DIFFERENCES BETWEEN DISTRIBUTORSHIP AND FRANCHISING AGREEMENTS IN TERMS OF TRADEMARK LAW
Franchising is a type of commercial relationship that enables a person to provide the product or service of another person by adhering to their working principles and instructions and in return for a fee. The contracting parties in the franchising agreement are an independent operator working on his own behalf and account and a marketer who has made a name in the market. With the agreement, the independent operator takes over the right to benefit from the product or service that has gained a certain brand value and the obligations arising from this.
Franchise agreement is a contract containing a continuous debt relationship. In the franchise agreement, the obligation of the franchisee to increase the version; the obligations of the franchisor to continuously assist the franchisee and to use its industrial / intellectual rights, etc. are the primary performance obligations that last throughout the contract.
A franchise agreement is a framework agreement. In this contract, the rights and obligations of the parties are regulated in general terms. The franchise agreement is a contract that imposes obligations on both parties. The franchisee is obliged to release and increase the version in line with the instructions of the franchisor and also to pay a certain amount at the beginning and then a fee in the ratio of a certain percentage of its turnover periodically. The franchise agreement is generally established for a certain period of time, which is necessary for the fulfillment of continuous performances and which is initially agreed upon by the parties. As a rule, the franchise agreement ends in the event of expiration of the agreed period, ordinary termination, extraordinary termination, death of one of the parties, permanent loss of capacity to act, and bankruptcy. To list briefly;
The franchisee is an independent operator working on its own behalf and account.
In order to grant a franchise, first of all, there must be a successful business, a tried and tested system and a well-known brand.
In the franchise business, strict disciplinary rules apply. Standard products and services are offered in every business carrying the same brand. Continuous training is provided to employees and investors at the beginning and afterwards to ensure service quality. Strict supervision is applied during operation.
The franchisor must receive a fee from the franchisee investor. Franchising can also be called “selling a system/brand”. Therefore, the brand or system sold must make money.
Franchise is essentially a “marketing” method. Only here it is not a product or service that is marketed, but a system, a “ready-made business” is sold to investors.
A distributor is a person who provides information about the Company’s products or undertakes the function of product distributor (within the scope of applicable laws), works under contract with the Company and encourages new candidates for distributorship activities. The distributor assists customers in purchasing the Company’s products, earns a certain amount of income for this service, and encourages new candidates to perform distributorship activities for the Company. In other words, it provides services and develops its own organization (network).
Distributorship agreements are among the “sui-generis (not regulated by law)” contracts under Turkish Law. A distributorship agreement may have the elements of a sales agreement, but it differs from a sales agreement in that it covers multiple sales transactions, contains clauses such as exclusivity (unless otherwise agreed), has strong loyalty and commitment between the parties, and the performance relationship is of a continuous nature.
Distributorship agreements and agency agreements have similar characteristics in terms of loyalty obligations and continuity of performance. However, the distributorship agreement differs from the agency agreement due to the distributor’s authority to act independently on its own behalf and on its own account. In addition, while the distributor earns profit from the difference between the purchase price and the resale price of the goods, the agent is paid a commission from the sales made by his client.
The main elements of a distributorship relationship are continuity, the distributor’s authority to act on its own behalf and account independently of the supplier, and the distributor’s obligation to engage in activities to increase sales.
The distributor sells the products under the contract to its own customers after purchasing them from the supplier. In this respect, the ownership of the products included in the contract is transferred to the distributor. The profit obtained as a result of the sale and all financial and actual risks related to this sale therefore belong to the distributor. The distributor is not the representative of the supplier. The distributor is a legally and economically independent merchant. The supplier may assign an exclusive territory or an exclusive customer group to the distributor. In such a case, the provider loses its legal right to appoint another distributor for the distributor’s exclusive territory or customer group.
Distributorship and Franchising are two different business models used to expand the presence of brands in the market and both have various differences in terms of trademark law. To evaluate the main differences between these two models;
Definition and Structure:
Distributorship: A distributor purchases a brand’s products and resells them using its own name. Distributors are usually independent businesses and do not use the brand name directly.
Franchising: A franchisee receives the right to use a brand’s business model, the brand’s name, logo and other trade secrets. Franchises are operated according to the standards set by the brand and have a closer relationship with the brand.
Legal Relationship:
Distributorship: The relationship between the distributor and the manufacturer is usually regulated by a sales and distribution agreement. Distributors sell products using their own business name and have no direct relationship with brand ownership.
Franchising: The franchise relationship is more complex and is usually regulated by a franchise agreement. The franchisor offers the franchisee the brand name, trade secrets, training and support. Franchises adhere strictly to the standards of the brand and business model.
Brand Usage:
Distributorship: Distributors may sell the brand’s products on their own behalf but do not usually directly represent the brand itself. The brand appears independently in the distributor’s marketing and sales strategies.
Franchising: Franchisees run their businesses using the brand’s name, logo and other brand elements. The brand directly affects the appearance of the franchise business, the quality of service and the customer experience.
Audit and Standards:
Distributorship: Distributors are supervised by the brand owner, usually with certain standards and requirements, but they operate as an independent business and are generally less supervised.
Franchising: Franchisees must comply with strict standards set by the brand. This ensures that the brand provides a consistent customer experience for all franchisees and usually involves a more rigorous audit and support process.
Training and Support:
Distributorship: Distributors typically develop their own sales and marketing strategies and the training and support provided by the brand owner may be limited.
Franchising: Franchisees usually receive extensive training and ongoing support. The franchisor offers detailed guidance on how to run the business and provides ongoing support.
Investment and Risk:
Distributorship: Distributors usually make their own investments and purchase their own stock. Investment risk is usually limited to their own operating budget.
Franchising: Franchisees usually pay a franchise fee and make an investment in the brand name. They also have to comply with the obligations in the franchise agreement and the risks associated with the brand may be higher.