How IP Licensing may be the best way to expand your brand
O*NO! You may be constantly on the lookout for new and innovative ways of marketing your brand, increasing your market presence and increasing revenue. You may have considered franchising as being the next logical step to growing your network. However, after looking into all the red tape under the Franchising Code of Conduct (‘the Code’), you may have quickly gone off the idea.
However, not to worry – because if franchising doesn’t seem like the right fit for you, the answer for your agency may be in IP Licensing. Continue reading to learn more about IP Licensing, it’s benefits and limitations, and why you might go this route rather than franchising or opening separate offices yourself.
What is IP Licensing?
Essentially, an intellectual property licence (‘IP Licence’) is an agreement between an owner of intellectual property (‘the Licensor’) and a person who uses the Licensor’s IP (‘the Licensee’) for their own commercial benefit. The Licensee pays an agreed licence fee to the Licensor for the benefit of using the IP and must comply with the terms of the IP Licence agreement.
The IP Licence Agreement generally contains standard conditions such as the term, licence fee, and obligations regarding the licensee’s use of the IP including trademarks and branded marketing material.
What are the benefits of IP Licensing?
Under an IP License, the Licensor retains complete ownership of their intellectual property however permits the Licensee to use it under strict guidelines and in accordance with the terms of the agreement.
Aside from maintaining a level of control in how a licensee uses your IP when conducting their own business, the benefits of a well drafted IP Licence Agreement to your agency may include:
reduced compliance obligations and civil penalties under franchising law;
less administration in control and enforcement;
reliable and tailored annual income streams from agreed licence fees and option review arrangements;
marketing and growth opportunities where your agency’s IP is used by licensees under limited exclusive licences within territories you intend to tap into;
protection of your agency’s image where licensee’s comply with specific brand guidelines including your privacy and website terms and conditions; and
reduced competition by well drafted restraint provisions.
Typically, the IP of a business is a tangible asset and a licence agreement is a cost effective way of ensuring your agency’s IP is protected. Licensing offers a relatively simple model for growth as your agency can grant exclusive IP licences to multiple licensees in different territories.
Despite not having the same degree of operational control as with a franchise, your agency can impose workable and fair restrictions to its licensees regarding the use of IP. All in all, IP licencing can be great way for you to expand your agency without having to deal with the complicated, and sometimes scary, world of franchising.
What are the Limitations?
While there are many benefits to licensing, there is always the potential for issues when a party fails to comply with their obligations under the contract or the relationship turns sour. There is no formal registration procedure for IP Licensing other than say registering your agency’s trademarks or business name. There are also no clear guidelines to draw upon such as a code of conduct or overarching legislation.
A franchisor typically has a greater degree of control over the way in which a franchisee uses their brand opposed to an IP licence. As such, it is important that your agency’s agreement is well drafted and clearly covers off issues such as:
what happens if there is a dispute or if a licensee fails to comply with its obligations?; and
how do you enforce a licensee’s obligations or terminate the contract for non-compliance.
Without concrete laws and legislations outlining exactly how an IP licence should be carried out, you must ensure that your IP licence agreements are up to scratch. Ensuring your agreements are clear, coherent, and legally airtight, like all other contracts, ensures that your rights and requirements for your brand aren’t violated, and if they are, then you have methods to stop it from continuing or being remedied in case of loss or damages.
How Does Licensing Differ from Franchising?
Licensing is often an attractive proposal for licensees as it is generally much cheaper than a franchise would be. Typically, there are ongoing fees for franchisees as opposed to say an annual licence fee under a licence agreement.
A franchise is effectively a way that an organisation can sell a model of its own business and systems to a third party in a designated territory. A franchisor regulates the operation of the franchisee’s franchised business including the use of the franchisor’s IP such as trademarks. Whereas an IP licence enables a licensee to run its own independent business however with use of your agency’s IP according to the terms of the agreement and brand guidelines.
Franchise Agreements are regulated under the Code and there are significant compliance and disclosure obligations owed to a franchisee.
A cooling off period of 7 days applies to a franchisee being the earlier of the franchisee entering into the agreement or making a payment under the agreement. This means that a franchisee can pull out of the deal after your agency has spent significant money, time and resources in preparing the documentation. This does not apply to an IP licence agreement which is binding as soon as both parties sign.
Key Takeaways
The choice to franchise or licence comes down to your agency’s specific business model and staff capacity to manage.
Franchising generally has a higher degree of control over the way a franchisee must conduct their business as opposed to licensing - but Franchising unlike licensing is subject to strict compliance and disclosure obligations under the Franchising Code of Conduct.
A well drafted IP licence can adequately protect your agency’s IP without the need to franchise.
IP Licensing is attractive for licensees as they may conduct their own business whilst using your agency’s IP.
IP Licensing may work for your agency in growing a territory and marketing your brand without costly franchising start-up costs.
Next Steps
Thinking about taking a leap into the world of IP licensing to expand your brand or agency? OR are you looking to start up your real estate agency with an already established brand? Do it with confidence by doing it with our team of legal experts.
Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.