A trademark licensing agreement is a contract between the owner of the trademark (the licensor) and the person to whom the trademark owner wants to license their mark to produce something (the licensee). A trademark licensing agreement clarifies what the licensee can do with the licensor’s trademark. The concept is relatively straightforward, but as always, secret is the nuance.
When Do You Need A Trademark Licensing Agreement?
Let’s say that you have a valuable brand. Maybe you’ve written a series of books about a boy wizard and it’s really taken off. You’re obviously a great writer – congratulations. In selling your books, you have learned that for some reason the people who are your fans really want a backpack featuring the likeness and logo of your boy wizard. You don’t know thing one about producing and selling backpacks.
But, through a friend of a friend of a friend, you find someone who manufactures high-quality backpacks and they agree to produce the backpacks and split the profits with you. Sounds great. Sounds like it’s time for a trademark licensing agreement.
A trademark licensing agreement can help strong brands get more value out of their trademarks, so let’s think about them a little bit more.
What Is Involved With A Trademark Licensing Agreement?
As you can imagine, a trademark licensing agreement should be in writing. Handshake deals are great, but when you are licensing your brand you want to make sure that your brand is protected. Misunderstandings can lead to conflicts, or worse, irreparable damage to your brand. Get it in writing.
Below are some major terms to consider when discussing a licensing deal, because they are the most likely to cause difficulties in your relationship if they’re not defined ahead of time. This list is not all-inclusive, but is a great starting point before you talk to a lawyer about drafting a trademark license for you:
- Exclusivity: A trademark license can be exclusive or non-exclusive. If you want to be able to license your trademark to multiple people, you’ll want a non-exclusive license. If the other party is demanding an exclusive license, however, you should consult with a lawyer to determine whether the pay-off (and other terms) are worth it to you to agree to that kind of license, because once you agree, you can no longer license your trademark to anyone else.
- Territory: A trademark can be marketed (1) worldwide or (2) by territory/country. The license agreement should state specifically where the vendor may sell their goods with your trademark. This is related to the exclusivity term above, because if you have a non-exclusive license, you could license your trademark to vendors around the world (or allow multiple vendors to sell in specific countries), and may have the option of different pricing scales based on your agreement with them. If you grant a worldwide license to someone, however, note that that could increase the competition for your brand in other countries, and could reduce the royalties you can negotiate with other vendors because of that competition.
- Duration: This is pretty self-explanatory, but you’ll want to state how long the license will last. A vendor will likely want it to be for as long as possible. This is both so that they have reliability in the contracts that they make, as well as not having to worry about re-negotiating royalties or payments to you if your brand explodes in popularity. The amount of royalties you can demand (and people will actually pay) is usually directly related to the strength and popularity of your brand, so keeping the term shorter may be in your best interest if you’re starting out.
- Termination: Trademark licenses, as discussed in duration, are typically for a set period of time before they have to either be renewed or no longer pursued. As such, you’ll want to consider what rights you want to have, as well as for the vendor to have to (1) terminate the agreement or (2) renew the agreement. In addition to everything above, you’ll want to take into account what kind of target sales or conditions must be met to keep the agreement going, and what constitutes as being so poor of performance that it warrants ending the agreement. It’s no good to license your trademark if you don’t have the right to walk away if things are going very poorly for too long.
- Goods/services offered under the license: You may or may not like all of the goods that a particular vendor sells, so you’ll want to consider exactly what any particular vendor may sell under your trademark. For instance, you may like the clothing that a vendor produces, but they could have a terrible reputation for toy making. As such, you may want to limit the goods they can offer in association with your trademark to just clothing. Additionally, you may find that one vendor, who only does shoes, may offer you a better rate than a general clothier, so you may want to limit that general clothier to not making shoes under the license.
- Quality control standards and procedures: This is huge. You’ll want to ensure you have some kind of control over the quality of the products being shipped out with your brand name on them, but you also don’t want to bog yourself (or the vendor) down with too intense of an approval process. Consider what kind of standards you require in the products to be sold, and ensure the agreement spells out what those standards are, what your rights are to approve or reject are, and how access to the products will work. Remember, that at its core, your brand is all about the quality of the products sold under your trademark. Get this part right (also, because if you don’t have quality control you could lose your trademark rights).
- Royalties, Payments, and Auditing: This is where the money’s at—literally. When you grant a trademark license, you usually do it in return for royalty payments from the to whom person you’re licensing. You’ll want to make sure the agreement spells out what the royalty rates are, for how many units or the services rendered, returns, as well as when those payments will be made and what your rights to auditing their books will be like.
This is not a complete list, as there are many other terms and nitty-gritty details that need to be hashed out before going forward with licensing your trademark, but you should at least be able to state what you want for the terms set forth above when you go talk to a lawyer.
Because of the uniqueness of your trademark, your goals for marketing your brand and the particular vendors to whom you want to license it, there is no one-size-fits all licensing agreement. There are so many variables in this kind of relationship that you will definitely want a lawyer involved—at the very least before you sign the dotted line—so make sure you protect your brand and yourself in this kind of agreement.
