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Once you have developed your intellectual property (IP) protection strategy, you should consider how you will use these rights and expand your business and brand. The value in IP assets can be wasted if you do not appropriately commercialise them. This article will discuss the common ways in which you can structure your business to commercialise your IP and propel your business’ success through either a: 

  • franchise or licence model; or 
  • company owned model.

Franchising or Licensing

Utilising a franchise or licence model is an effective way to expand your business. Each model has its advantages. To help understand which model will best suit the needs of your business, you should consider the key characteristics and differences between the two models.

What is a Franchise Model?

Franchising a business essentially allows you to replicate a successful business concept. It involves the owner of the product or service (franchisor) giving the right to an individual (franchisee) to market and distribute the product or service under its brand. The key attributes of a franchise are that the franchisor will:

  • determine the exact methods and systems that the franchisee will adopt, such as uniforms, store fit out, and location;
  • have control over all marketing;
  • monitor the performance of franchisees and specify minimum performance criteria and quotas;
  • have franchisees pay certain fees and expenses, such as fees towards a marketing fund; and
  • license their IP to the franchisees to use, such as trade marks and copyright.

For example, all Domino’s Pizza stores have a similar fit out, uniform and menu. As a result, consumers easily recognise the brand and have the same experience across all of its franchise stores.

What Is a Licence Model?

Licensing a business essentially involves the owner (licensor) giving another individual (licensee) the right to use their trade marks and other IP, without having to follow a particular set of rules or guidelines for operating the business. Accordingly, a licence model may provide you with less control over your licensees than a franchise model. Licensees will be able to:

  • develop their own system and processes for running the business, such as choosing their own store fit out;
  • determine their own marketing (subject to restrictions and terms in the licence agreement);
  • control their own performance without having to comply with specific performance criteria; and
  • use the licensor’s trade marks and other IP for a certain fee (which is typically lower than what a franchisee would need to pay).

A licence agreement can be very specific or broad as to what IP the licensee can use and how they can use it.

A well-known business that utilises a licence model is CrossFit, which allows others to become an “affiliate” of the business. Once approved, affiliates will have the right to legally use CrossFit’s IP, including its name, logo, and promotional materials. Beyond this, CrossFit does not have any control over how the affiliates market and deliver their services.

Which Should I Choose?

Overall, whether a franchise or licence model is better suited for your business will largely depend on how much control you want over the business and its marketing. On one hand, franchising your business will provide you with a lot more control over the business. However, this comes with more rules and regulations to follow. On the other hand, licensing your business’ intellectual property might be better if you are looking to expand quickly, but may carry more risk as you will have less control over how the licensees run and market the business.

Whichever model you decide on, it is important to ensure that your trade marks (and any other applicable IP) are registered so you can licence these registered rights to your franchisees or licensees. In addition to the legal rights gained from owning a registered trade mark, it will help you to:

  • establish your reputation and credibility in the marketplace; and 
  • attract potential franchisees or licensees for your business. 

Your business’ brand recognition and goodwill are usually a large part of what a franchisee or licensee will pay for.

Company Owned Model

If you are already running your business as a franchise, you also have the option of scaling back and transitioning to a company owned or independent business. 

For example, you own a successful donut franchise and decide to move to an independent business. As an independent business, you will directly employ your staff, enter into leases, and source the products or services.

This may be a good idea for your business if, for example, you want to:

  • move to a company owned business as your business is highly profitable, in order to keep all of this profit;
  • increase your control over business decisions that may otherwise be restricted under individual agreements you have with your franchisees;
  • have better flexibility in day-to-day business management and processes;
  • have improved damage control for business losses;
  • sell the business later on, in which case having a company owned business may make this easier; and
  • have more transparency in complying with regulations.

It is still important to ensure that your trade marks are registered and owned by the entity that will be using the trade mark. However, running an independent business means that you will not need to separately license your IP. This is usually protected under agreements with your employees, manufacturers and suppliers.

Key Takeaways

Your intellectual property can play an important role in helping your business expand and make money. Once you have protected your IP and have a proven system for running the business successfully, you may wish to consider moving to one of the following structures for commercialising your IP and increasing profits for your business:

  • franchise model;
  • licence model; or
  • company owned model (if you are already established as a franchise).

Whichever model you decide on, you should ensure that your IP is registered beforehand to ensure that you can commercialise these rights and that you have maximum control over how others can use them. If you have any questions about commercialising your IP and structuring your business, contact LegalVision’s intellectual property lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is intellectual property?

Intellectual property rights protect creations of the mind. They are an important way to protect brand assets such as your logo, business name and slogan.

What are the benefits of a franchise model?

Franchising your business will allow you to retain a lot more control over the business. You can choose where your franchises will be, what they will look like and what they will offer.

What are the benefits of a licence model?

Licensing your business’ intellectual property can allow you to expand your business quickly. You will have less involvement in how your licensees’ businesses run.

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