4 Essential Elements of Every Trademark Licensing Agreement

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A popular way to monetize trademarks is to license their use to others. For example, franchises work this way by granting the franchisee the license to use the marks of the brand owner in the franchisee’s business. Licensing also comes into play when a business’s assets are sold, but the seller wishes to retain ownership of the intellectual property. As a condition to the sale, the seller licenses the use of the marks to the buyer. When considering licensing one’s trademarks, I recommend the following four elements as a starting point for the license agreement:

1) Precise definitions: Contracts are often full of defined terms, and for good reason. It is critical to define the exact intellectual property that is being licensed, the person or entity to which it is being licensed, the term of the license, the territory in which it can be used, the calculations on which royalties are to be based, and the basis of the licensor’s ownership.

2) What the licensee can (and can’t) do : If the licensee is expected to use exact hues of colors and napkins with an exact measurement, then this needs to be written into the license. Similarly, if the licensee is prohibited from selling in certain channels of trade or opening locations in certain areas, this too needs to be explicitly spelled out.

3) Exclusivity: Licenses come in two flavors: exclusive and non-exclusive. A non-exclusive license allows the trademark owner to make licensing deals with multiple parties. Exclusive licenses, on the other hand, restrict the licensor to just one licensee.

4) Quality controls: Having sufficient quality control provisions written into the license agreement is important so that licensees cannot hurt the brand through the sale of shoddy products or services. In addition to a provision that all use by the licensee inures to the benefit of the licensor, other quality control provisions you may want to include are:

  • Specific directions on how and where the marks can be used
  • Whether their use can be sub-licensed to others
  • Measurable quality metrics for the products or services on which the mark can be used

The reason quality control is so important is that ultimately, public recognition of the mark will often benefit or hurt the licensor more than the licensee. When quality control is not adequately addressed in a licensing agreement, it can ultimately result in dilution of the mark. Having an experienced contracts, business, and trademark law attorney negotiate, prepare, review, and revise your licensing agreement should always be your first step.

Our firm understands the critical importance of strong licensing agreements with adequate control provisions, and would welcome the opportunity to assist your business in setting them up. Contact us today to get started.

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