Franchises are highly regulated arrangements that require substantial disclosure documentation and other compliance efforts. Licensing and distribution arrangements are lower-cost, less-regulated alternatives. Misclassifying a business relationship as a license or distribution arrangement is a common and costly mistake when it is a franchise.
A poorly drafted license or distribution agreement can result in the accidental creation of a franchise subject to complicated and demanding laws. Significant consequences, including damages and rescission of franchise agreements as well as fines, penalties, freezing of assets, restitution, and personal liability of a company's management, can flow from noncompliance with franchise laws. It is a felony to violate franchise sales laws.
Business counsel can help clients avoid missteps by understanding the thin line separating a franchise from a non-franchise license or distribution arrangement and advising clients about structuring strategies to help avoid creating an inadvertent franchise.
DWT partner Shelley Spandorf and Fox Rothschild partner Craig Tractenberg will provide perspectives on drafting licenses and distribution agreements to avoid creating an accidental franchise. They will also discuss best practices for complying with federal and state franchise and business opportunity laws once an inadvertent franchise is established.
- Determining whether a business constitutes a franchise
- Three-prong analysis
- Variance among federal and state law definitions
- Strategies for drafting licenses and distribution agreements to avoid accidental franchises
- Trademark use
- "Marketing plan," "community of interest," or substantial assistance/significant control
- Franchise fee
- Complying with federal and state franchise and business opportunity laws once a franchise is established
- Franchise sales laws
- Franchise "relationship" laws
The panel will review these and other crucial issues:
- How do franchise arrangements differ from non-franchise licensing and distribution agreements? What are the pros and cons of each?
- What risks do businesses face if they inadvertently misclassify their franchise as a non-franchise license or distribution agreement?
- What federal, state, and foreign franchise laws apply when a business is determined to be a franchise, and what are the key legal requirements of each?