L I C E N S I N G O R

F R A N C H I S I N G

K H A L E D O M A R

A L Y A B D E L M O N E I M

A L A A A B D E L M O N E I M

I N T E R N A T I O N A L B U S I N E S S & G L O B A L S T R A T E G Y

AGENDA

• Licensing

• What is a license agreement

• Licensor VS Licensee

• Licensing Pros and Cons

• Top 5 Licensors

• Franchising

• Franchisor VS franchisee

• Franchising Pros and Cons

• Top 7 Franchisors

• Licensing or Franchising

IN ORDER TO UNDERSTAND THE DIFFERENCE, IT IS NECESSARY TO

UNDERSTAND EXACTLY WHAT A LICENSE AND A FRANCHISE ARE.

LICENSING

• The granting of permission to use intellectual property rights, such as trademarks, patents,

or technology, under defined conditions.

• A License allows the licensee to use, make and sell an idea, design, name or logo for a fee.

They are advantageous for licensors because they allow them to expand their business

without having to invest in new locations or distribution networks.

• Licensing is anther way to enter a foreign market with a limited degree of risk. Under

international licensing, a firm in one country permits a firm in other country to use its

intellectual property (Patents, trademarks, etc..)

WHAT IS A LICENSE AGREEMENT?

• A licensing agreement is a legal contract between two parties, known as the licensor

and the licensee. In a typical licensing agreement, the licensor grants the licensee the

right to produce and sell goods, apply a brand name or trademark, or use patented

technology owned by the licensor.

LICENSOR V.S LICENSEE• The licensor owns the rights being licensed and grants the limited right to use them to the

licensee.

• Disney is the licensor and Hasbro is the licensee.

• The NFL is the licensor and Nike is the licensee.

• The licensee generally pays royalties to the licensor.

EXAMPLE OF LICENSING

A COMPANY USING THE DESIGN OF POPUL AR CHARACTER LIKE MICKEY MOUSE ON THEIR PRODUCTS.

LICENSING

Pros ConsQuick, easy entry into foreign markets. You will have only a low level of control.

You get your product to market with very little or no capital investment

You may lose intellectual property.

potential for large return on investment (ROI). Poor quality management can damage your brands reputation in other license territories.

The licensee’s market knowledge and experience will lower the risk on the product’s performance

Your licensee may become a competitor.

LICENSOR

Pros ConsLower upfront costs The licensor could license the same Product to

one or more of the licensee's competitors.

low risk, since you enter with an established product and you take fewer financial and legal risks.

The license period is usually limited.

little access to the knowledge source.

Your licensor origin country or technology can increases your market share.

The licensor could fail to maintain or update the Product, thereby diminishing its value.

The licensor could use its leverage to negotiate better terms.

LICENSEE

THE MAJOR DRAWBACK OF LICENSING IS THE PROBLEM OF CONTROLLING THE LICENSEE DUE TO THE ABSENCE OF DIRECT COMMITMENT FROM THE

INTERNATIONAL FIRM GRANTING THE LICENSE.

AFTER FEW YEARS, ONCE THE KNOW-HOW IS TRANSFERRED, THERE IS A RISK THAT THE FOREIGN

FIRM MAY BEGIN TO ACT ON ITS OWN AND THE INTERNATIONAL FIRM MAY THEREFORE LOSE THAT

MARKET.

TOP 5 LICENSORS

• Walt Disney arrived in California in the summer of 1923 with a lot of hopes.

• He had made a cartoon called Alice’s Wonderland.

• He decided that he could use it as his “pilot” film to sell a series of these “Alice Comedies” to a distributor.

• A distributor in New York, M. J. Winkler, contracted to distribute the “Alice Comedies” on October 16, 1923, and this date became

the start of the Disney company.

• To star in this new series, he created a character named Oswald the Lucky Rabbit. Within a year, Walt made 26 of these Oswald

cartoons, but when he tried to get some additional money from his distributor for a second year of the cartoons, he found out

that the distributor had gone behind his back and signed up almost all of his animators, hoping to make the Oswald cartoons in

his own studio for less money without Walt Disney. On rereading his contract, Walt realized that he did not own the rights to

Oswald-the distributor did. It was a painful lesson for the young cartoon producer to learn. From then on, he saw to it that he

owned everything that he made.

1- Disney Consumer Products

• In 1926 moved his staff to the new facility in Hollywood.

• It was at the Hyperion Studio, after the loss of Oswald, that Walt had to come up with a new character,

and that character was Mickey Mouse.

• He animated two Mickey Mouse cartoons, but Walt was unable to sell them because they were silent

films, and sound was revolutionizing the movie industry.

• So, they made a third Mickey Mouse cartoon, this time with fully

synchronized sound, and Steamboat Willie opened to rave reviews

at the Colony Theater in New York November 18, 1928. A cartoon star, Mickey Mouse, was born. The

new character was immediately popular, and a lengthy series of Mickey Mouse cartoons followed.

• After Disney purchased the rights for Winnie the Pooh at 1966 to make animated short film, the

company conceded to a broad licensing agreement with Sears, Roebuck & Co…

• In 1979, the Intergovernmental Philatelic Corporation of New York was licensed by Walt Disney

Productions to make Disney character stamps for several countries.

• The first Disney Store opened in Glendale, California on March 28, 1987. On October 12,

Disney agreed to a licensing contract with Mattel for a Disney Character infant and

preschool toy line.

• DCP purchased Childcraft Education Corp., maker of children's furniture and equipment,

retail stores and catalog sales, from Grolier Inc. in April 1988.

• In April 1990, the 50th store was opened in Montclair, California.

• DCP licensing peak in 1997 with 749 Disney Stores worldwide, operating income of $893

million and 4,200 licensees for mostly Winnie the Pooh and Mickey Mouse product plus

some top animated movies.

• Disney's and McDonald's cross-promotional agreement began

on January 1, 1997.

• By 1998, Pooh outsold Mickey Mouse $316 million to $114

million through November of that year in just-licensed-toy sales.

By replacing Sears with 100 licensees, DCP has since increased

Pooh product lines from $390 million to $3.3 billion.

• In fiscal 2015, global retail sales of licensed product reached a new high of $52.5 billion

• Star Wars: The Force Awakens, which continues to redefine the scope and power of

entertainment licensing. Hundreds of products launched on Sept. 4, 2015, with a global event

dubbed Force Friday that drew more than 130,000 fans standing in line for midnight store

openings. Despite launching later in the year, Star Wars was the number one toy brand of

2015 and won property of the year at the Toy of the Year Awards.

3- Phillips-Van Heusen – $18B

2-MEREDITH – $20.1B 4- ICONIX Brand Group - $13 B

5- Warren Brothers - $6 B

BEST WAY TO LICENSE ANOTHER COMPANY'S

Large companies like WB, DreamWorks, Pixar and Disney have their own trademark

licensing departments, although some also use licensing agencies. A visit to their website

will point you in the direction of the contact.

It's not about connections as much as it's about the value your product brings to the

brand. It has to be compelling and add value or there will likely be little interest.

ACCORDING TO LICENSING MAGA ZINE THE TOP 10 BRAND LICENSING AGENCIES ARE:

• IMG

• Equity Management

• Leveraged marketing

• The Beanstalk Group

• The Licensing Company

• United Media

• Copyright Promotions Licensing Group

(Cookie Jar)

• Joester Loria Group

• Brand Sense Partners (bsp)

• Brand Central

FRANCHISING

US department of commerce defines franchising according to the Federal Trade

Commission Rule (FTC) 436 as:

• Franchising is an ongoing business relationship between franchisor and franchisee that

includes not only the product, service and trademark, but the entire business concept itself -

a marketing strategy and plan, operating manuals and standards, quality, in return the

continuing process of assistance and guidance, in return the franchisee is required to pay the

franchisor, as a condition of obtaining or commencing the franchise operation, franchise

fees, royalties or other expenses (FTC Rule 436)

The international franchise association (IFA), defines franchising as:

• franchising is continuing relationship in which the franchisor provides a licensed privilege

to do business, plus assistance in organizing, training, merchandising and management, in

return for a consideration from the franchisee.

(Kolte, 2003, P.391-393) said:

• "A company can enter a foreign market through franchising, which is more complete form

of licensing. The franchisor offers a complete brand concept and operating system. In

return the franchisee invest in and pays certain fees to the franchisor"

FRANCHISING AGREEMENT

• The franchise agreement is essentially a legal document between the franchisor

and the franchisee. It is a legal binding agreement. It explains in detail what the

franchisor expects from you, as a franchisee, in the way you operate every fact

of the business.

• There is no standard form of franchise agreement because the terms,

conditions, and the methods of operations of various franchises vary widely

depending on the type of business.

FRANCHISOR V.S FRANCHISEEFranchisor

• is the entity or person owning the rights of the business, that garnet to other people to

manufacture or distribute his products.

Franchisee

• Is the party in franchising agreement that is purchasing the rights to use business

trademarks, operating system, tools, skills & other proprietary knowledge in order to open

branch.

10 FUNDAMENTAL PROVISIONS OUTLINED IN SOME FORM IN EVERY FRANCHISE AGREEMENT:

1-Location

2-Operations

3-Training and ongoing support

4-Duration

5-Franchise fee/investment

6-Royalties/ongoing fees

7-Trademark/patent/signage

8-Advertising/marketing

9-Renewal rights/termination/cancellation policies

10-Exit strategies

THINGS YOU HAVE TO KNOW ABOUT FRANCHISE CONTRACTS

• Agreements with strong franchise companies are typically non-negotiable.

• A franchise company's willingness to negotiate substantive provisions of its franchise

agreement should be a warning sign.

• Franchise agreements are typically unilateral in nature.

• The franchise agreement is full of "must-do.”

• The franchise agreement is full of "can't-do."

EXAMPLE OF FRANCHISING

MCDONALD'S CONTINUES TO BE RECOGNIZED AS A PREMIER FRANCHISING COMPANY AROUND THE WORLD. MORE THAN 80% OF OUR RESTAURANTS WORLDWIDE ARE OWNED AND OPERATED

BY OUR FRANCHISEES .

THE 5 KEY ELEMENTS THAT WILL HELP YOU SELL FRANCHISES

• In order to sell franchises, you must start by understanding the nature of your specific

franchise buyer. Franchisors who target their prospects with a generic “Be in business for

yourself, but not by yourself” will often find their message falling on deaf ears. So before

you begin your marketing efforts, be sure you understand what it is that you're selling, who

you're selling it to, and why they should be interested in buying. Keep these five elements in

mind:

1. The many sales of franchising.

2. The many “buyers” you need to address.

3. The many messages of your materials.

4. The many motives of your franchisee.

5. Size matters.

THE FRANCHISING INDUSTRY REGULARLY LIKES TO REMIND US THAT BEING A

FRANCHISEE IS A SAFE AND POTENTIALLY VERY PROFITABLE CAREER.

WHILE THIS MAY BE TRUE, THERE ARE ALSO A DARK SIDES.

FRANCHISING

Pros ConsA big name can lead to big success Initial and continuing fees

Ongoing help and support You do things their way, not yours

Access to Proprietary Methods Other peoples decisions could sink your franchise

Defined territory You cannot escape hard work

Greater access to finance Limited Creativity/Flexibility

Reduced Risk Sole Sourcing

FRANCHISEE

Pros Cons

Access to better talent. Less control over managers.

Easy expansion capital. A weaker core community.

Minimized growth risk. Innovation challenges.

FRANCHISOR

TOP 7 FRANCHISORS

1- ANYTIME FITNESS• Number of franchises/co.: 2,796

• Cost to open a franchise: $78,700-$371,000

• Why it's hot: With over 2 million members in 2,885 sites across the globe, customers have

24 hour access, 365 days a year. With the secure access key and Anytime Fitness state of

the art security systems, customers can feel comfortable

visiting thousands of locations at no extra cost.

The chain credits its top ranking to, "financial

strength and stability, growth rate, and

size of the system," according

to its website.

2. 7-ELEVEN• Number of franchises/co.: 53,027

• Cost to open a franchise: $37,200-$1.6 million

• Why it's hot: The international convenience store chain is well known and simple.

Customers know what to expect when shopping at 7-Eleven, and that business model

has always worked for the store. It also has a unique sales method that attracts

investors. "Most franchise systems require royalty payments based on a percentage

of sales. With the 7-Eleven system, you pay royalties

based upon the store’s gross profit, that is, net sales

receipts less the wholesale cost of the merchandise

you sell," according to 7-Eleven.

3. SUBWAY• Number of franchises/co.: 42,227

• Cost to open a franchise: $116,600-$263,200

• Why it's hot: Despite the recent controversy surrounding the brand, the chain remains one of the leading global sandwich chains. The company started making its menu healthier in recent years, which is also helping to attract customers. It's expanding globally, and many look to be a part of this expansion.

4. PIZZA HUT• Number of franchises/co.: 12,956

• Cost to open a franchise: $297,000-$2.1

million

• Why it's hot: The pizza industry is lucrative,

and investors can trust respected

companies like Pizza Hut to succeed. The

recognizable chain has a trusted

reputation and a strong support structure

for franchises to help its owners

successfully run their stores.

5. AUNTIE ANNE’S HAND-ROLLED SOFT PRETZELS

• Number of franchises/co.: 1,598

• Cost to open a franchise: $194,900-

$367,600

• Why it's hot: Auntie Anne's is so well-liked

that even stars like Shaquille O'Neal have

franchised with the company. The global

pretzel chain is unique in that no other

chains produce product like it at such a

large volume.

6. KFC• Number of franchises/co.: 13,846

• Cost to open a franchise: $1.3 million-$2.5

million

• Why it's hot: Like McDonald's, KFC is

a world-renowned company. Recently the

chain been shaking up its menu and

expanding, helping it to gain plenty of

media attention. This brings in

entrepreneurs looking to take part in the

innovative time for the company.

7- MCDONALD’S

• Number of franchises/co.: 29,544

• Cost to open a franchise: $1 million-$2.3 million

• Why it's hot: McDonald's is one of the most popular fast-food chains in the world. The

extensive training and support from the

Company brings in many franchisees looking to

be a part of the dynasty.

INTERNATIONAL FRANCHISING ASSOCIATION

Franchise Business Index

The estimates of output, employment and the number of establishments in the franchise industry reported here provide valuable measures of the size and growth of the industry. But, because most of the key data inputs required to make these estimates are published only on an annual basis, the estimates are made only at an annual frequency. A more timely reading of the business environment for franchise operations in the US is provided by the Franchise Business Index (FBI) – a monthly index of franchise activity that was developed for IFA by IHS. The FBI combines indicators of the growth or decline of industries where franchise activity has historically been concentrated with measures of the demand for franchise business services and the general business environment. The components of the index are:

• Employment in Franchise Businesses • Number of Self Employed• Unemployment Rate • Retail Sales of Franchise-Intensive Industries• Small Business Optimism Index• Small Business Credit Conditions Index

LICENSE V.S FRANCHISING

• You might have come across the terms ‘franchising’ and licensing’. As similar as these tow may sound, there’s quite a lot of differences between

the two.

• You can see that while a License provides the Licensee with the right to use certain property for a certain period of time. A Franchise provides the

Franchisee with a comprehensive system for managing its business. Accordingly a Franchise Agreement is typically a lot more

prescriptive than a license agreement.

• Franchising is extremely expensive. So, licensing can be a good way to start if you are interested in franchising your business.

CONCLUSION

• Whether you are licensing or franchising, the important thing is to protect your IP.

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REFERENCES

• http://www.investorwords.com/5023/trademark.html

• http://www.investorwords.com/6456/condition.html

• http://www.businessdictionary.com/definition/contract.html

• Licensing & franchising - International Business - Manu Melwin Joy

• http://www.licensemag.com/license-global/top-100-licensors

• https://www.quora.com/What-are-the-best-examples-of-brand-licensing-for-learning-purposes

• http://www.slideshare.net/manumelwin/licensing-franchising-international-business

• https://www.entrepreneur.com/article/201514

• http://www.franchisedirect.com/top100globalfranchises/rankings/

• https://d23.com/disney-history/

• http://studioservices.go.com/disneystudios/history.html

• https://www.entrepreneur.com/article/254859

• https://www.entrepreneur.com/article/226489

• http://www.businessinsider.com/top-50-franchises-in-the-world-2015-7

• http://mllaw.co.nz/assets/InfoCentrePDFs/What-is-the-difference-Between-a-Franchise-and-a-Licence.pdf