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Franchising: A Venus Flytrap for Trademark Licensors

By Rupert M. Barkoff

Your client gives you a call to let you know that his company just licensed its primary mark to a third party who will sell your client's products on the West Coast, including California and Arizona. Should you be happy for your client, or should a chill go up your spine? To answer these questions, you will need some additional factual information and a little knowledge about the laws of franchising. You (and your client) should be concerned that your client may unwittingly have just sold a franchise and become what is known in the franchise community as an “accidental franchisor.” Needless to say, this is not good news. Falling into this Venus Flytrap is easy to do, and can have severe negative consequences for your client.

Since the early 1970s, franchising has become a highly regulated means of distribution in two areas ' first, in the area of franchise sales; and second, in how the franchisor must behave once a franchise relationship has been established ' particularly in the areas of franchise terminations, non-renewals, franchise transfers, and in restricting franchisees in their rights to associate with other franchisees.

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