In the early years of franchising, when the concept was just being developed, companies sold licenses and took licensing fees when they granted a local businessperson the right to sell its products. Today, licensing has a much different meaning than franchising.

Companies, like soft drink bottlers and distributors, that only license products or services today are more passively involved in the sale of their product or service. They supervise the proper use of their license and collect license fees, but they do not get involved in the actual business operations of businesspeople who buy the licenses. Instead, they are more concerned about limiting the ability of a businessperson to modify the trademark or reduce the value of the licensed product or service. They monitor the sale of their product or service to be sure the licensee offers the product or service in the way specified by the licensing company.

That’s a very different role than the one taken by franchisors. Franchisors do license the use of their trademark, but they take a much more active role in how the franchisee actually operates his or her business using that license. Franchisors put limits not only on the way the franchisee sells the product or service, but also on the way the franchisee operates his or her business. How far that active involvement will go depends upon whether the franchisee is buying business format franchise or is just buying the rights to distribute the product.