A Shark, a Chicken, and a Trademark
No, it’s not the start of a joke. Tonight on the ABC program, Beyond the Tank, Barbara Corcoran visited the owners of a company called, “The Coop”, in which she invested. The owners told Barbara about a partnership they formed with a third party to launch another store location based on their business, trademark and trade dress. Barbara liked the business model and advised the owners to forego creating franchises due to the legalities involved, and to continue on with this partnership model that seemed to work [1].
What Barbara never explicitly said (which probably had Mr. Wonderful, like myself, jumping up and down with frustration), was that this is “effectively” a “license agreement” (or should be). A partnership where one party provides the Intellectual Property and derives income or distributions for such, and the other party sells a product or service using the Intellectual Property and receives income or distributions for such, is, effectively, a license- if structured as such.
But, if they structured the deal as a partnership, as indicated, then it is what it is. It may actually be a partnership that is intended to operate in the same manner as a license. But it’s unclear why they would structure the relationship in this manner. So, it may not be a license, and, Barbara may be correct in not calling it a license- but it would be a mistake to have done this in any other way.
While it is true that, from a philosophical, and, perhaps, an operations standpoint, a license is a partnership, of sorts, the legal obligations of a partnership are different from those of a license. For example, partners have “corporate opportunity” obligations to each other, the legal obligation to offer each other the chance to participate in opportunities that are similar or related to the present business in which they together operate. Thus, the business owners may have to offer this new partner the option to participate in future partnerships they form related to this business. Further, partners own rights in what are determined to be partnership assets, such as Intellectual Property, whereas in a license agreement, ownership stays with the original owner. The wording in any partnership agreement is important. But actual courses of conduct must also be carefully monitored to keep intentions clear. [2]
I think that if the transaction by “The Coop” was tailored as a true partnership, as it was described on the program, rather than as a license agreement, it was a poor idea. Even if a true partnership arrangement is carefully worded, a license agreement, where the trademark and trade dress are licensed from one party to another only for a fixed term in exchange for an agreed fee, is much safer for the Intellectual Property owners in order to protect their exclusive Intellectual Property rights.
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Notes:
[1] Intellectual Property owners sometimes improperly use license agreements, instead of franchise arrangements, to avoid the time and costs of compliance with franchise laws. This topic is outside the scope of this article which assumes that the parties are in compliance with applicable franchise laws. If the Intellectual Property owners are actually partners with the third party, as the program indicated, and not “licensors” to the third party, then their agreement would be neither a license nor a franchise, but, simply, a partnership.
[2] The laws discussed herein can find application in partnerships, limited liability companies and corporations alike. Thus, consideration and deliberation of these laws were warranted in whichever form of partnership was used.
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About the Author: Neil Siskind is President of The Siskind Law Firm, focused on trademark licensing, product distribution, real estate law and business turnarounds; Founder & Chairman of The Fatherhood Assignment™, a think tank and advocate for children with absentee fathers; Founder of National Fatherhood Day™; and Founder & Conservator of The Neil S. Siskind Nature Preserve, over 7 acres of conserved waterfront land along New York’s majestic Hudson River.
