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Licensing and Franchising

Licensing is a contractual agreement whereby one company grants access to its patents, trade secrets or technology to another company abroad for a fee known as royalty. The company that gives this access to the other company is called licensor and the other company abroad that acquires these rights is called the licensee which uses technology or patents. It is worth noting that it is not only technology that is licensed. In the fashion industry, a number of designers license the use of their names. In certain instances, there is swap of technology between the two companies. Occasionally, there is mutual exchange of technology, knowledge, and/or patents between the companies which is called cross-licensing. Franchising is a very similar term to licensing. One chief difference between the two is that while licensing is used in connection with manufacture and marketing of goods, the term franchising refers to service business. The other point of distinction between the two is that franchising is comparatively more stricter than licensing. Franchisers generally set stringent rules and regulations on how the franchisees should run while running their business. Apart from these two differences, franchising is almost the same as licensing. As in the case of licensing, a franchising agreement too includes grant of rights by one party to another party for use of trademark, technology, and patents in return for the accepted sum for some time period. The parent firm is called the franchiser and the other party to the "Franchising is generally a specialised form of licensing where the franchisor sells both intangible property (normally a trademark) to the franchisee, and also insists that the franchisee accepts to abide by stringent rules on how it does business." Franchising is a "form of licensing in which a parent company (the franchisor) grants another independent entity (the franchisee) the right to do business in a prescribed manner. This right can take the form of selling the franchisers products, 'using its name, production and marketing technique, or general business approach agreement is known as franchisee. The franchiser could be any service provider who has developed a unique technique for creating and marketing of services under its own name and trade mark such as a hotel, restaurant, travel agency, bank wholesaler or even a retailer. It is the uniqueness of the technique which gives the franchiser an edge over its opponents in the field, and makes the would-be-service providers fascinated in joining the franchising system. Some of the examples of leading franchisers operating worldwide are McDonald, Pizza Hut and Wal-Mart.

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