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I am licensing my trademarked training courses. Can I define the territory in the license agreement w/o becoming a franchise?

El Paso, TX |

I do not want to franchise, I do not want or have the support staff to control a franchise. I want to have trademark license agreements. I know I can define the type of product being licensed in the agreement, but can I also define the geographic territory in which the licensee can deliver the product - or will that label me a franchise?

Attorney Answers 5

  1. No, you can't get around franchise regulations if you control the territory of the "license."

    Franchise and business lawyers would advise you not to try to get around franchise regulations and to go with the franchise arrangement and agreement, since that's what the biggest and most successful companies do.

    See the well drafted article linked below. Basically, it says that as long as you exercise some control over OR assistance for the use of your trademarked courses, like the right to inspect, requiring reports, designating territories, mandating suppliers, methods of operation, etc., and assist by providing training, an operations manual, ongoing assistance, cooperative marketing, supply, etc., you'll trigger the Franchise Rule, as long the money component (payment of at least $500 within six months) and using a common name are satisfied.

    This is not a DIY job - see a business lawyer for help with this.

    Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

  2. I agree with Ms. Koslyn, but want to point out that if your "course" is actually a product, (like a DVD, or CD set or something), it's probably OK to license it for sale only within a particular territory, without running afoul of the franchise rule. But, you really must check with a lawyer who can review your situation specifically.

  3. Be sure that you protected your training courses. You would want to register a copyright with the U.S. Copyright Office. Doing that would afford you statutory damages if someone were to copy the material without authorization. Otherwise, you would need to prove actual damages. Trademark law only protects that marks used in connection with the provision of goods and services from confusingly similar marks or from disparagement (in certain instances).

    Hire a good IP attorney to properly protect the courses.

    [This communication is intended as general information and not specific legal advice, and this communication does not create an attorney-client relationship.]

  4. Defining the territory is not really the critical issue. To fall within the FTC definition of a franchise, and trigger its franchise rules, the business generally has to satisfy three elements: (1) permission to use the franchisor’s trademark; (2) significant control over or assistance to the operation; and (3) a required payment of $500 or more. Various state laws have similar definitions of a franchise that would trigger obligations under their franchise laws as well. Defining a territory can be considered in determining whether a contract meets the second element, but even without defining the territory, it is very easy to create a franchise while licensing a trademark. The first and third elements are almost always satisfied, and the second element can be satisfied merely by providing a marketing plan, or even marketing materials. To avoid the potential pitfalls of unintentionally selling a franchise, it is essential to have an attorney who is familiar with franchising review your documents.

  5. Consult with a franchise attorney to see if all defining elements of a franchise are present in your "license" agreement. A review of all facts, documents, etc. is required. It doesn't matter what terms the parties use on the document (license, joint venture, partnership, etc.). All that matters is whether a very limited number of elements are present or not. Also, do not copyright your course as this would effectively place it in the public domain.

    A word to the wise: most "license" agreements where you put someone into a business turn out to be illegal, franchises in disguise. When challenged, be prepared to spend mind-boggling amounts in court or in fights with franchise regulatory agencies. There is an excellent article on this entire topic on the Franchise Foundations website link below.

    Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise