So you have a concept, product or business you wish to sell through a ‘third party’. Typically this involves granting a licence or a franchise. But what’s the difference?
The key distinction can be found in the definition of “Franchise Agreement” in the Australian Franchising Code of Conduct (“the Code”).
It states that an Agreement will be a “Franchise Agreement” if all of the following criteria are satisfied:
1) The Agreement takes a form that is in whole or part written, oral or implied; (this covers both a licence and franchise, so it’s not a real difference – go figure?)
2) The Agreement grants to a person the right to carry on the business of offering, supplying, or distributing goods or services in Australia under a system or marketing plan that is substantially determined, controlled or suggested by the granting party;
3) The business or product (of the granting party) is to be substantially or materially associated with a Trademark, advertising or a commercial symbol owned, used, licensed or specified by the granting party; and
4) Before starting or continuing the Business, the grantee party is required to pay or agrees to pay to the grantor party, a fee in their conduct of the Business.
To summarise the 4 key points:
- Written agreement
- Provision of a marketing system (mostly or solely controlled)
- Brand and/or Trademark association (product or service)
- Fees – initial and ongoing
It’s safe to assume that the granting of a licences or a franchise will contain an agreement and almost certainly some form of payment. So the real distinction usually lies in the absence or presence of:
1) A business / marketing system (mostly or solely controlled)
2) The rights to use the brand or trade name.
And in most cases the grantor will provide some marketing direction when it comes to promoting the ‘product’ or ‘service’ of the Business. The best recommendation is to consult with a qualified solicitor to ensure that if you choose to licence instead of franchising that you don’t accidentally cross the line.