Wanting to expand your agency but daunted by the laws, cost and time associated with franchising? Well, maybe it’s time to consider licensing your intellectual property (IP). O*NO Legal Founder Kristen Porter says this option is a great way to grow your business, and still protect your brand.
Many successful real estate agents eventually begin to feel the pull of expansion; that urge to look for new ways to increase their market presence, and of course, their revenue.
Franchising might seem the next logical step to growing your network, but for many, the red tape that comes with the Franchising Code of Conduct is enough to put them off.
That doesn’t mean you have to give up on the idea of growth though, because if franchising doesn’t feel like the right fit, then IP licensing might very well be.
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, in exchange for using the IP, and must comply with any other terms outlined in the 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.
In some cases, the brand simply allows the use of its IP, in other cases, the brand will also provide a level of back end or tech support, which adds an extra layer of value.
Why choose IP Licensing?
Under an IP Licence, the Licensor retains complete ownership of their intellectual property but permits the Licensee to use it under the terms of the agreement.
Aside from maintaining control in how a licensee uses your IP, other benefits of a well drafted IP Licence Agreement include:
- reduced compliance obligations and civil penalties under franchising law
- less administration in control and enforcement
- reliable and tailored annual income streams
- marketing and growth opportunities
- protection of your agency’s image where licensee’s comply with specific brand guidelines 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.
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.
What are the limitations?
While there are many benefits to licensing, as with anything, there are some limitations too, such as 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 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 as opposed to an IP licence. As such, it is important that your agency’s agreement is well drafted and clearly covers important 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?
Because there aren’t specific laws and legislation, it’s essential your IP licence agreements are legally watertight.
Ensuring your agreements are clear and coherent prevents your rights and requirements from being violated, and if they are, you have methods in place to deal with them.
The licensor can impose a further degree of control through the use of Brand Guidelines. These guidelines set out how the brand must be used and displayed, to ensure brand consistency.
If structured the right way, breaching the brand guidelines can be a way to terminate the IP licence.
Licensing versus franchising – what’s the difference?
Licensing is an appealing option for licensees as it’s generally much more cost effective than a franchise would be.
A franchisor regulates the operation of the franchisee’s 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, while using your agency’s IP.
Franchise Agreements are regulated and there are significant compliance and disclosure obligations owed to a franchisee.
A cooling off period of seven days also applies to a franchisee. 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.
For those who are looking to become a licensee, they just need to determine what they want out of the relationship – there is a model for everyone.
All in all, IP licensing can be a great way for you to expand your agency without having to deal with the complicated, and sometimes scary, world of franchising.