Structuring Licensing Agreements to Avoid Inadvertent Franchise Creation

Crafting Contracts to Prevent FTC Fines, Liability and Significant Costs for Misclassification

Recording of a 90-minute CLE webinar with Q&A

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Conducted on Wednesday, January 7, 2009

Course Materials

This seminar will discuss the pitfalls of inadverent franchise creation and provide practical and experienced perspectives on drafting licensing agreements to prevent the business from being re-classified as a franchise.


Setting up one of the two most common business expansion models, licensing, requires a thorough knowledge of franchise arrangements as well. Why? A poorly crafted licensing agreement can result in the inadvertent creation of a “hidden" franchise.

Franchising requires substantial disclosure documentation, while licensing is a lower cost, less regulated alternative. Misclassifying the business relationship as a license if it is actually a franchise is a common and costly, but avoidable, mistake.

Fines and penalties for noncompliance with franchise laws are steep and the monetary liability can be very damaging. The unintended franchise will also incur the expense of immediately complying with the franchise disclosure requirements or adjusting its operations to avoid franchise laws.

Listen as our authoritative panel provides practical and experienced perspectives on drafting licensing agreements to prevent the business from being classified as a franchise. The panel will discuss the legal definitions of a franchises and licensing, franchise disclosure documentation requirements, and the business opportunity laws that may apply to nonfranchises.



  1. Compliance with Federal and State Franchise Laws
    1. FTC franchise regulations and amended Franchise Rule
    2. State franchise laws
    3. Franchise Disclosure Document (FDD) under FTC and state laws
    4. Consequences of noncompliance with franchise laws
      1. FTC and state enforcement mechanisms, fines and remedies
      2. Cost of “after the fact” compliance with franchise laws
      3. Potential attorney malpractice
  2. Definition of Franchise under FTC Rule
    1. Three prong analysis
    2. Variance with state law definitions
  3. Crafting License/Distribution Agreements to Avoid Franchise Laws
    1. Trademark use
    2. Control over licensee
    3. Franchise fee


The panel reviewed these and other key questions:

  • What are the legal definitions of a license vs. a franchise -- and what factors are determinative in classifying a business arrangement as one or the other?
  • What other business opportunity laws regulate businesses that do not fall within the franchise laws?
  • What should practitioners avoid when drafting license agreements and structuring nonfranchise business deals so as to avoid the "hidden" or "illegal" franchise trap?
  • What are the disclosure documentation requirements of federal and state franchise laws and the liability for noncompliance with these laws?


Rochelle Spandorf
Rochelle Spandorf

Davis Wright Tremaine

She is a nationally recognized franchise and distribution attorney with 30 years experience representing franchisors,...  |  Read More

Phillip Leslie Wharton
Phillip Leslie Wharton

Epstein Becker Green

He is a nationally recognized franchise attorney who has held leadership roles in national franchise and staffing...  |  Read More

Craig R. Tractenberg
Craig R. Tractenberg

Nixon Peabody

He is a member of the firm's business litigation and bankruptcy teams. His representative matters include acquisitions...  |  Read More

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