Franchise Royalties

A franchise is a form of trademark licensing in which the licensor provides the licensee with know-how, supplies, pooled advertising and other benefits in addition to use of the mark. In this agreement, the licensor usually takes on a more supervisory role and audits the licensee to ensure compliance with terms and quality standards. A franchise agreement usually involves monthly fees and percentages of sales, and might not specifically assign a royalty to the trademark license.

Definition

A franchise can be defined as an agreement on the following terms:

  • The trademark element: the right to use a trademark to market a good or service

  • The fee element: the payment of a royalty or fee

  • The supervisory element: significant assistance or control of the licensor’s business

If one of the above three terms doesn’t apply, the agreement is considered to be a trademark agreement and not a franchise.

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