Franchising is a way of developing a business based on “leasing” a trademark. In legal terms, franchising is a method of complex licensing, when, along with a trademark (or commercial designation), the user is also presented with a license for a complex of know-how.
Instructions
Step 1
In franchising relations, two parties are distinguished: the franchisor is the one who provides the trademark for use, and the franchisee is the one who will use it (the buyer of the license). The franchisee, according to the general rules for licensing intellectual property, pays the franchisor the sum of money stipulated in the agreement at a time, as well as - regularly - royalties or deductions to the rightholder for using the trademark or commercial designation.
Step 2
However, there are two fundamental differences between franchising and “conventional” licensing of intellectual property. The first is that the franchisee is obliged to use the trademark in a strictly prescribed manner by the franchisor. Second, royalties are paid to the franchisor regardless of the results of the franchisee's activities. Let's take a closer look at these differences.
Step 3
As a rule, a franchise scheme (franchise) is used to build so-called “sales networks” of products produced under a trademark or commercial designation. In this scheme, the franchisor is the manufacturer of the product (most often), and the franchisee is the seller. The difference from "ordinary" trade agreements is that the franchisor obliges the franchisee not only to sell the product, but also to use the methods of advertising, marketing, reporting, etc. developed by him, that is, techniques and methods, know-how, which make up the so-called "business system".
Step 4
When working under a franchise license, the franchisee (seller), as a rule, undertakes to regularly purchase certain volumes of the product from the manufacturer (franchisor) for subsequent sale. At the same time, the franchisee does not have the right to set its own retail prices for the product - but only in the price range determined by the franchisor. As a rule, the franchisor defines in the agreement the norms for the volume of sales, and also - in the case when the franchisee exceeds the norms - the system of bonuses. It should be noted that royalties - regular deductions to the franchisor - are not “intermediary percentages”, they are deductions for the use of intellectual property (in this case, a complex of know-how).
