What are Trademark Licensing Agreements, and Who Benefits from Them?
Imagine you own a t-shirt manufacturing company called Bob’s Snazzy Shirts. You’ve worked hard to make Bob’s the region’s leading producer of t-shirts. After years of slow growth, you’re finally ready to make your company a national contender. You just need that one special shirt design to take you there.
One night you go to a rock concert. The show’s headliner, Infinite Wombat, has been called one of the country’s hottest up-and-coming bands by some of the most influential critics in the music industry. It’s clear to you that in a few months these guys are going to be a household name. While getting a drink of water, you notice that Infinite Wombat isn’t selling any t-shirts at the merchandise stand. And then it hits you: Bob’s Snazzy Shirts should start producing shirts with the Infinite Wombat logo. Their fame combined with your manufacturing capacity could be the winning formula that takes both of you to the next level (and makes you both a ton of money in the process).
You pitch the idea to Infinite Wombat and they love it. They’re more than willing to allow you to produce and sell merchandise with their trademarked logo on it in exchange for a cut of the profits. But their manager says “not so fast.” He’s been in this game a long time and he’s not about to allow his clients to simply assign away the rights to their trademark without a formal agreement. If Bob’s Snazzy Shirts wants to use the Infinite Wombat name and logo, he insists, then there are a few things that will need to be drawn up in ink to protect his clients’ interests. How long will Bob’s be licensing the trademark? How exactly will Infinite Wombat be compensated? How can the band be sure that you won’t dilute or damage their brand by printing the Infinite Wombat logo on products they don’t condone? Before you can start using the mark, the band’s manager wants to make sure that all the terms of this deal are set in stone.
This is precisely why we have trademark license agreements (TLA). These legally binding contracts outline the exact terms of any agreement where a trademark owner, also known as the licensor, agrees to give another party, the licensee, permission to use its trademark or marks for a specified purpose. In today’s brand-driven economy, they’re an essential tool for anyone who wants to use or lend out a protected trademark.
The benefits of Trademark Licensing Agreements
There are several good reasons why both Bob’s Snazzy Shirts and Infinite Wombat should use a TLA to ratify their merchandising deal. First, a TLA will help protect the integrity and value of the mark that Infinite Wombat has worked hard to create. Without a formal agreement in place, a predatory third party could argue in court that Bob’s Snazzy Shirts’s unlicensed use of the Infinite Wombat mark constitutes an abandonment of Infinite Wombat’s marks. If they prevail, that third party could create merchandise using Infinite Wombat’s marks without paying any licensing fees.
More importantly, a TLA will prevent Bob’s Snazzy Shirts from diluting the value of the Infinite Wombat mark through inappropriate use. The last thing Infinite Wombat’s manager wants is for Bob’s Snazzy Shirts to create a PR nightmare for the band by slapping their logo on religious or political shirts, or on products that have been made in sweatshops. A TLA will ensure that any use of the Infinite Wombat mark is approved by the band before any product is sold.
Of course, Infinite Wombat isn’t the only party that’s protected by a Trademark License Agreement. As the licensee, Bob’s Snazzy Shirts will also enjoy a few crucial safeguards – especially when it comes to trademark infringement liability.
With a signed Trademark License Agreement on file, your company has proof that Infinite Wombat gave you permission to use their trademark. That way they can’t just tell you it’s okay to use their mark and then turn around and sue you for infringement in order to make a quick buck.
Put simply, a Trademark License Agreement is good for the licensor, good for licensee and most importantly, good for the public who will be purchasing these products. It allows all parties involved to enjoy the benefits of licensing a mark while eliminating the potential for conflict in the future. So with that said, let’s take a look at some features that every good Trademark License Agreement should have.
What Makes a Good Trademark License Agreement?
Not all Trademark License Agreements are created equal. The more comprehensively a TLA defines a licensing relationship, the more beneficial it will be for all parties involved. For example, here are a few essential functions that any good TLA must perform in order to be considered successful.
1. Thorough Identification of All Parties, Terms, Marks and Rights Involved
A good Trademark License Agreement should open by identifying everything involved in the licensing of a trademark. This includes:
• The identities of both the licensor and licensee
• The specific trademarks being licensed
• The specific trademark rights that will be licensed
• The territories in which those licensed rights apply
• The specific goods and services that the licensee will be allowed to offer with the trademark
2. Provisions for Quality Control
A trademark represents the licensor’s reputation for quality. In a country like the United States, if a trademark owner fails to uphold the quality that the public associates with its trademark, it could actually lose the rights to that mark. Therefore, it is essential that a Trademark License Agreement include provisions for quality control monitoring of the licensee by the licensor.
There are many different ways to establish terms for quality control. In some cases, a TLA may specify that the licensee must get the licensor’s permission before presenting the trademark in any manner that wasn’t established in the initial agreement. In other cases, a licensee may have to grant the licensor access to its facilities, personnel and records to ensure that the licensee is upholding the standards of quality associated with the licensor’s trademark. Since every TLA is different, it is best to establish the terms for quality control on a case-by-case basis.
3. Retention of Veto Power by Licensor
In addition to establishing provisions for quality control, a good Trademark License Agreement should also include a provision that allows the licensor to veto any presentation of its trademark in order to protect both the public and the reputation of the licensor.
4. Clearly Defined Compensation for Licensor
Every trademark license agreement involves some form of compensation to the licensor by the licensee. Sometimes the licensor may request a one-time flat fee; other times the licensor may require a royalty payment for every sale of a licensed product. Regardless of how the licensor plans to be compensated, the explicit terms and conditions of any compensation must be outlined in the Trademark License Agreement.
5. Specified Length and Conditions of the Agreement
No Trademark License lasts forever. Therefore, the Trademark License Agreement should clearly define the term of the license as agreed upon by both parties, regardless of whether it’s for 10 years or 10 days. Additionally, the TLA should also specifically outline the conditions for which the license may be renewed and/or terminated by either party.
6. Exclusivity of the License
A licensor may choose to license their trademark exclusively to one party or non-exclusively to multiple parties. Either way is fine, but the exclusivity of a license should be clearly defined in the Trademark License Agreement in order to prevent future conflicts with the licensee.
7. Examples of the Licensed Trademark Provided by the Licensor
It is in the licensor’s best interests to preserve the quality and integrity of its mark as thoroughly as possible. To that end, the licensor should provide the licensee with high-resolution examples of its trademarked logos so that the licensee isn’t forced to try to recreate the logos on its own – which could potentially damage the quality of the mark. If there are colors associated with a logo, the exact codes for these colors should be provided as well.
Licensing a Mark? Call a Trademark Attorney
Drafting a comprehensive and successful trademark licensing agreement is no small undertaking. It requires many hours of work and a thorough understanding of trademark law. So if you or your business is considering licensing a logo, contact a trademark license attorney today. With an experienced trademark attorney on your side you’ll be able to reach an agreement that is secure, legally sound and beneficial to all parties involved.