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An Intro to Trademark Licensing - How Can a Trademark License Agreement Help Your Business Generate Income?

Trademark licensing is the process where a trademark owner agrees to give another person or company permission to use its trademark, in a commercial setting, in exchange for a fee. There are many reasons why licensing a trademark can be very advantageous. Trademark licenses are complex with several points to be negotiated. An attorney who is well acquainted with trademark licensing is invaluable in providing information regarding licensing requirements and advice in creating and negotiating a trademark license.

What is Trademark Licensing?

Trademark licensing is the process where a trademark owner agrees to give another person or company permission to use its trademark, in a commercial setting, in exchange for a fee. While a trademark license fee is generally monetary, it does not necessarily have to be as long as the fee has a measurable value. 

Why License a Trademark?

There are many reasons why licensing a trademark can be very advantageous. Depending on what side of the license agreement you find yourself on, you may want to factor in various considerations before deciding if a trademark licensing agreement is for you.  

An owner's perspective

Licensing a trademark can be very advantageous to the owner of the trademark (the licensor). It takes a lot of time and money to build your brand and trademark licensing provides a great source of income to reap the benefits of your hard work. While various types of fee arrangments can be made, generally, the most common forms of trademark licensing fees involve either flat fees or royalty payments. In a flat fee arrangement, the person or company that is licensing the trademark agrees to pay the owner a set value to have the ability to use the trademark. In a royalty type agreement, when a trademark has been licensed, the licensor will receive payment for each sale tied to that trademark. 

A licensee's perspective

While it can be beneficial for a trademark owner to license a trademark, it can be just as advantageous for the person or company seeking to license a trademark. Building a brand is a very difficult process which can take a combination of years and significant capital to do so. Licensing a brand that is already established will allow you to focus your efforts on other business aspects.  

Reasons against licensing a trademark

While trademark licensing agreements can be very advantageous, they are not without downsides.

An owner's perspective

When you are licensing your trademark to a person or company, it's important to  make sure you are licensing your trademark to the right party. If you make the mistake of licensing to a party that does not meet the same standards that  you hold for your own goods or services, the integrity of your trademark may be compromised and cause a decrease in its value. To combat this, many times, as a condition to licensing a trademark, a trademark owner will oversee the quality of the goods or services of the licensee to ensure everything is up to par. 

A licensee's perspective

While not having to spend time and money in developing your own brand can be an advantage, it can just as much be considered a disadvantage. Developing a strong brand is an integral part of a company's intellectual property portfolio and if you license someone else's brand, you are essentially forgoing that aspect from your portfolio. If you work towards building your own brand, you may very well be in a position to license out your brand to others in the future. 

What Do I Need to Consider Within a Trademark Licensing Agreement?

There are several provisions that are generally included in a licensing agreement. Whether you are negotiating a license agreement or reviewing one that has been presented to you, here are a few things to look out for. 

Pricing

Generally, one of the most important provisions that need to be included in your trademark agreement is pricing. The agreement should explicitly identify the fee and/or royalty amount (if applicable) to be paid to the trademark owner in exchange for trademark use. 

Term

In addition to fees, another provision that is almost as equally important is the term of the agreement and license. While the term of the agreement and term of the license can be in sync with each other, they do not have to be and occasionally they are not. Most trademark licenses are set for a fixed term, followed by an arrangement for either a) license renewal or b) license termination, should the license fail to meet certain expectations.

Exclusivity

A trademark license agreement should specify exclusivity as a trademark may be licensed non-exclusively or exclusively. If a trademark is licensed non-exclusively, the trademark owner reserves the right to the trademark and may continue to license that trademark to other parties. If a trademark is licensed exclusively, the licensor is prohibited from licensing the trademark to another party. Generally, a non-exclusive license is the more economical option. 

Enforcement

Lastly, the agreement should include a procedure for enforcing the agreement. For example, under the Lanham Act, only the licensor can take legal action for trademark infringement. However, often times a trademark license agreement will expressly state that the licensee also has the right to bring suit for trademark infringement. If this is included, the agreement should also consider and include the rules for the handling of those proceedings, should one of the parties bring suit for trademark infringement.

Conclusion

Trademark licenses are complex with several points to be negotiated. An attorney who is well acquainted with trademark licensing is invaluable in providing information regarding licensing requirements and advice in creating and negotiating a trademark license. Contact us if you want to license your trademark or are considering licensing someone else’s trademark.

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Julian Cordero is an Attorney, Business Strategist, and Music Producer. Oh and he blogs too!  Julian is licensed to practice law in New York and is the Managing Attorney of Cordero Law LLC, a New York City based law firm focusing on Business Law, Entertainment Law, and Intellectual Property Law.