Thursday, August 7, 2014

Trademark - Is that trademark license a NY franchise?

        Under a traditional franchise analysis, like the federal franchise regulations [1] or many other state franchise laws, a franchise is any commercial business relationship that satisfies the following three elements:

        1.   Franchisor provides a trademark or other commercial symbol;
        2.   Franchisor directly or indirectly exercise a significant amount of control over or provide significant assistance to the franchisee; and
        3.   Franchisee pays the franchisor a fee of $500 or more during the first six months of operation.

        However, New York franchise law is not traditional.  It is much broader.  Under NY Law [2], the three elements have been reduced to two elements:

        1.  Franchisee pays the franchisor, directly or indirectly, a franchise fee; and
        2.  Franchisor
                a.  provides a trademark or other commercial symbol, or
                b.  provides a marketing plan or system prescribed in substantial part by a franchisor.

        Thus, many agreements that might not be a franchise under the traditional analysis become a franchise under NY law, including a simple trademark license where a royalty is being paid.

        If you are considering licensing a trademark to a business in New York, you have a few options:  (1) having no fee, (2) requesting an exemption from the New York Attorney General, or (3) refusing to grant a license to anyone located in New York.

        Please feel free to contact us if you have any questions.

- HP
[1]             16 C.F.R. Part 436
[2]             New York Franchise Sales Act, New York General Business Law Sections 680-695.

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