Posted on Jul 11, 2011
Lets just sell licenses
At least a dozen times a year I hear it – let’s just license our concept!
This usually comes from an eager entrepreneur responding to the inquiry of an enthusiastic buyer looking to duplicate a nifty new concept. The belief that franchising is too complicated, too slow, and too expensive goes hand-in-hand with this exclamation.
Some would-be licensors even delude themselves into thinking that a “licensed” concept will be more attractive to buyers interested in business opportunities as opposed to franchise opportunities – they think, "Not a franchise, No royalties, No ongoing payments!" These call-to-action pronouncements may attract buyers. But are they really the type of prospects you want?
And, while it is true that these “let’s just license our concept” systems may get off to a fast start, they may also have an abrupt and expensive end for buyers and sellers. In today’s world, with so much emphasis on business opportunities, franchise opportunities, licensing and distribution, it is very difficult to offer a program that, legally speaking, is not considered a franchise.
Just last week a number of my colleagues – all franchise legal experts in their own right – bandied about whether a proposed concept was an unregulated license, a regulated franchise or business opportunity. Many hours and words later the answer was crystal clear: it depends!
If some of the top legal experts cannot reach agreement on this “simple” issue, what do you think the chances are that the over-eager entrepreneur can get it right?
I may have said this before … but this stuff is complicated.
We will not attempt in this limited space to explore all the possible scenarios or definitions of franchises and business opportunities, but suffice it to say that if (1) you charge an upfront fee, (2) offer any type of assistance (educational, marketing, accounts, equipment/inventory acquisition) in helping someone start a new business that you happen know a little something about and, (3) simply tell them that there is a market for this stuff or make any other representation that generally persuades people to follow your successful lead, you have just stepped in it! No, not that, but the legal realm of selling a regulated “franchise” or “business opportunity.”
So what do you say? Well if you don’t mind having all your hard work go down the drain (translation: legal actions for rescission of a deal, payment for all losses, civil penalties and responsibility for the buyer’s legal fees,not to mention direct actions by state Attorney Generals or the Federal Trade Commission to stop you from selling) then by all means, just license your concept!
Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development,” American Bar Association Forum on Franchising, 2010 Annual Forum (October 2010). He is also the author of How to Buy a Franchise and many other articles and guides on franchising and distribution. Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or firstname.lastname@example.org.
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