Licensing is a billion-dollar market worldwide and a hecto-million dollar market in the State of Florida. Disney, the University of Florida, and IBM are just a few entities in Florida that use licensing to add to their top-line revenue. Businesses and individuals use licensing agreements to create wealth while protecting their intellectual property and use other people’s energy to promote their brand. According to Stetson University, licensing agreements seek to accomplish the three P’s of protection, promotion, and profit.
A licensing agreement is a legally enforceable contract between two parties known at the licensor and the licensee. In a typical licensing agreement, the licensor will grant the licensee the right to use the licensor’s trademark or brand name, to produce or sell goods that are protected by intellectual property law, or to use patented technology owned by the licensor in exchange for a payment, known as a licensing fee.
A simple way to think of a licensing agreement is simply a contract, like any other, in which one party agrees to use the property owned by another party and pays a fee for the ability to use the property. Licensing agreements can be used in almost any industry, from licensing the use of real estate and physical property to the licensing of an idea, concept, or digital space.
Licensing vs. Franchising
There are several differences between franchising and licensing models. A few of these differences are:
- Franchises usually begin franchising once a system is developed and proven to be successful v. licensing can allow one party to build an entirely new or different system.
- Franchises offer lots of training, support, and an operational system to build on but also come with rules, regulations, and obligations v. licensing agreements usually revolve around the concept that the licensee may pay to use the licensor’s property in a certain manner, but the details of the operations are not as exact or rigid as franchises nor do they come with the same level of support.
- A franchise is an extension of an already existing brand that wants to expand v. a licensee is free to create their own business using the property or brand of the licensor.
An example of a franchise v. licensing can be found in comparing McDonald’s to Calvin Klein. McDonald’s is a classic franchise model. When you go to a McDonald’s franchise restaurant, the owner or franchisee of that restaurant was not able to make decisions on what items they can serve you, what their employees’ uniforms look like, what the layout of their restaurant looks like, what exact territory their restaurant is in, and a number of other decision. McDonald’s makes sure its franchisees operate in a uniform manner. So much so that if one was not aware of it, they would not even realize the most McDonalds are owned by different owners. This rigidness comes with massive support. McDonald’s gives its franchisees a model to use, that they must use, in order to be successful. But the model is a proven business model that leads to success. Training, inventory, statistics, and other services are offered by McDonald’s to its franchisees.
In contrast, Calvin Klein only actually manufactures a women’s line. If you buy anything else from Calvin Klein such as men’s clothing, or perfume, or jeans, as well as their famous underwear, it is all a result of licensing agreements. Calvin Klein gets paid by its licensees to use its brand name and logo. The manufacturing is done by the licensee at a place that it chooses, at prices that it chooses to pay its manufacturers and distributors, and it charges what it wants to outlets and retailers to sell its products where it sees fit. The licensee is given no direct support from Calvin Klein. The licensee is not provided with the same manufacturing facilities, distribution facilities, or know-how that Calvin Klein uses for its women’s line.
Franchises usually come with more support but less control for franchisees whereas licensing agreements usually come with more control and less support.
Licensing disputes are very similar to franchise disputes (link to internal franchise law and disputes page). Unlike franchise disputes which usually are governed by a franchise agreement or franchise disclosure documents, licensing disputes will be governed by a licensing agreement.
Common causes for licensing disputes include:
- Licensing Fee Disputes;
- Lack of Due Diligence of Brand or Product;
- Lack of Due Diligence of Prior Dealings;
- Breach of Licensing Agreement terms;
- Fraud or Misrepresentation;
- Disputes the Scope of Use of the Licensed Property;
- Miscommunication or Lack of Understanding the Parties Legal Obligations;
- Lack of Guidance or Understanding of the Brand;
- Lack of Disclosure of Breach of Representations;
- Unrealistic Expectations;
- Limited or Lack of Performance or Commitment;
- Poor Personal Relationships between Licensor and Licensee; and
Parikh Law, P.A. helps both licensors and licensees draft, review, and negotiate licensing agreements and business dealings. Our firm also represents licensees and licensors during licensing disputes and lawsuits.