“Franchise” and “Licensing” are two popular terms in the field of intellectual property. These two methods are essentially different from each other. Accordingly, the form of each agreement is also unique, leading to the vast discrepancy between each party’s rights and obligations under these agreements. In reality, there are many confusions about such agreements and these two agreements are usually recognized as one leading to numerous unwanted legal consequences for all parties to such agreements.
To distinguish between these agreements, we have to firmly grasp the nature of these two methods of transfer:
Franchising, according to Article 284 of the Commercial Law 2005, is a commercial activity whereby the franchisee conducts on its own behalf the sale and purchase of goods, provision of services in accordance with a set of predetermined conditions and the franchisor has the right to control and assist the franchisee in managing the business. Franchising often takes place when the franchisor already has a certain business model, products, or brand, and the franchisee agrees to pay an initial fee to be granted the right to conduct business under the brand, or use the available business model.
Licensing, however, is not clearly defined. Article 141 of the Law on Intellectual Property 2005 regulates the transfer of industrial property rights (also known as licensing) being the permission given by the owner of an industrial property object for another individual or organization to use the industrial property object under his/her possession.
The difference between these two types of agreements are as follows:
|Franchise agreements||Licensing agreements|
|Object||The sale and purchase attached to the trademarks, commercial names, business secrets, business slogans, business symbols, and advertisements of the franchisor.
|The right to use industrial property objects, except for geographical indications and commercial names.|
|Conditions of the object||The system being franchised must have operated for at least 01 year prior to the date of franchising
|No conditions whatsoever|
|Purpose||Serving the management of the business system||Aiming at the use of specific values of each intellectual property object
|Types of agreements||– Franchise agreements.
– Secondary franchise agreements.
– Agreements to develop commercial rights.
|– Exclusive agreements.
– Non-exclusive agreements.
– Secondary agreements.
|Transferring the Agreement’s object to Third parties||-With regard to the franchisee: The transfer of rights to third parties is only permitted with the approval of the franchisor.
-With regard to the franchisor: There are no limitations on the franchisor.
|The transfer of rights to third parties is limited, especially in case of an exclusive agreement, the licensor cannot transfer the rights to any third party during the whole period where the rights are licensed to the licensee.
|Support of the Franchisor, Licensor||The franchisor still frequently and consistently assists the franchisee to ensure that the business system operates in accordance with the initial schedule set out by the franchisor and the quality of goods and services is up to standard.
|The licensor only provides assistance in accordance with the agreement, however, such assistance is fairly limited and is usually data or technical support, etc.|
|Governing law||The Commercial Law 2005||The Law on Intellectual Property 2005, as amended in 2009 and 2019|