Do you have questions about licensing agreements in Florida? In this article, you will find some answers. The goal of this article is to give you a better understanding of the boundaries of licensing agreements in Florida and to teach you why a licensing agreement cannot supplant a franchise agreement.
Whenever a company wishes to use the trademarks, business model, technology, or other assets of another company, a written agreement between the two companies is necessary. However, depending on the circumstances, that agreement will be either a franchise agreement or a licensing agreement. Read on to learn the difference.
Understanding Licensing Agreements in Florida
The word “licensing” refers to a legal arrangement between two separate entities or persons with respect to specific assets, such as trademarks, technology, recipes, formulas, etc. In this legal arrangement, the person or business who grants the license – known as the “licensor” – allows another person or entity – known as the “licensee” – to use a particular asset under specific conditions. In exchange, the licensee agrees to pay licensing fees known as royalties.
To illustrate this, let us consider a typical example. A drug research company develops a formula for a particular drug and patents it. Then, this company enters into a licensing agreement with another entity, a pharmaceutical company, to produce and sell the drug. In this agreement, the drug research company essentially allows the pharmaceutical company to use their formula, make their drug, and sell it under their brand name, in exchange for royalties.
Licensing Agreements vs Franchise Agreements
Although franchise agreements may seem to be similar to licensing agreements, they are altogether different. Franchise agreements come into play when a person or entity wishes to imitate the operations or business model of an established company. The entity granting the franchise agreement – known as the “franchisor” – essentially gives a person or entity – known as the “franchisee” – the right to use its trademarks in commerce.
However, the franchisor maintains a certain level of control over the operations of the franchisee’s business. Why? Because the ability to control, to some extent, how the franchisee operates their business is vital to the franchisor when it comes to maintaining the reputation of their brand.
To illustrate this, let us consider a typical example of a franchise agreement. Since McDonald’s is what most people think of when they hear the word “franchise,” let us use it in our example. When the McDonald’s Corporation enters into a franchise agreement with a franchisee, they allow the franchisee to use their recipes, logo, slogan, and most importantly, their brand name and the good reputation attached to it. However, to ensure that reputation is not tarnished, McDonald’s controls how the franchisee operates their business in several key ways, such as by choosing the items that must be included in the menu.
As you can see, franchise agreements and licensing agreements accomplish different goals. When you understand these two types of agreements, the differences between them become crystal-clear. Licensing agreements are, by nature, very limited when it comes to scope, as the arrangement between the parties to an agreement of this kind does not extend far beyond the right to use a specific asset in exchange for royalties. Franchise agreements, on the other hand, are much more complex, as they need to accomplish far more goals. Do you still have questions? I have the answers you need. If you are considering starting a business, I can help you make sure you do not make costly mistakes.