Trademark licensing is the temporary right to use a trademark (typically on merchandise) in return for periodic payments known as royalties. The underlying principle of trademark licensing is that consumers are more likely to buy merchandise if it includes a familiar trademark. Trademark licensing can of course be valuable in many ways - both to the trademark owner and the licensee. For example, from the trademark owner’s perspective, licensing can provide a way to increase revenue and brand presence without the need to increase capital. 

From a licensee’s perspective, it can be a way to team existing assets with the hot properties consumers are looking for, thereby creating markets that previously did not exist. 

Although the terms of every trademark license are different and may be freely negotiated between the licensor and licensee, all licenses must at least include the following provisions to be valid:

•  The legal names of the licensor and licensee
•  Identification of the trademark(s) that are the subject of the licensing agreement
•  Identification of the products/services with which the licensed mark may be used
•  The geographic territory in which the licensee may operate and sell its products/services
•  Quality control provisions that set forth clear standards as to the nature and quality of the licensed products/services

From a licensor’s perspective, the quality control provisions of a trademark license are the most important.  The licensor must continuously make sure that the licensee’s products/services meet a certain standard or else the value of the licensor’s trademark could be harmed.  Furthermore, licensors often require that any advertising and promotional materials created by their licensees be approved prior to being publicly disseminated.  The failure of a licensor to demand and enforce strict quality control can leave the licensor’s trademark vulnerable to attack by third parties and the mark may ultimately be deemed to have been abandoned.

Trademark Licensing Process

The trademark owner often has a strong interest in controlling the quality and consistency of affiliated merchandise and is concerned about misuse of the mark or that shoddy The trademark licensing process is initiated in one of three ways: 

•  a licensee locates a trademark owner,
•  the trademark owner contacts a licensee, or
•  a third-party agency facilitates the licensing arrangement.

Many famous trademarks, such as “Harley- Davidson,” are represented by agencies who seek out suitable merchandise partners. After the parties make contact, they sort out the basic terms of the agreement It is quite common for owners of well known trademarks to dictate the terms and furnish the agreements for merchandise licensing. Often these terms are on a “take it or leave it” basis—if the licensee does not agree, the trademark owner will go elsewhere. In other cases, a licensee will furnish the trademark license agreement. Usually, prior to furnishing the agreement, the licensee and the licensor have worked out all of the business terms. Even after the terms are agreed upon and the license is furnished, the parties can make additional changes. Payment of royalties depends on industry trends. To use a trademark on merchandise such as clothing or ceramic goods, a licensee must pay royalties ranging from 2% to 10% of net sales. A trademark owner may accept a lump-sum payment for a one-time license—for example, the use of the image on 10,000 T-shirts at a sporting event. 

Avoid Naked Licenses

Because the license transfers some of the goodwill (the consumer perception of the brand) associated with the mark, the trademark owner must maintain quality control over the mark.  Without such control, the agreement is called a "naked license" and it may be argued that the owner has abandoned trademark rights. Therefore all provisions for the licensing of trademarks should provide some means of regulating the nature and quality of the licensee's goods or services associated with the mark.

Trademark Licensing Agreement

However, any situation that provides the potential for two par- ties with competing interests to benefit, always comes with at least the potential for conflict. In negotiating a license agreement both sides need to look at all aspects of the deal critically, not only to ensure that they are getting what they are expecting out of the relationship, but also to ensure that are not getting unexpected liabilities, or that they are not burdening themselves with unforeseen obligations. Of course, the ideal way to prevent such unintended consequences would be to plan for every contingency. 

Unfortunately, the exigencies of the day-to-day world make that unrealistic. Indeed, even if a license draftsman could think of every contingency while crafting an agreement, addressing each issue in clear and concise language would be prohibitively time consuming and expensive, if not impossible. The result – perhaps not unexpectedly – is that both sides will have to compromise.

The inherent difficulty in crafting an agreement that gives both sides what they want, is clear enough to provide useful guidance as to the parties’ obligations during (and beyond) the license term, and that provides both sides with the protection they need, means that in most cases no two license agreements will be the same. And, while prior agreements can provide good guidance for where to go in the future, there will always be a certain degree

Why Work with The China IP Law Office? 

Our firm focuses on guiding clients on how to streamline the trademark filing process and improve their odds at successfully procuring their preferred marks.

We regularly represent individuals and start-ups which have been managing their own trademarks prior to our involvement and have had significant experience in advising clients not only from the early stages of the process but also after such clients have received unfavorable office actions.

Our attorneys' expertise stretches beyond registering trademarks to include such matters as the negotiation of asset purchases and licenses involving intellectual property and copyright registrations.

Our clients work directly with a senior attorney, who has many years of experience in the field of IP law, rather than being shuffled off to work with a junior attorney having very little experience.

Our firm believes in the value of personal and individualized client service, and we prioritize attorney accessibility to the client.

International Clients' Trusted Trademark Advisors 

The China IP Law Office is a boutique IP law firm, which regularly advises companies of all sizes on trademark protection and licensing-related matters. Our past trademark clients have included Internet and technology start-ups, entrepreneurs, software developers, marketing companies, consulting businesses, content publishers, and general manufacturers across a variety of industries.