Franchise or trade mark licence in Mexico: how to tell the difference

An offer may be advertised as a “commercial licence” yet look like a franchise; another may use the word “franchise” without explaining how the business model will be transferred to you. Before comparing prices, identify what you are buying. When entering Mexico’s franchise market, the substance of the relationship matters more than the label used in the sales pitch.

1. Recognise the elements that define a franchise

Mexico has specific legislation governing franchises. Article 245 of the Federal Law on the Protection of Industrial Property (LFPPI) establishes that a franchise exists where a written trade mark licence is accompanied by the transfer of technical knowledge or the provision of technical assistance to produce or sell goods, or provide services, in a uniform manner.

That uniformity must follow the operating, commercial and administrative methods established by the trade mark owner, with the aim of maintaining the quality, reputation and image of the products or services.

Permission to put a name above the door is therefore not enough. Check whether the proposal combines these elements:

• Trade mark use: written authorisation to use the mark in the business.
• Technical knowledge or assistance: ways to learn and apply the operating methods.
• Uniform methods: procedures that allow you to reproduce the brand’s customer experience.

The legal definition refers to technical knowledge or technical assistance; it does not require both to appear under those headings in the offer. Classification requires an examination of the proposed obligations and operating arrangements, rather than simply looking for particular words.

2. Separate permission to use a trade mark from the business model

A trade mark licence allows you to use a distinctive sign under agreed conditions. On its own, it does not necessarily include a complete system for running a business. Nor does every quality requirement in a licence automatically turn it into a franchise.

Imagine two proposals. One authorises the use of a trade mark for certain products and sets controls on their presentation. The other provides, alongside trade mark rights, methods for customer service, preparation and administration, together with assistance to reproduce them consistently. The second contains elements characteristic of a franchise, even if the document is headed “licence”.

Before proceeding, ask for a written explanation of what you will receive. Organise it into three columns: item offered, supporting document and provider’s obligation. Include procedures, operational tools and arrangements for transferring knowledge.

You do not need to demand unrestricted access to trade secrets during your assessment. You do, however, need enough detail to understand the scope of the offer, subject to reasonable confidentiality measures.

3. Check which legal obligations apply

Distinguishing between the two models matters because a franchise relationship triggers specific obligations. Article 245 of the LFPPI requires the franchisor to provide information about the state of its business at least 30 days before entering into the contract. This disclosure is commonly known as the Circular de Oferta de Franquicia, or COF.

The Regulations under the Industrial Property Law set out the applicable disclosure requirements. These cover, among other matters, a description of the franchise, how long it has been established, the intellectual property rights involved and payments to the franchisor.

Article 246 of the LFPPI also requires a written contract containing minimum provisions, including the geographical area, premises requirements, training, technical assistance and grounds for termination.

If the proposal meets the legal definition of a franchise, calling it a “licence” is not enough to avoid these obligations. Ask a lawyer with experience in franchising to review its classification before accepting that explanation. Mexico’s Commercial Code and Federal Civil Code are also relevant to matters not specifically addressed by the franchise provisions.

4. Decide on the basis of deliverables, not labels

The choice should not rest on the assumption that a franchise is always better. A licence may suit your objectives if you want permission to use a trade mark and have the capacity to develop your own operation within the authorised scope.

If, on the other hand, you need a replicable model, check that the proposal documents how you will receive and apply the business methods. Treat the following responses as warning signs:

• “It’s a franchise”, but only the use of the name is described.
• “It’s a licence, so we don’t provide advance disclosure”, even though a uniform operation with technical assistance is being offered.
• “Everything is included”, without identifying the deliverables or who is responsible for providing them.

Practical conclusion: before paying or signing, prepare your table of what is being offered and seek a legal review of the nature of the agreement. Buy the model you need, not the label that sounds most attractive.