Key Takeaways

  • A marketing license agreement allows businesses to authorize others to use intellectual property (IP) for promotional or commercial gain.
  • These agreements often involve royalties, territory restrictions, exclusivity, and quality control standards.
  • Commonly licensed assets include trademarks, copyrighted content, patented technologies, and brand likenesses.
  • Businesses benefit from marketing licenses by increasing brand exposure and generating passive revenue.
  • Legal guidance is essential to navigate issues like scope of use, enforcement, and sublicensing.
  • Marketing licenses can protect brand integrity while expanding market reach through third-party promotion or merchandise.
  • There may be local business license requirements for companies engaging in marketing services or selling licensed products.

A marketing license agreement is used in business and commerce to provide another individual or business with the authority to use, own, sell, or distribute a specific product. A license is used when a company exchanges these rights for payment. Examples include:

  • Licenses sold by sports teams to companies that create and sell team merchandise.
  • Licenses sold by film companies to those who create products based on the movie's characters.
  • Patent licenses sold to give another company the right to make and sell a protected product.
  • Licenses that give another company the right to use a process that is considered a trade secret.

Marketing license agreements are useful for companies that have an outstanding product but are unable to manufacture and distribute it. This often provides the optimal return on investment for the smaller company.

What Is a Licensing Agreement?

A licensing agreement is a written contract between two parties that outlines the parameters by which one party can use the property of another party. While the owner of the property in question retains ownership, the other party is purchasing a license in exchange for a flat fee or royalty payments. Licensing agreements are most commonly used for intellectual property assets.

The licensing agreement should name the parties involved and define the scope of the licensed IP, including the ways in which it can be used. Common parameters include use during a specific time period or in a specific geographic region. In some agreements, the payment increases with the number of times the IP in question is reproduced.

Consider the example of a book publisher that enters a licensing agreement for an illustration to use on the cover of a new title. The owner of the illustration allows the licensee to use the image, but restricts it from being used in advertising campaigns and increases royalty fees with every 10,000 copies sold.

Many industries and types of businesses rely on licensing agreements. For example, businesses that use software have a licensing agreement in place with the owner of the software. Fast food restaurants enter licensing agreements with entertainment studios to create and distribute toys featuring popular movie characters.

Marketing licensing agreements are one of the most common aspects of intellectual property (IP) protection.

Benefits of a Marketing License Agreement

A marketing license agreement enables brand owners to monetize intellectual property (IP) without directly engaging in manufacturing, distribution, or promotion. It provides several strategic advantages, such as:

  • Brand Expansion: Licensees can promote or distribute a product or brand in markets the licensor cannot reach on their own.
  • Revenue Generation: The licensor earns passive income through licensing fees or royalties without operational burden.
  • Risk Mitigation: It reduces financial risk by transferring marketing and sales responsibilities to the licensee.
  • Market Testing: Businesses can use licensees to test new markets before a full-scale entry.
  • Increased Brand Visibility: Through third-party campaigns, a brand can gain exposure without extra advertising costs.

These benefits make marketing license agreements a valuable tool in brand strategy and IP management.

How Do Licensing Agreements Work?

The more popular the product to be licensed, the more bargaining power its owner has when entering into a licensing agreement. It's important to consult an attorney who has thorough knowledge of IP case history and understands the elements in this type of agreement that allow the copyright owner to receive fair profit from the licensee. Factors involved in a licensing agreement may include but are not limited to:

  • Territory and exclusivity: The licensee's rights to manufacture and distribute a product are exclusive in a specific geographic area. No one else will be allowed to sell the product in the specified territory for a specific time period.
  • Subsidiary licensing: The licensee may be given the right to sublicense the ability to make and sell the product in question to another business.
  • Payments: Most licensing agreements provide for royalty payments, sometimes also including an initial advance. Royalties can either be a flat amount or based on a percentage of sales. It's important to define net sales in the contract and indicate what type of items can be deducted from net sales before royalties are calculated.
  • Quality assurance and monitoring: The licensor must plan to monitor sales to protect his or her IP, through period quality checks and assurance that the product is not discounted too heavily.
  • Non-disclosure: The licensor agrees that he or she will not reveal trade secrets associated with the product to others.
  • Non-compete: In some cases, the licensor must sign a non-compete agreement to keep licensee territory and rights exclusive.

Key Clauses in a Marketing License Agreement

To ensure protection and clarity, a comprehensive marketing license agreement should include the following clauses:

  • Scope of License: Defines what content or brand elements may be used (logos, slogans, packaging design, etc.).
  • Term and Renewal: Specifies the duration of the agreement and conditions for renewal or termination.
  • Usage Guidelines: Ensures consistency in how the brand is represented across all licensed materials.
  • Compensation Structure: Details the upfront fees, royalties, payment schedule, and audit rights.
  • Territorial Rights: Indicates where the license is valid—national, regional, or global.
  • Exclusivity: States whether the licensee has exclusive rights within the defined territory or market.
  • Sublicensing Rights: Addresses whether the licensee may sublicense to third parties.
  • Intellectual Property Protection: Reaffirms the licensor's ownership and includes measures to protect against misuse.
  • Dispute Resolution: Provides legal remedies and jurisdiction in case of conflict.

Properly drafted clauses can minimize legal disputes and protect both parties' interests.

What Types of Things Can Be Licensed?

Most business assets can be licensed, but this type of agreement is most often used for IP assets such as copyrights, trademarks, and patents. Common products that are licensed include:

  • Apps and software programs
  • Trademarks
  • Copyrighted works, including derivative works
  • The right to perform a copyrighted work publicly
  • Patented inventions
  • Trade secrets

Common Use Cases for Marketing Licenses

Marketing licenses are widely used across industries for various purposes, including:

  • Franchise Branding: Restaurants and retail chains license their brand identity to independent operators.
  • Media & Entertainment: Film studios grant marketing licenses for merchandise based on characters or titles.
  • Technology: Software developers may license their tools to marketing firms for use in campaigns.
  • Consumer Goods: Companies license brand names to manufacturers of apparel, toys, and accessories.
  • Events & Sponsorships: Event organizers license brand elements to sponsors or promotional partners.

These agreements are essential for ensuring that third parties use marketing assets in a way that aligns with the original brand strategy.

Do You Need a Marketing License to Operate?

A marketing license agreement should not be confused with a business license required to operate a marketing business. If you are offering marketing services or selling products under a licensed brand, you may need:

  • A local or state business license.
  • A home occupation permit, if operating from home.
  • A sales tax license, if selling goods.
  • Industry-specific permits if dealing with regulated products.

Failure to comply can result in fines or operational shutdowns. Always verify requirements with your local government agency.

Frequently Asked Questions

1. What is a marketing license agreement? A marketing license agreement gives permission to a third party to use a brand or IP for promotional or commercial purposes under agreed terms.

2. What can be licensed under a marketing license? Trademarks, logos, slogans, products, and other intellectual property used in marketing campaigns can be licensed.

3. What’s the difference between a marketing license and a business license? A marketing license refers to IP rights, while a business license is a government-issued permit to legally operate a business.

4. Who benefits from a marketing license agreement? Both licensors (brand owners) and licensees (distributors, manufacturers, or marketers) benefit through revenue, brand expansion, and market access.

5. Do I need legal help to create a marketing license agreement? Yes. These agreements involve complex IP rights and financial terms. You can find an experienced attorney on UpCounsel to help draft or review your agreement.

If you need help with creating a marketing licensing agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.