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Accidental Franchises<br><i><font size="-1">When Licensing Deals Take a Surprising and Unwanted Turn</i></font>

By Tamara M. Kurtzman
February 01, 2017

Most of us interact with franchises regularly –– they are the places where we buy our sandwiches (Subway, Jimmy John's, Jersey Mike's), the places where we treat ourselves to confectionary indulgences (Dunkin' Donuts, Auntie Anne's), and even the places we then go to work off those treats (Planet Fitness). While most people can readily identify these types of businesses as franchises, practitioners and clients alike are frequently surprised by the broad sweep of franchise laws and the wide range of relationships to which these laws apply. Defining the franchise relationship is further complicated by the fact that there is no universal definition of a franchise; a franchise in one state may not be a franchise in another and a relationship that constitutes a franchise under federal law may not meet a state law definition of a franchise, or vice-versa.

As a result of this confusing statutory patchwork, the creation of accidental franchises is a common, albeit unwelcome, occurrence. For practitioners advising clients on transactional matters, it is therefore critical to consider relevant statutes, judicial opinions and administrative guides relating to the franchise laws of each relevant jurisdiction. Inadvertently failing to consider such matters might well cause the client to be plunged into the waters of a franchising relationship with numerous unwanted and costly consequences for the clients and attorney alike.

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