G&K attorney Josh Becker authored this article for the January 2023 issue of Arizona Attorney Magazine.
Historians believe that commercial franchising in the United States began pre-Revolution, in Philadelphia in 1731, when Benjamin Franklin and Thomas Whitmarsh entered into an agreement “for the carrying on of the Business of Printing in Charlestown in South Carolina.” Following the establishment of the South Carolina print shop, Franklin went on to establish a series of similar relationships throughout the Colonies.
Franchising exploded as a business model in the United States after World War II, fueled in large part by the aspirations of entrepreneurial veterans and their families and the passage of the Trademark Act of 1946, better known as the Lanham Act, which became essential for modern franchising. The access to capital and the development of effective trademark protection laws resulted in a steady stream of entrepreneurs interested in owning their own businesses and, in turn, buying and selling franchises.
Franchise relationships are based on the premise that a franchise agreement is an independent contractor agreement where the franchisor licenses its trademarks and business format systems to third-party franchisees— who operate independent businesses using the trademarks and systems, subject to the terms of the contract between them. This premise is paramount to each party’s existence. The franchisor develops a business model and related intellectual property and licenses it to an independent third party that desires to operate its own business using the licensed business model and intellectual property created, supported and maintained by the franchisor.
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