Beware the Unintended Franchise
We all are familiar with well-known? franchises, such as McDonald’s restaurants. What many people do not realize, however, is that a trademark license agreement, if it has certain characteristics, can be considered a franchise agreement under state or federal law, creating huge potential liabilities for the unwary licensor.
In California, Corporations Code Section 31005(a) says that a franchise exists if three elements are satisfied:
- A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and
- The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and
- The franchisee is required to pay, directly or indirectly, a franchise fee.