Trademark versus Franchise: Which is the Better Business Path?

When answering this question, it really comes down to the philosophy of the business around control and what is the cost of developing one’s own company under a trademark license or accessing a pre-existing business operation of a company through a franchise. Many prospective business owners like the idea of investing in a franchise that has a well-known reputation and goodwill instead of starting from scratch. Others enjoy the thrill of developing their own imprint and nuances under a trademark license with a business experience they can tailor and mould into its own reputation. Both avenues offer strong benefits that a business owner must weigh to make the right choice for this important image and financial path. So let’s get started.

What’s in the trademark approach? A trademark license is where the owner of the trademark also known as the licensor permits the purchaser, known as the licensee, to use or service the trademark in accordance with specific agreed upon terms for payments in royalties. A trademark agreement is a less restrictive and costly form of agreement that allows prospective business owners to still have some form of reputation attached to the business while still maintaining control over how the business is managed. A trademark license agreement offers no such treatment as an owner can award as many licenses without making any special considerations

The Franchise Path. Franchise agreements are sometimes referred to as a trademark’s evil twin because of the restrictions and large investments involved in the process. A franchise agreement is often complex because of the state and federal regulations that are mandated. It also offers some significant benefits and support in terms of training, site-selection assistance and marketing. Additionally, it has an exclusivity clause which ensures that no other person will be awarded a franchise in your location in an effort to reduce competition.

Trademark rights are a subset within franchised business as they are operating under a licensed trademark–the same policies and rules about imaging, customer experience, revenue, etc. The parent company in any franchise operation retains a lot of control over the management of the business. The element of control is one of the most distinguishing features of a franchise from a trademark business.

What’s Next? After finishing your business plan and/or research, you should seek legal advice in determining which form of agreement best suits you. An experienced attorney can advise you of the pros and cons of each form of business such as having control versus having support in respect to management operations and marketing savvy. In the eyes of the law, the two paths are seen as worlds apart so an informed decision is a wise course of action.