Key Takeaways

  • Definition & Importance of Trademark Licensing: Trademark licensing allows a trademark owner to grant rights to a third party to use their mark under agreed conditions, which can help expand brand presence while generating revenue.
  • Types of Trademark Licenses: Includes exclusive, non-exclusive, and sole licenses, each providing different levels of rights and restrictions for the licensee.
  • Key Elements of a Licensing Agreement: Must include quality control provisions, payment structure, geographic scope, duration, renewal conditions, and breach remedies.
  • Trademark Licensing Strategies: Businesses can use licensing to expand market reach, enhance brand value, and enter new industries or product categories.
  • Legal Considerations & Risks: Trademark owners must maintain control over the use of their mark to avoid dilution or loss of rights.
  • Industry-Specific Licensing Examples: Fashion, entertainment, tech, and franchising industries commonly use trademark licensing to build partnerships.
  • Steps to Obtain a Trademark License: Includes applying, negotiating terms, ensuring compliance with quality standards, and managing ongoing enforcement.
  • Avoiding Common Pitfalls: Poorly structured agreements can lead to loss of brand control, legal disputes, or financial losses.
  • Working with Licensing Agents: These professionals can help businesses navigate contract negotiations, enforcement, and compliance.

What Is Trademark Licensing?

Trademark licensing is the process by which a registered trademark owner, called a licensor or proprietor, allows another party, called a licensee, to make and distribute specific products or services under the licensor's trademark agreement. Trademark licensing is a type of merchandise agreement.

The licensor receives a certain amount of money or royalties, a percentage of all sales, in exchange for sharing the trademark. This compensation is also called consideration. Fashion and consumer products concerned with sports and entertainment are often sold under a trademark licensing agreement.

The licensee usually creates a trademark licensing agreement, but a licensor can also create this document. Both parties usually agree upon the terms before creating a trademark licensing agreement.

To be eligible for legal enforcement, a trademark license agreement doesn't need to appear in writing. However, legal cases about written trademark license agreements are easier to resolve, less time-consuming, and costly. Legal experts strongly recommend that all trademark licensing agreements get documented in writing and become signed and dated by both the licensor and licensee.

Understanding the Trademark Licensing Process

Trademark licensing is not simply granting permission to use a name or logo. It is a strategic agreement where both parties benefit through increased brand recognition, revenue sharing, and expanded distribution. The process typically includes the following steps:

  1. Defining Licensing Goals: The licensor must determine whether they want to increase brand exposure, enter new markets, or generate revenue.
  2. Selecting a Licensee: Businesses should assess the financial stability, reputation, and market position of potential licensees.
  3. Negotiating Terms: The parties must define the scope of the license, quality control measures, geographic restrictions, and compensation structure.
  4. Drafting the Licensing Agreement: This legally binding document outlines the terms and obligations of both parties.
  5. Monitoring Compliance: The licensor must ensure that the licensee adheres to agreed-upon quality standards and brand representation.

Types of Trade Licenses

  • Exclusive License: The licensee gains sole commercial rights to the trademark. The licensor has no commercial rights but gains a sum of money for entering the agreement. The licensee also receives future profits or incurs losses that come from commercialization. Exclusive licenses may have limits on the products and location.
  • Sole license: The licensee and licensor can use the trademark. The licensor cannot license the trademark to a third party.
  • Non-exclusive license: The licensee, licensor, and any outside individuals the licensor also assigns a license to can use the trademark.

Key Industries That Utilize Trademark Licensing

Trademark licensing is widely used across various industries to extend brand presence and maximize revenue. Common sectors include:

  • Fashion & Apparel: Designers and brands license their names to manufacturers for clothing, accessories, and fragrances.
  • Entertainment & Media: Movie studios and TV networks license characters and logos for merchandise, toys, and collectibles.
  • Technology & Software: Software companies license their trademarks to hardware manufacturers or app developers.
  • Franchising: Fast-food chains, gyms, and retail brands use trademark licensing to expand through franchise agreements.
  • Sports & Athletics: Teams and athletes license their names and logos for apparel, equipment, and endorsements.

Parts of a Trade License Agreement

While individual trade license agreements vary, they should always include:

  • The legal names of the licensor and licensee
  • The business structures of the licensor and licensee
  • Type of license (exclusive, sole, or non-exclusive; see above)
  • The trademark(s) included in the licensing agreement
  • The products and services concerned with the agreement
  • The geographic territory where the licensee may operate and sell the products or services
  • Quality control provisions define clear standards about the nature and quality of the licensed products or services. This area is the most important part of a trademark licensing agreement for licensors. Promises, warranties, or both that the licensor makes are representations.
  • Payment details, such as whether the licensor will get royalties or a lump sum, how much these payments amount to, and when the licensor will get paid
  • The date the license will start and its expiration date, if known

Some added provisions can help improve the agreement for both parties. These include provisions that:

  • The licensor will approve all advertising and promotional materials before any marketing content gets distributed.
  • The license can be renewed.
  • Specific conditions apply for renewal.
  • The license will not be shared with an outside individual or sold to an assignee, either in the United States or internationally.
  • The license will last for a set amount of time.
  • The licensor and licensee have specific responsibilities when the license ends.
  • Penalties will apply if either party breaches the license.
  • Any breach must be remedied in a specific time frame

A trademark license can become a very complex and long document, easily reaching 100 pages, if it has multiple marks, products, geographic locations, and financial provisions. UpCounsel provides a sample trademark licensing agreement.

Quality Control in Trademark Licensing

Quality control is a critical element of trademark licensing agreements. Without proper oversight, a trademark can lose its distinctiveness and legal protection. Key quality control provisions include:

  • Approval of Product Samples: The licensor reviews and approves product prototypes before they reach the market.
  • Standards for Advertising & Marketing: The licensee must follow specific guidelines to ensure brand consistency.
  • Periodic Audits & Inspections: The licensor has the right to inspect manufacturing processes and product quality.
  • Trademark Use Guidelines: Ensures that logos, colors, and taglines are used correctly to maintain brand integrity.

Why Is Trademark Licensing Important?

Trademarks must be protected. Under the Trade Marks Act 1995, licensors must keep control over the authorized use of their trademarks. If they don't maintain financial control over trading activities and quality control over the products and services associated with trademarks, they could lose the rights to them in the future. Being proactive is important; unfortunately, enforcing trademarks can be difficult.

Major brands can afford to pay lawyers to constantly look online and offline for people using branded trademarks in illegal ways. For example, MGM (Metro-Goldwyn-Mayer) would likely find and send a cease-and-desist letter to a community magazine using a logo that is like or copies MGM and the lion in a full-page advertisement for a Main Street jewelry store.

Small companies without these resources can find enforcing their trademark more challenging. While enforcement is vital for maintaining a trademark, small businesses can damage customer goodwill if they handle this issue carelessly. Proposing a trademark licensing agreement, rather than threatening to sue, is a good way to support goodwill.

Risks and Challenges of Trademark Licensing

While trademark licensing can be beneficial, there are risks that both parties must consider:

  1. Loss of Brand Control: If the licensee does not follow agreed-upon quality standards, the brand’s reputation could suffer.
  2. Trademark Dilution: Over-licensing or improper use can weaken the distinctiveness of a trademark.
  3. Contract Disputes: Vague contract terms can lead to disagreements over licensing fees, duration, or exclusivity.
  4. Failure to Enforce Rights: If a licensor does not actively enforce the agreement, third parties may misuse the trademark.
  5. Regulatory & Legal Compliance: Trademark licensing must comply with trademark laws in different jurisdictions.

Reasons to Consider Using Trademark Licensing

  • Reach new markets. You can expand your business through your partner's marketing and distribution channels.
  • Increase brand recognition. Licensing improves visibility among both brands by giving them a fresh look, putting them on new products and in new channels. As a result, licensing agreements can raise awareness among consumers.
  • Distribute workload. When you sign a trademark licensing agreement, you gain a professional partner who can take some of the pressure off you. For example, when a licensor signs a trademark licensing agreement, the licensee becomes responsible for the quality of goods and services it creates using the trademark.
  • Improve your business. Your licensing agreement forges a partnership that can benefit both parties in the long term. For example, licensees can leverage the emotions generated by the trademark, such as pride in a sports team's logo or the trust embodied by a well-known brand.

How to Maximize the Benefits of a Trademark License

To ensure a successful licensing arrangement, businesses should consider the following best practices:

  • Conduct Thorough Research: Understand the market, competitors, and potential licensees before entering an agreement.
  • Define Clear Licensing Terms: Specify permitted uses, payment structures, and renewal conditions.
  • Monitor Performance: Regularly review financial reports, product quality, and compliance with brand guidelines.
  • Leverage Licensing Agents: Professional licensing agents can help negotiate deals and manage licensing portfolios.
  • Stay Legally Compliant: Ensure compliance with local and international trademark laws to avoid infringement issues.

Requirements for Trademark Licensing

Businesses screen potential licensees to make sure they are financially secure and well run enough to use their trademark. That's why most licensors create requirements that new licensees must meet.

Harvard University is one example of an entity that regularly enters into trademark licensing agreements.

Harvard's Trademark Program governs licensing of the university's trademarks on products sold domestically. These products typically include apparel, stationery, bags, and novelty items. Harvard will not license the university's trademarks on the following products:

  • Alcohol and tobacco products
  • Drug equipment
  • Certain adult forms of entertainment
  • Guns and other weapons
  • Products promoting gambling, betting, or lotteries

The program gets coordinated using in-house resources, with staff responsible for managing the process, from identifying prospective licensees to contract negotiations. Managing the program with in-house resources helps protect the university's name, values, and reputation.

Generally, companies must fulfill a stringent set of requirements to get a standard trademark license from another business entity:

  • Produce products following the entity's licensing standards. Licensed products must meet certain classes and quality standards.
  • Correctly represent the business entity's trademarks
  • Provide product samples for quality assurance and correct trademark usage
  • Keep commercial general liability insurance
  • Support Fair Labor Association (FLA) membership and abide by the FLA Code of Conduct
  • Provide artwork for review and approval before any material is produced
  • Pay any licensing fees (such as administration fees)
  • Submit royalty reports and, if necessary, royalty payments

Examples: What Could Happen When You Sell or License Your Trademark?

Example 1: Sally's registered mark "Sally's Samplers" for chocolate has boosted the sale of her boxed chocolates. When a large candy maker decides it wants to use the mark, the company offers to buy it from Sally. If Sally sells the mark to the candy maker, she can no longer use it and the candy maker can use her mark however it chooses to do so.

Example 2: After selling "Sally's Samplers" for a big sum, Sally decides to step away from her business to do some sewing and gardening. When she moves into her rustic mountain retreat, she discovers a heart-shaped hoe in the garden shed. Her Aunt Lucy had made the hoe many years ago. Sally begins selling "Aunt Lucy's Heart-Shaped Hoe" and uses the marketing experience she gained selling "Sally's Samplers." The Heart-Shaped Hoe skyrockets in popularity, and now a major garden tools manufacturer wants to buy the mark and mass-produce the hoe.

Sally has witnessed how this business situation works. "Sally's Samplers" is now used not only for candy but also on a chewing tobacco label. She wants to prevent her Aunt Lucy's good name from being treated in this way.

She agrees to sell the rights to the mark, but not the right to create derivative marks. Since Sally is not familiar with trademark law, she doesn't realize her decision won't protect her against others who want to use "Aunt Lucy" in connection with products or services that meet Sally's disapproval.

Example 3: After the heart-shaped hoe incident, Sally promises herself that she won't make the same decision again. She develops a new invention called "Cat Call," a device that allows a cat owner to call a cat-back indoors after it takes an outdoor bathroom break. The new invention skyrockets and Sally again gets offers from other brands.

She decides to license the mark to a manufacturer that specializes in items for pets. The license restricts the mark's use to the specific product. Drawings and diagrams attached as an appendix in the license agreement make the product itself clear. The agreement also limits the way the mark can be used to promote the product and the geographic area where the mark gets used.

The license agreement runs only five years. At this time, Sally and this manufacturer can decide whether to renew the license. This decision gives Sally the control she wants, but it also reduces the mark's value for the entity that buys the mark.

Frequently Asked Questions

1. What is the purpose of trademark law? Trademark law protects intellectual property by ensuring trademarks remain distinctive, preventing unfair competition, and helping consumers identify authentic products or services.

2. How does trademark law differ from copyright law? Trademarks protect brand identifiers like names and logos, while copyrights protect original artistic works such as books, songs, or paintings. Some logos may qualify for both protections.

3. What types of trademarks receive the most legal protection? Trademarks with strong distinctiveness, such as arbitrary words (e.g., "Apple" for computers) and suggestive marks (e.g., "Netflix" for streaming), receive the highest level of protection.

4. Can I create a family of trademarks? Yes, businesses can establish a family of trademarks by using common elements across multiple marks, reinforcing brand recognition and protection.

5. How can trademarks be legally protected? Trademarks gain legal protection through common law usage, state registration, or federal registration with the USPTO. Registration provides stronger enforcement rights.

Steps to File

Below is a general outline of the steps for filing a trademark license agreement.

  • Submit a written request to a business entity for review and evaluation of the trademark license requestor's product or service offerings.
  • If invited, the trademark license requestor can apply for a license.
  • Submit a license request proposal and license request application. The license request proposal should contain:

  1. An intention statement explaining the individual's reasons for pursuing the license

  2. A company background summary with a mission statement, business goals, and history

  3. A detailed list of any proposed products or services to be licensed

  4. A product catalog, if available

  5. A list of any business affiliations the requestor uses to maintain its licenses

  6. A product line history

  7. A detailed business plan outlining the proposed strategy for production, distribution, and sale products and identifying target audience

In addition, the proposal and application must be accompanied by:

  • A copy of the certification of membership with the Fair Labor Association (FLA)
  • Written confirmation of commercial general liability insurance
  • Product samples

The business entity reviews all documents to determine whether the requestor meets the business's licensing criteria. If approval is granted, the company will be given a standard trademark license and documented license agreements.

  • Complete and return the license agreements for the business entity's review.
  • If everything is in order, the company will be granted a standard trademark license. The requestor will receive written notification and an executed original license agreement, a royalty reporting form, and digital files of the business entity's primary trademarks.

Contact a Trademark Attorney

A trademark licensing agreement can boost your business, but it shouldn't be entered into lightly or without legal representation. Post your legal need through UpCounsel and receive custom quotes from experienced trademark lawyers. 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 such as Google, Menlo Ventures, and Airbnb.