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Franchising/Franchise vs. license agreement terms - Mr. Franchise Weighs In

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Expert: Franchise Attorney Franchise Expert MBA - Kevin B. Murphy - Mr. Franchise & Former Franchise Owner - 11/12/2008


Question
I have a publication I started earlier this year with a partner. Each zipcode gets its own version of our directory by direct mail twice per year. We have successfully launched this in four zipcodes and are negotiating our first license agreement out of the area. What are the pros and cons to a shorter or longer term for this agreement. What would be the difference between a 5 year renewable term or a 10 year renewable term, for us, and what would be the difference for the licensee?
Thank you for your time.
Sean

Answer
First question I have is – where are you located? If you are in the U.S. or other jurisdiction that has franchise laws, beware! Most so-called license agreements are really franchises in disguise. Selling a disguised franchise by calling it a license can be the most serious and costly mistake your firm ever makes. There’s a good article about the franchise vs. license (franchising vs. licensing) topic on the Franchise Foundations website at:

http://www.franchisefoundations.com/franchisevslicense.html

Going back to your question about 10-year vs. a 5-year term, the answer depends on the provisions of the contract. Generally speaking, a longer contract term means you can enforce provisions like payment, non-compete, etc. for a greater period of time. On the other hand, depending on how the contractual relationship is structured, you may want a shorter term. For example, if the person isn’t doing a great job and you’ve granted them a protected territory, or they’re just a pain to work with, or the protected territory has grown where it can support more than one person, then having a shorter term is better.  The key is good strategic planning when it comes to structuring the relationship.

From the buyer’s perspective most of the same reasoning applies. Shorter terms are generally preferred, especially if they’re trying to learn the business then go independent. Again, most of these issues can be dealt with if adequate planning and thought goes into structuring the contract up front.

Any other questions, feel free to contact me through the Franchise Foundations website below.

Kevin B. Murphy, B.S., M.B.A., J.D.
Mr. Franchise
Franchise Foundations
http://www.franchisefoundations.com/franchiseattorney.html
http://www.franchisefoundations.com/franchiseexpert.html
http://www.franchisefoundations.com

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Franchise Attorney Franchise Expert MBA - Kevin B. Murphy - Mr. Franchise & Former Franchise Owner

Expertise

Franchise Attorney, MBA Franchise Expert, author and instructor with 2-plus decades of franchise industry experience, including ownership of a successful franchise. I answer all business format franchise questions, how to franchise a business, issues about ongoing franchise relationships, buying a franchise, evaluating franchise investments, franchising vs. licensing (franchise vs. license), franchise disputes, franchise operations manuals, franchise expert advice in franchise lawsuits and franchise litigation, franchise agreements, FDD Franchise Disclosure Documents and intellectual property. I don't answer questions about franchises in the automotive and petroleum industries. I have drafted, reviewed and negotiated over 500 franchise disclosure documents, advised hundreds of franchise buyers and franchise companies as well as started and operated a franchise from scratch - a background not duplicated by any other franchise expert. My in-the-trenches franchise ownership and resale experiences gave me valuable insights to share with potential franchise buyers and existing as well as emerging franchise companies.

Experience

Known in the industry as Mr. Franchise, I owned, operated and sold a very successful franchise in the home improvement industry. I help individuals and companies enter and prosper in the franchise industry, have drafted, reviewed and negotiated over 500 FDD's (Franchise Disclosure Documents) and have experience filing franchise registrations in all franchise registration states such as California, Illinois, New York, etc. I am very familiar with the McDonalds franchise program, have developed a cost-savings franchise budget for companies that want to learn how to franchise a business, and pioneered a unique FDD Evaluator program for those considering a franchise investment.

Publications
Author of over 40 franchise articles, including four books on franchising and one book on trade secrets.

Avoiding Legal Pitfalls In Franchise Marketing
2009, Franchise Foundations Press

Franchise Sales Control
2009, Franchise Foundations Press

Effective Franchise Marketing
2009, Franchise Foundations Press

Implementing A Franchise Disclosure Compliance Program
2009, Franchise Foundations Press

Protecting Trade Secrets
2002, Franchise Foundations Press

Also authored foreword and edited various chapters of the following book:

The Franchise Handbook: A Complete Guide to All Aspects of Buying, Selling or Investing in a Franchise
2006, Atlantic Publishing Company


Education/Credentials

B.S. Business Administration (Finance), University of San Francisco,

Juris Doctorate (J.D.) of Law, University of San Francisco School of Law,

Active member of the State Bar of California

Master of Business Administration (M.B.A.) - International Business, San Francisco State University,

Approved Provider of MCLE by the State Bar of California, 1993 to present
Teaching franchise, licensing and intellectual property courses to attorneys in topics like franchise feasibility, international franchising, franchise marketing, franchise planning, franchise kits and others.

Awards and Honors
Selected as the premier U.S. franchise expert by the World Intellectual Property Organization (WIPO), an agency of the United Nations, in Geneva, Switzerland to speak at Singapore’s World Conference about franchising in Asian countries and developing uniform franchise regulations based on the U.S. franchise laws and regulatory model, September, 2007, hosted jointly by WIPO and the Intellectual Property Office of Singapore (IPOS).

Snapshot of Recent Franchise Expert Litigation Cases:
Nagrampa v. MailCoups Inc. and The American Arbitration Association - United States Court of Appeals for the Ninth Circuit (Argued and Submitted En Banc). Summary: provided franchise expert strategy and consulting in a case that established new franchise law by invalidating the standard arbitration provision in a California franchise agreement on the grounds it was unconscionable.

Swansons Cleaners, et al. (Superior Court jury trial). Summary: provided franchise expert consulting that re-focused the legal issues and discovered new causes of action. Testified at deposition and trial for a franchisee in its claims against the franchise company. Result: jury verdict in favor of the franchisee for $1.6 million in punitive damages and $634,000 in contract, etc. damages.

For more information, visit the Franchise Foundations website

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