of the franchisor. A licensing agreement is a contract between two parties (the licensor and licensee) in which the licensor grants the licensee the right to use the brand name, trademark, patented technology, or ability to produce and sell goods owned by the licensor. Let’s look at this through some examples. These types of license agreements usually cost less for the licensee. The licensee pays the licensor a royalty fee. The major difference between licensing and franchising is that the former receives a ‘proportion’ of the business while the latter attains all there is necessary for the successful running of the business. 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. As you consider the difference between franchising and licensing, add up the pros and cons of your situation, goals, personality, and products or services. The Bureau of Trademarks will record a trademark license only upon the issuance by the DITTB of a certificate that the trademark license complies with the provisions of the IP Code on prohibited and mandatory clauses. 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. The organization that obtains the access is the licensee. Anyone looking to license his or her trademark or logo must be careful not to exercise too much control or the relationship will be considered a franchise. 2. The total investment range varies anywhere between $73,000 and $154,000. If we sell the use of our logo and marketing materials, and offer business/marketing coaching to independent agents in our service industry, does that make us a franchisor? Franchising, however, encompasses the whole business format. 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 method allows to create a revenue stream and capture a strong market in little time and monetary investment. Many businesspeople and professionals think that franchising and licensing are the same, but the fact is that they are different. Trade name franchise involves a brand name such as True Value Hardware or Western Auto. They provide the terms and regulations as well as licensing that the franchisee can use. A license is a formal permission or authority to do something that otherwise would be forbidden, for example using a brand, patent-protected technology, software or a database. Franchising and licensing have some similarities, but they are quite different. Most franchised businesses are restaurant chains, hotels, cleaning services, auto repair shops, software repair companies, and more. Licensing relies on the owner retaining the control over their intellectual property but granting other people the right to use it. Chain implies a cluster of stores of the same brand, offering the same product or services and spread nationally or internationally. Write the difference between shareholder and stakeholder. Licensing versus franchising – tabular comparison. Explain each and use examples to illustrate your answer. Licensing or Franchising partner has knowledge about the local market. A license is much more limited than a franchise. Franchising is an arrangement in which the franchisor gives the franchisee the right to distribute and sell the franchisor’s goods or services and use its business name and business model for a specified period, and possibly covering a geographical area.. This form of global business is an example of a _____. There is so much conflicting information about what constitutes a licensed dealership, franchise, and business opportunity. An excellent example of licensed stores are Starbucks that appear inside of other stores, like a Target or Safeway, often in the form of a big kiosk rather than a self-contained space. As similar as these tow may sound, there’s quite a lot of differences between the two. The fourth difference concerns ownership. For example, with a licensing agreement, you would have to lease or own the building yourself, do all your own marketing and training. The difference between a pure trademark license and a franchise is a very grey area and one that a franchise attorney best understands. Franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods. Firms need to evaluate their options to choose the entry mode that best suits their strategy and goals. In other words, a franchise is the right to produce a licensed product by the owner of the license. Whats the difference between international licensing and international franchising? Table 7.1 International-Expansion Entry Modes. Franchising: the terminology. To put it simply, in a chain business, a parent company owns all of the business locations. LICENSE V.S FRANCHISING 41. While it is a faster and cheaper mode of entry, it ultimately results in a profit share between the … 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. This transfer is irrevocable and generally occurs as a sale or transfer from an owner (assignor) to the purchaser (assignee). The difference between licensing and franchising is that license agreements are limited to the shared use of a single technology, brand element, or system, whereas, franchise agreements involve the complete duplication of a business model, brand, and system. Indeed, to be a proper franchisee you are required to use their logo, name, product, and business system. Franchise Fee, Royalty Fee, License and Marketing Fee – Franchise Agreement Terminology. Licensing. Instead, an ongoing licensing fee is typically assessed. Licensing and franchising can help you break into new markets that you may not have been able to … In a franchise partnership, the business is owned by the franchisee. In a franchise partnership, the business is owned by the franchisee. The franchise is a form of business in which the franchisee buys the right to sell the products and services belonging to the franchisor, by way of legal agreement. There are different examples of licensing in various industries. 2. Licensing: It is an agreement between two parties where one party (hereafter referred to as the … However, the terms of each licensing agreement will vary. There is a world of difference between licensing and franchising. a.Under both, the produced goods are subject to tariff and nontariff barriers. What’s The Difference Between A Chain And A Franchise? With a franchise, you'll likely receive support in training, marketing, site selection and other areas, whereas a licensing agreement provides little or no support at all. It is relatively liberal in terms. The UPS Store. International licensing involves only intellectual property such as patents, trademarks, brand names, and copyrights; international franchising involves operating systems as well ... and logos in return for a royalty payment. The franchisor is the owner of the business that provides the product/service, while the franchisee is the person who receives the … This is the person who started the whole business, brand, and market it. Franchising allows the firm to bypass the difficulties of raising further credit, buying new land, or hiring new staff. … The business format franchise is the most popular type of franchise system that is chosen by franchisees. Advantages of Licensing and Franchising. Examples. Next on our list of franchise examples is The UPS store, the world’s largest franchisor in the sector of retail shipping, postal, printing, and business service centers.. As of 2020, there are more than 5,000 independently owned locations across the United States, Puerto Rico and Canada. Next on our list of franchise examples is The UPS store, the world’s largest franchisor in the sector of retail shipping, postal, printing, and business service centers.. As of 2020, there are more than 5,000 independently owned locations across the United States, Puerto Rico and Canada. Another fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee. Scope. Fast entry, low risk. Types of Franchising . Different laws governing various aspects of franchising in India The Indian Contract Act, 1872. In a licensing partnership, the licensee only pays the licensor for a specific product for which it may have acquired patent rights. Franchise agreements come within the description of TTAs. As a business owner, one has to choose from the two models as to how he wishes to go ahead. However, if these are not present, then Companies Law is used to regulate franchising agreements. Where new services are considered, it’s a little bit different that the process of obtaining a licensing deal for a product or idea. We will now turn to the differences between licensing and franchising. A franchise and a corporation can be essentially the same type of business with different growth strategies. Franchising and licensing involve distinct legal agreements that confer different legal rights on the parties involved. Disadvantages. In a traditional franchise the franchisee generally only sells the product line provided by a single manufacturer from their business location. Whether you choose franchising or licensing to expand your business rests completely on your needs and goals as a business owner. We’ll give you an overview of the two concepts, along with the pros and cons, so you are well equipped to make the right decision. Part of chain. Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts. Large companies have both the models to offer to a person who wishes to be liked with them. Mcdonald’s franchisee is also an example of licensing. The main difference between a franchisor and franchisee is that a franchisor owns the brand, trademark, and system of the company. In licensing, the licensee does not have any right to the brand logo, trademark, name and image. Write the difference between loan and mortgage. A licensing agency is a broker that brings together license owners with potential licensees and arranges licensing agreements between these parties. Keeping it simple, a license is a right to use a brand. Licensing Versus Franchising. 2. The difference between owning 1,000 stores and 1,000 franchises, is that the level of micromanagement is reduced. 3. Chain and franchise are terms that are sometimes used interchangeably when talking about big brands such as McDonald's or Costa, but the differences between the two are vast. One of the biggest difference between a joint venture and a franchise UK is that a joint venture will usually have a higher level of self-determination as compared with a franchise. The franchisee operates the business primarily for the franchisor, but for a fee. Transcribed image text: Your answer What is the difference between licensing and franchising? The reason we point these examples out is because typically this is what we see when it comes to licensing, which is an unregulated industry. Licensing is regulated by the Contracts Law, while in most of the countries, franchising is regulated by the franchising regulations. Licensing is not an alternative to franchising. Licensing is the selling of the right to use some intangible property such as a trademark for a fee. In the article above, we have discussed the cases of Clavin Klein and other companies from different sectors. Low cost of entry into an international market. TASA ID: 11532. ... like with a franchise. The intellectual property can include patented manufacturing processes, trademarked products, copyrights and technical assistance. Unlike a licence, an IP assignment is a permanent transfer of IP. On the other hand, franchising is generally a service-based business. In franchising, the franchisee gets the right to display the same brand logo, trademark, name and image as that of the parent company. Often, new franchisees misunderstand the terms ‘Franchise Fee’, ‘Royalty Fee’, ‘License’ and ‘Marketing Fee’. In a sole license, the licensor agrees to use just one licensee, but the licensor reserves the right to continue to use their IP, as well. Which of the following is a similarity between licensing and franchising? Licensors and franchisors have different roles when it comes to licensing agreement vs. franchising agreement options. The Indian Contract Act is the mother law governing the fundamental aspect of contractual obligations between a franchisor and a franchisee in a franchise business. Tavern liquor license: for an establishment whose sales are more than 50% liquor, but also offers food. McDonald's is one of the most famous examples of a substantial franchise business. Franchising has the same advantages as licensing. Sole. To understand the difference between licensing and franchising the starting point is to look at what each term means. Risks of Becoming an “Accidental Franchisor” If a licence agreement is actually a franchise agreement, then the Franchising Code of Conduct will apply. Every business has its potential challenges. It involves finding franchisees with the skills necessary to operate branches of the same business. Some of the biggest brands that adhere to this type of franchising are McDonald’s, Dunkin’ Donuts, Starbucks and KFC. Type of Entry. Licensing vs. Here, the franchisee purchases the right to become identified with the franchisers trade name without distributing particular products exclusively … Write the difference between dividend and growth. Franchising is more like a full-service package. 9. The UPS Store. Licensing ensures limited control over the process of running a business unlike franchising. licensingFranchising pros. One of the pros of becoming a franchisee is all the benefits of being a self-employed business owner without the risks of starting a new business.Franchising cons. One of the drawbacks for a franchisee is the loss of control. ...Licensing pros. One of the pros for licensing is the freedom for the licensee. ...Licensing cons. ... These two business models are not the same, and it's important to understand the differences. Breaking it Down. Joint ventures offer a new market for products or services. The franchise business will contact you by means of email and/ or telephone only to the email address and phone number you have provided. Write the difference between investment and speculations. Could you offer some clairification of the differences? Do make sure the country in which you are making the arrangements doesn’t regulate franchising though, as it could cause you problems. There are three basic types of franchise; trade name franchise, product distribution franchise and pure franchise. Licensing is a legal relationship that relates to the use of a trademark or technology. Whilst licensing in these examples have been very successful and undoubtedly the right foreign market entry mode, licensing does have its limitations. However, some people still think that franchising and licensing are almost the same and have no specific difference. But this is not the case, as franchising is totally different to licensing. 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