The ingredients for growing using trademark licensing:
a well-known brand,
availability of a licensee,
for a precisely defined business and a territory.
Growth through trademark licensing is only worthwhile when the brand itself is a strong one. Otherwise, why would the licensee pay a fee?
Only a properly protected brand can be subject to a trademark licence agreement, which means that it must be registered with a competent body in the territory where it is going to be used and which describes precisely the classes of products and services concerned.
Brand image protection cover enables the network head to set out the terms of its use. That way they can determine with which products and/or services the brand will be associated, whether or not the brand can be used as a logo, the architectural design used with the brand, and the authorised uses for marketing and advertising.
However, only the contours of how the brand is used can be imposed using growth through trademark licensing: no know-how is passed on to the licensee and no assistance is given to them.
So a single question allows one to distinguish a franchise from a trademark license: is any know-how transferred?
Brand owner’s remuneration
The brand owner (also known as the “licensor”) is paid by way of fees that can be a fixed amount or proportional to the turnover achieved by the licensee.
If the licensee buys certain products from the licensor, an exemption from payment of the license fee can be contemplated with regard to the turnover flowing from the sale of such products.
A trademark licence involves less cost for the licensee, who is generally invoiced a lesser fee than a franchisor would charge, while enjoying the advantage of the reputation of the brand.
For the network head, the advantage of this type of development is that its commitments are limited to the guarantee of the existence of the brand and ensuring its protection.
However, there are some downsides…
None of the know-how is passed on, no help is provided, and the licensor cannot go further than the supervision of the use of the brand within the recommendations imposed on the licensee.
The licensee builds their own experience and therefore sometimes makes mistakes. If they encounter difficulties they have to face them alone. Therefore it is necessary to turn to experienced licensees. It is not often that networks grow solely through the means of trademark licensing. In practice, trademark licensing is often one of the elements of the contractual relationship, the network head is, for example, also the supplier of the products which will be distributed under the licensed brand…
Turning to trademark licensing requires that a brand name is provided whose notoriety is already established, that it will be carefully protected (in France, brand protection can be ensured through the INPI (National Institute of Industrial Property). The temptation to impose standards on the licensee that are not strictly linked to the brand image can be great, but giving into such temptation can lead to the contract being reclassified as a franchise contract, for which the Franchisor would not be able to prove that they have brought genuine substantial know-how. The standards by which the licensee is burdened must thus be purely linked to the need to respect the brand image.