Expanding Your Business Model Without the Expense of Franchising

There are many strategies to expand the influence of your business into new markets across the U.S. and around the world including licensing and distribution.  It is important to understand the legal distinctions of a “Licensing” arrangement or a “Distribution Model” or “Distributorship.”

Generally speaking, in order to understand these concepts it is important to begin with a conversation on franchising.  Franchising usually requires 3 elements in order for a business to qualify:

  1. The creation of a “system” – a comprehensive plan including operational guidelines, training, marketing plans and every essential element required to open and operate the “franchise”
  2. The licensing or authorization to use a Brand Name, Trademark or other valuable intellectual property
  3. Fees collected upfront, ongoing or upon the completion of the above two components

If all three of these elements are present, the business will almost always be classified by a state as a “franchise”, requiring a series of corporate filings, disclosures and approvals by almost every individual state in whom the company wishes to do business.  Most states (including California) closely regulate the operation of business franchises, and there is an inherent expense and body of work necessary to prepare to franchise your business model.  This is very expensive, time consuming, and requires the disclosure of information that the parent company may wish to keep private.  What other options would allow you to expand the business base of your products and/or intellectual property?  Two alternatives to franchising include licensing and distribution.

Licensing Your Business Intellectual Property or Trade Names

One business expansion option to consider is “Licensing.”  A licensing agreement allows another business to use your company’s intellectual property including trade names, trademarks, logos, copyrighted materials, imagery, media, software or other such tangible property.   One example would be the use of a professional sport’s team logo on a t-shirt or coffee mug.  The intellectual property (the Major League Baseball and Local Team Logos) are “licensed” from the owners in return for “royalties.”  Royalties usually include the payment of an upfront fee, as well as an ongoing percentage of the sales of the products upon which the logos have been placed.

The Distribution Model

Distribution agreements authorize a “distributor” to purchase your company’s goods and/or services at a given price, and re-sell these at a higher price to either another distributor, retailer or the actual end user.  The distribution model may include products that have a trademark or brand name, and provide a profit to the seller, but there is no specified training or process or method for distribution on the part of the parent company.  Distribution agreements are usually limited to a specific geographic “territory” or market niche.

Contact Experienced Licensing and Distribution Attorneys Serving San Diego and All of California

Licensing and Distribution provide alternatives to franchising that allow a business to increase the influence of its products and services in the marketplace without incurring the effort and expense of creating a “franchise system”.  If you are interested in growing your business contact the experienced business attorneys at the Watkins Firm.  We have served the San Diego business community for decades and have helped hundreds of businesses to successfully deploy strategies to expand their businesses into new markets, geography or distribution channels.  Contact us or call 858-535-1511 for a complimentary and thorough consultation.  We will discuss the unique aspects of your business, your goals and aspirations and help to develop the appropriate licensing, distribution or, if necessary, franchising system to accomplish them.