Business Opportunities through Franchise and Licensing

For entrepreneurs, there are numerous business opportunities (business opportunities) to consider when starting a new business. Some of the business opportunities that can be pursued are Franchise and Licensing.

According to Article 1 Number (1) of Government Regulation Number 42 of 2007 concerning Franchise ("GR 42/2007"), franchise is a special right owned by an individual or a business entity over a business system with distinctive characteristics, aimed at marketing goods and/or services that have been proven successful and can be utilized and/or used by other parties based on a franchise agreement ("Franchise").

Furthermore, Article 11 Paragraph (1) and Article 12 Paragraph (3) of GR 42/2007 explain:

Article 11 Paragraph (1) of PP 42/2007

"The Franchise recipient is obligated to register the Franchise Agreement"

Quoting Article 12 Paragraph (3) of PP 42/2007

"The application for Franchise registration is submitted to the Minister”

In this case, according to Article 1 Number 4 of GR 42/2007, the Minister refers to the minister responsible for government affairs in the field of trade.

Meanwhile, according to Article 1 Number (1) of Government Regulation Number 36 of 2018 concerning the Registration of Intellectual Property License Agreements ("GR 36/2018"), a License is the granting of permission to produce a specific product/service, which has been previously patented by its original creator. Additionally, a License is often interpreted as a form of authorization for initial utilization ("License").

Regulation of Franchise Agreements and License Agreements

Furthermore, the legal basis governing Franchise agreements is Article 5 of GR 42/2007. It stipulates that a Franchise agreement must, at the very least, include the following provisions:

1. the names and addresses of the parties;
2. the type of Intellectual Property right;
3. the business activities;
4. the rights and obligations of the parties;
5. the assistance, facilities, operational guidance, training, and marketing provided by the Franchisor to the Franchisee;
6. the territorial scope of the business;
7. the duration of the agreement;
8. the payment procedures for remuneration;
9. ownership, changes in ownership, and inheritance rights;
10. dispute resolution; and
11. procedures for renewal, termination, and termination of the agreement.

In contrast, Licenses are subject to distinct legislative provisions concerning intellectual property rights. As articulated in Article 2, Paragraph (1) of GR 36/2018, the registration of Licenses pertains to intellectual property objects in various domains, including:

1. Copyright and related rights;
2. Patents;
3. Trademarks;
4. Industrial designs;
5. Layout designs of integrated circuits;
6. Trade secrets; and
7. Plant varieties.

Based on the explanation above, in essence, Franchise and License both involve the transfer of intellectual property rights (HAKI) for the production or marketing of products according to the agreed-upon agreement. However, there are differences in their practices. The following are the differences between License and Franchise:

Rights and Obligations

Franchise

In a Franchise agreement, we encounter the terms "Franchisor" and "Franchisee" each having their respective responsibilities. The Franchisor is the owner of the franchise, while the Franchisee is the recipient of the franchise. The Franchisor has the obligation to provide the Franchisee with the name, products, recipes, and all related aspects of sales in accordance with the agreed-upon agreement.

Meanwhile, the Franchisee, as the authorized party, has the right to use the brand, products, recipes, as well as training and other resources stipulated in the agreement, aiming to generate profits from these activities. The Franchisee's obligation is to pay royalties as compensation for the utilization of the Franchise, ensuring the implementation of the Franchise agreement.

Licensing

Within the License Agreement, there are three important terms:

• Creator ("Licensor"): An individual or multiple individuals who, either individually or jointly, create an original and personal creation.
• "Creation": Any intellectual work in the fields of science, arts, and literature, produced from inspiration, ability, thought, imagination, skill, or expertise expressed in tangible form.
• Copyright holder ("Licensee"): The creator as the owner of the copyright, the party who legally receives the rights from the creator, or another party who further receives rights from the legitimate recipient of those rights.

Considering these three terms, within a License Agreement, both parties have respective rights and obligations. The Licensor, as the copyright holder, is obliged to grant a License to the Licensee for production based on the copyright owner's quality standards. The Licensee also gains the authority to produce or sell using the branded name/products under the copyright, with a reciprocal payment of royalties as stipulated in the applicable agreement.

It can be concluded that the distinction between Franchising and Licensing lies in the supervision process carried out. Franchises typically receive supervision and guidance throughout their operational processes. This is done to consistently maintain the quality of the products or services provided. Meanwhile, Licensing involves the granting of copyright for goods and services, as well as other commercially marketable products. However, there is no obligation for supervision and guidance in its operational activities.