Licensing and franchising in international business law

Licensing and Franchising
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Licensing and Franchising
Introduction
Licensing and Franchising are common strategies businesses apply to expand their businesses internationally (Brimer et al., 2015). There are several strategies that companies can apply to expand their activities. Licensing and Franchising involve two parties in which one gives its rights to another party to use it in its business (Rosado-Serrano et al., 2018). The difference is that licensing involves two independent parties that use the same trademark in their companies. In comparison, Franchising involves two parties, with one of them being independent while the other is dependent (Mainardes et al., 2019). The two strategies also have risks which are associated with them. These make it of importance for admirers who desire to venture into these fields to be wary. This paper analyzes the characteristics of these two expansion strategies, risks, gives examples of a case study, and finalizes the relationship between them.
Licensing
Definition
Licensing involves an individual or organization, giving another one the right to use the former’s technology, brand, trademark, or other legal rights in their business (Abhijit, 2015). The original owner of the power, legally referred to as license, is usually called the licensor, while the party that receives the right is called the licensee. According to Mrimer et al. (2015), during the creation of the license, both the licensor and licensee get into a mutual agreement, commonly referred to as a ‘license agreement.’ The license agreement details the limits and the rights of the licensee and the licensor to prevent them from exerting excess control over the business activities.
An example is the case of Walt Disney that allowed McDonald’s to use its logo in branding its McDonald’s’ Happy Meals (Gerhardt et al., 2015). Another example includes technology licenses of Microsoft Corporation, which has allowed different users to use the Windows Operating System. Also, the several cases in which pharmaceutical companies gave out patents to drug companies and allowed them to manufacture and sell drugs that contain formulas that the original companies had discovered.
Risks of Licensing
Just like any other business model, licensing is not without risks. Parties contemplating this should deeply consider the risks that are associated with it to come up with the right decisions. Among these risks is that the licensee can choose to become a competitor against the licensor by gaining more clients in the market than the licensor (Abhijit, 2015). Secondly, the licensee can suddenly demand factors such as training of employees, data, and technical assistance, which are costly for the licensor at the time of the request. Additionally, the licensor stays dependent on the competency and well-being of the licensee, which may prove futile and result in losses.
Case Study
A case in which a licensing agreement led had problems is the First Flight Associates V. Professional Golf Company, Inc. Professional Golf Company (Pro Golf) was a US-based company manufacturing and selling golf products. It operated usi...