particularly for municipal services. It was not until the twentieth century
that the definition of franchising came to include a method of distribution. ¹

Legally and functionally, franchise selling is unrelated to the franchise
privileges given by governments. Government franchises were based on
the private performance of public services in exchange for special privi-
leges such as limited liability or monopoly rights and form much of the
legal justification for the existence of the corporation. In contrast, the
franchise method of distribution is a contractual method of organizing a
large-scale enterprise that evolved out of the traditional practice of selling
through agents. ²

Standard linguistic and legal reference works indicate that the use of
franchising as a method of distributing goods or services -- its most com-
mon meaning today -- is of fairly recent origin. Neither the Oxford English
Dictionary(OED) nor Black's Law Dictionary include any mention of
franchise selling until the 1970s. The 1972 supplement to the OED identi-
fies 1959 as the year the term entered the business lexicon. Black's Law
Dictionary, which first referred to franchise selling in its 1979 edition,
states that franchising developed out of the agency method of distribution.
Standard periodical references, a valuable source of information on when
terms became popular, first noticed franchising in the late 1950s. The
Business Periodicals Index and the Reader's Guide to Periodical Litera-
ture provided headings in 1958 and 1959 respectively. Prior to this time,
articles dealing with franchising were indexed under "exclusive agency."
Until 1969 the Reader's Guide included only a cross-reference to exclusive
agency under its "franchise system" heading. ³

Modern franchising can perhaps best be thought of as a method of
organization that combines large and small business into a single
administrative unit. In a franchise system one large firm, often called the
parent company, grants or sells the right to distribute its products or use
its trade name and processes to a number of smaller firms. The bound-
aries of the relationship and the ultimate basis for control are established
by contract. Contracts typically either have no fixed term or run from
three to twenty years, but once a franchisee signs on, the conditions under

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