Structuring Licenses to Avoid the Inadvertent Franchise
Trademark Licensors Beware: Is Your License or Distribution Agreement Really a Franchise?
In Gentis v. Safeguard Business Systems, the defendant retained commissioned sales agents to solicit orders, follow leads, and provide customer service. The agents did more than just take orders, but lacked authority to enter into binding sales contracts with customers, never took title any goods, never bought inventory, seldom made deliveries, and did not handle billing or collection. When the relationship between the agents and Safeguard soured, the agents sued Safeguard for violating California’s Franchise Investment Act, the first franchise sales law in the country and the model for both the federal and state franchise sales laws that followed. In one of the few California appellate court decisions interpreting the statute, to Safeguard’s surprise, the court found that the relationship between the sales agents and Safeguard to be a franchise. (Full article)
