Although both parties have similar advantages, licensing can be characterized as a subset of franchising; In other words, a typical franchising agreement would involve many licensing agreements to transfer the use of intellectual property rights. Franchising is a much broader concept because it involves a greater degree of control by the franchisor. If you opt for a license, you will keep your license agreement simple. Avoid including clauses regarding the branding and appearance of the licensee`s business, otherwise you can be maintained to a franchisor`s standard. Examples of licenses are available in many different sectors. An example of a licensing agreement is an agreement between software copyright holders to a company, which allows it to use computer software for their day-to-day activities. The decision to enter into a license or franchise agreement is based on a number of factors, but the key factor is usually the level of control you want to maintain over your business partners. Franchising is closer to creating a chain of stores. A McDonald`s franchisee doesn`t just applaud the brand name on its own burgers; Instead, he opens a new McDonald`s that`s identical to all other McDonald`s. A franchise agreement is more restrictive than a licensing agreement: franchisors expect franchisees to do things the way they do business. Franchisers generally offer more support and training than a licensee. While a fee can be a single or annual thing, franchisees pay a regular fee.

On the other hand, a franchise is a legal and commercial relationship between the owner of a business (franchisee) and an individual (franchise) who makes a branch of that business with the brand logos and business model of the business. Essentially, a franchise is an independent subsidiary of the franchised company. The franchisor sells the product or service provided by the franchisor. In 2018, the franchise industry employs 21 million people and generates $2.3 trillion in economic activity, according to a U.S. government report. For example, you can own a fashion brand and choose to add a series of sunglasses. After examining the cost of making sunglasses yourself, you realize that it is easier or cheaper to relocate and enter into an agreement with a manufacturer. The manufacturer then designs and produces sunglasses with your brand. In this example, a licensing agreement would allow the manufacturer to use your brand. Another example of a licensing agreement is to install an app on your smartphone or tablet. If you do, you must confirm the terms of your license agreement. In this agreement, you do not buy the application itself, you concede the software and accept the terms of use.

Microsoft Office is a good example. Another example would be a company that licenses the use of its name or brand to another company, Disney, that allows another company to use a drawing of one of its characters on their merchandise. Disney`s main competitor, Warner Bros., also derives significant revenue from the IP business it owns, with DC Comics offering massive licenses for toys and clothing. Even the magical world of Harry Potter is the result of a licensing agreement. As Warner Bros. does not own theme parks, it has decided to grant its amusement parking rights to Universal Studios to take advantage of the Harry Potter IP. All of these criteria must be met in order for an agreement to be considered a franchise agreement. If you answered yes to all of these questions, it is very likely that you have a franchise system and that the franchising code of conduct applies. The ACCC has identified key criteria for determining whether your trade agreement falls within the definition of a franchise agreement.

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