Licensee vs. Franchise: Everything You Need to Now
Being a licensee or a franchise can be a bit question for an individual with an entrepreneurial spirit, or for a growing company.3 min read
Updated November 9, 2020:
Being a licensee or a franchise can be a bit questionable for an individual with an entrepreneurial spirit, or a growing company. Here are the key definitions of the two:
- Franchise: the franchisee uses a company’s business model and brand to run their own store/restaurant/etc. as essentially it’s own entity. Examples would include Domino’s Pizza, Midas, and Merry Maids.
- Licensee: a company sells the license (brand, copyright) of an item or items to other companies. A primary example is a professional sports team selling the license of their logo (or, brand) to a sporting goods store.
Both of these types of agreements allow for the established company to sell certain rights to their brand to other vendors, in exchange for financial compensation.
More About Franchises
Obviously, there is a lot more to both a franchise and a licensee than the above definitions. So, let’s dig a little deeper, as you consider which avenue may be best for you. Here are some key points regarding a franchise:
- The franchisee uses the brand or trademark of the franchise. All Domino’s Pizza restaurants use the same branding, regardless of where they are located or who the individual owners are.
- The franchise provides marketing materials and support, as well as training to the franchisee, regularly. When was the last time you saw a television commercial for the specific Outback Steakhouse in your town? Chances are, you saw a generic commercial that was produced by the franchise and was aired in all markets in which they have franchisees. This both alleviates the burden of responsibility and the associated costs from the franchisee.
- The franchise dictates what goods or services are provided by the franchisee. As such, the franchisee does not typically provide products outside the scope of what is determined by the franchise. Basically, what exists on the menu at one McDonald’s is going to exist on all of them.
- The franchise ensures that the franchisees are not competing with one another and essentially stealing each other’s profits. Largely, this is accomplished by not allowing two franchisees to exist in the same market or location.
- The franchisee may pay a percentage of their profits back to the franchise. This fee is generally considered to be what provides the ongoing rights to use of the brand or trademark, while also being what helps the franchise offset the costs of providing the aforementioned marketing materials, advertising, and training.
Ultimately, a franchisee is not going to have a great deal of autonomy, as the franchise really sets most of the rules. However, the support that is often provided by the franchise can often offset any lack of independence a franchisee may feel.
More About Licensees
- The licensee has their own brand or trademark; they only have access to the licensor's trademark for specific purposes. Think Alex and Ani jewelry having the licensing rights to create Harry Potter and Wonder Woman bracelets. Alex and Ani is their own store, their brand, but they have obtained certain licensing rights from Universal Studios and DC Comics.
- The licensee is probably not going to receive anything in addition to the license, meaning that the licensor is not going to necessarily provide marketing materials or advertising. Any marketing is the responsibility of the licensee.
- The licensee often does not have the same restrictions regarding the goods and services they can provide, as with franchisees. Meaning that a sporting goods store can carry merchandise bearing the logos of both the New York Rangers and the New York Islanders.
- Typically, the licensee pays the licensor a percentage of the profits for items sold under that specific license. So, the sporting goods store is only paying a fee to the Dallas Cowboys for any items sold under that license; the Cowboys are not making a profit under anything sold under the New York Giants license agreement.
- The licensor maintains sole ownership over their trademark and can dictate how it is used by the licensee, but they have no involvement with the overall operations or management of the licensee’s business.
If you need help with the differences between a franchise vs. a licensee, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.