Trademark license agreements are the process wherein a registered owner of a trademark (licensor) authorizes another person (licensee) to use the trademark. This is for a certain time, in a certain territory, and under certain terms and conditions without transferring the ownership of the mark. The licensor can also put other limitations on the use of the mark. They do this through the terms that are put into the licensing agreement. For example, the licensor may allow a trademark to be used for only particular goods and services.
Essentially, the licensor earns money by way of royalty. While the licensee gets to use the mark to gain more business. In addition, the licensor also benefits from the expanding reach and popularity of the mark. But, if left unchecked, licensing could also harm the reputation of the trademark and the licensor. Hence, it is of utmost importance to incorporate clauses with respect to quality checks of goods or services in the license agreement. It is especially important when you are starting your business. It will help you have a clear headstart.
What is a Trademark Licence Agreement?
In essence, a Trademark Licence Agreement is used by a trademark owner to permit another party to use the trademark.
Traditionally, in a Trademark Licence Agreement, the licensee is permitted to use the trademark on its products or services. Essentially, in accordance with the trademark owner’s requirements and benefits from the trademark’s goodwill as a result. Often, it can also provide a lucrative income for trademark owners. Ordinarily, such income usually comes in the form of periodic payments known as royalties.
Typically, a Trademark Licence Agreement will set out how the trademark can be used and the duration and territory of the license. Also, the responsibilities of both parties.
What is a trademark?
In essence, a trademark is any symbol, word, or word legally registered or established by use as representing a company or product. For example, the “CocaCola” logo, and the “just do it” phrase of Nike.
Trademark licensing is allowing a third party to use these logos or words in exchange for payments called “Royalties”. This is also known as IP assignment.
Why is quality control important in trademark licensing?
Importantly, your trademark carries a brand value and reputation for your business. Essentially, it is a statement as to the quality of your goods and/or services. If the licensee to whom the right to use the trademark is granted does not maintain the quality of his goods and/or services, then it can tarnish the hard-earned reputation of your business. Subsequently, this is why it is one of the most important parts of a trademark licensing agreement is that you conduct due diligence on the licensee. Further, standard quality control in the goods and services provided by the licensee is ensured by setting out in detail the quality and terms and conditions of use of the trademark.
Does it matter if my trademark is not registered?
You can enter into a trademark licensing agreement regardless of whether your trademark is registered. You can do so even if it’s unregistered or in the process of registration. Essentially, what you need to ensure in the case of an unregistered trademark is that you provide every possible detail of your claim in the ownership. You can claim your ownership of the trademark with details like:
- Trademark description
- Date of first use
- Description of goods/services used with your trademarks
However, a registered trademark is the best way to claim your ownership on the mark.
What should you include in a Trademark Licence Agreement?
- Details of the trademark to be licensed – Whether the trademark is registered or unregistered or if a trademark application is in progress
- Term for which the license is granted
- Scope of use;
- The territory in which the licensee can use the trademark
- Whether the license granted is exclusive to that territory or if other companies can use the license in the same territory
- The products (goods or services or both) on which the trademark can be used
- Quality controls to be maintained by the licensee
- Royalties and payment terms
- Termination – what happens when the license agreement is terminated
- Conditions relating to the use and protection of the trademark
Wrapping Up
A trademark licensing agreement is a practical document for a trademark owner to expand his commercial name in the market. What you should be aware of is that the brand value associated with your trademark should not decline because of the activities of your licensee. Maintaining a check on that is something that must be planned and drafted carefully in the terms and conditions of your trademark licensing agreement.
