When considering buying a franchise, one should note that as part of the franchise purchase they are also licensing the rights to use the franchisor’s intellectual property, which includes their trademarks. Because of this, one should note that every franchise is a license, but not every license is a franchise. This leads many to have confusion about the difference between a license and a franchise.
A license is a contract creating a relationship between two parties for the right of one party, the “Licensee” to use the trademarks, patents, copyrights, technology, etc. of the party that created or owns the materials, the “Licensor.” Examples of licenses can include Foot Locker’s license to use and sell Nike brand shoes or a software company granting a retail clothing store the license to use point-of-sale software.
Alternatively, a franchise is a relationship between one party, the “Franchisor”, who grants to the other party, the “Franchisee”, the right to develop a business using licensed trademarks, patents, copyrights, technology, etc. Where a franchise differs from a license is in the ongoing obligations of both sides. In a franchise, the franchisor exerts a certain amount of control over the franchisee who, in exchange for this franchise license agrees to pay an initial as well as ongoing fees and follow the requirements of the franchisor.
There have been several instances where a business has tried to license their concept instead of franchising it. This can cause a lot of problems if done improperly or if one or both parties overstepped their boundaries. In general, if you are interested in licensing or franchising it is highly recommended that you speak with an attorney who is well-versed in both areas and can guide you through the pros and cons of both.