When a company licenses its trademarks, whether or not the trademark is registered nationally, it is of the utmost importance that the company understands that an accidental franchise could occur and perhaps even likely. It is not individuals who would bring an action against a company for operating a franchise in violation of the FTC franchise rule, it would be the FTC itself. And, as in the case of the Federal Trade Commission v. Prophet 3H, Inc., the FTC, successfully fined the healthcare company billions of dollars for violating the franchise rule. To find out if you have entered into a franchise agreement, ask yourself the following questions: In general, a franchise agreement is a much more rigorous and complicated contract. There are many moving parts of a franchise agreement in which a license agreement is a simple loan of protected trademarks or images. One of the most prestigious companies in the licensing world is Disney. Disney Consumer Products Branch has licensed cinematic images and characters, including the famous Disney Princesses, to companies that sell everything from furniture to body care products, with lots of clothing in the mix, from t-shirts and children`s pajamas to wedding dresses. A franchise is a business agreement between a franchisor and a franchisee. The franchisor owns a business. The franchisor sells the rights to its trademark – including goods and services, intellectual property and more – to a franchisee who opens a separate branch under the name of that brand, which is essentially a duplicate of the original business. Using a recognizable brand name like Calvin Klein as part of a licensing agreement can help a lesser-known brand bring their well-made product to market faster and trust consumers than if they had to rebuild their own brand from the bottom up.
Compared to a license, a franchise will seem much more expensive and complicated. The initial franchise fee can cost between US$10,000 and US$50,000 – so there are the running costs you need to keep in mind.