Licence or franchise? Assess your model before expanding

When you want other businesses to operate your existing concept, a licence agreement may be the first option that comes to mind. Yet an arrangement described as a licence, partnership agreement or concept agreement may still fall under Swedish franchise legislation. Before offering the arrangement, you therefore need to examine what the parties will actually do. This provides a clearer foundation for a sustainable franchise network and reduces the risk of overlooking important obligations.

Start with the substance, not the agreement’s title

The Swedish Intellectual Property Office (PRV) describes franchising as an advanced form of licensing, in which an agreement normally covers an entire business concept. The distinction between this and a more limited licence is therefore not simply a matter of terminology. What matters is how the business concept, rights and controls fit together.

Sweden has an Act on Franchisors’ Duty to Disclose Information (2006:484). Its definition of a franchise agreement is central to assessing whether the disclosure obligation applies to your proposed arrangement.

Under the statutory definition, the franchisee must, in return for payment to the franchisor, use the franchisor’s particular business concept for marketing and selling goods or services. The franchisee must also use the franchisor’s trade identifiers or other intellectual property rights and participate in recurring checks on compliance with the agreement.

These conditions must therefore be examined together. Permission to use a trade mark alone is not enough to establish that an agreement falls within the definition. Conversely, the word “licence” does not guarantee that the arrangement falls outside the Act.

Map out three aspects of your proposed arrangement

Write a short description of your offer before commissioning a draft agreement. Use three headings and describe what will actually apply, rather than simply how you want to present the offer.

1. Business concept and payments. What will the other business be allowed to use? Explain whether the offer concerns a single product or an integrated approach to marketing and selling. Also record which payments will be made to your business and what they cover. Do not assume that giving a payment a different name automatically changes the assessment.

2. Trade identifiers and other rights. List, for example, the trade mark, business name and other intellectual property rights that the partner will use. Distinguish between what is mandatory and what is merely available. Also explain how the rights will be used in day-to-day operations.

3. Recurring compliance checks. Set out how you intend to monitor compliance with the agreement: for example, through scheduled visits, regular reviews or documented remote checks. Explain what will be checked and how the partner must participate. A one-off check before opening is not the same as an arrangement involving recurring checks.

Then bring together the draft agreement, the description of your offer and the planned operating procedures. If these documents describe different arrangements, the discrepancies need to be resolved before a lawyer can make a reliable assessment.

Explore the distinction through practical examples

First, imagine that your company allows another business to use a trade mark in return for payment. That business chooses its own business concept and sales methods. This may point towards a more limited trade mark licence, but the agreement as a whole must still be reviewed.

Now imagine that the other business owner must use your trade mark, follow your particular sales concept, make payments and participate in recurring checks on compliance with the agreement. That arrangement is closer to the statutory definition of a franchise agreement, even if the document is headed “partnership agreement”.

These examples are not legal determinations. They illustrate the distinctions worth examining. Ask a lawyer with franchise experience to assess your specific model and explain which contractual terms are decisive.

Do not try to resolve the issue simply by deleting the word “checks” from the agreement. If consistency requires recurring monitoring, the agreement should describe it clearly. Choose an operating model based on the business’s actual needs, not on whichever label seems simplest.

Let the assessment determine your next steps

If the arrangement falls under the Act, the prospective franchisee must receive clear, comprehensible written information in good time before entering into the franchise agreement. This must cover what the agreement entails and other relevant circumstances, as well as the specific information required by the Act. The classification therefore needs to be settled before you plan the process leading up to signing.

The disclosure legislation does not comprehensively regulate the relationship. The Swedish Contracts Act, competition rules and applicable intellectual property law must also be considered, among other things. If the arrangement is instead assessed as a straightforward licence, that does not mean it is free from legal requirements.

Document the conclusion and the circumstances on which it is based. Reassess the arrangement if you later introduce a shared sales concept, additional rights or recurring contractual compliance checks. An arrangement can change as the business grows.

Practical takeaway: Describe the business concept, payments, rights and checks on a single page. Then ask a suitably experienced lawyer to assess the arrangement before offering it to other business owners. The substance should determine the agreement — not the other way round.