As the proud owner of a trademark, you will encounter a number of situations that may prompt you or your company to consider granting a trademark license. Navigating the process of selecting a mark, conducting a trademark search and securing a trademark registration is no small feat. Now that you have accomplished these goals, it is important to make sure you are getting the most out of your investment of time, energy and money. A trademark license may be the most effective way to ensure that your trademark rights primarily benefit you and not a third party.
At its core, a trademark license is a contract between two parties regarding the use of a registered or unregistered trademark. If drafted properly, a trademark license allows the owner of the mark to control a third party’s use of the mark, so as to maintain the owner’s valuable trademark rights.
Before beginning this process, there are three main terms to know:
- “Licensor,” or the owner of the trademark being licensed, in this case you or your business.
- “Licensee,” or the entity or individual who is seeking to use your trademark
“Mark,” referring to the mark or collection of marks you wish to allow the licensee to use.
A trademark license can take many forms. Sometimes two trademark owners grant each other a cross-license, each allowing the other to use its marks. In other cases, an owner might grant an exclusive trademark license to a distributor in a particular jurisdiction.
Whichever trademark license form you pursue, there are several key considerations to keep in mind:
- Territory: At their core, trademark rights are tied to geography. Before drafting a trademark license, you will need to determine how “territory” will be defined. Will the licensed territory be worldwide or will it be limited to a specific country and its possessions? Will online sales be permitted?
- Exclusivity: You will need to decide if the license will be exclusive or non-exclusive. That is, will the licensee be the only entity allowed to use your mark in the territory? If so, the license may be exclusive. Of course, if you plan to continue using your mark in the territory alongside the licensee, be sure the license says so. Also, some jurisdictions’ laws enable exclusive licensees to take enforcement action against competitors. Do you want to cede that much control? If not, use the license to reserve all enforcement decisions for yourself.
- Quality Control: One of the biggest challenges when trademark rights are licensed is maintaining quality control. Your brand’s reputation is worth protecting. Use your trademark license to set quality control standards to be followed by the licensee, and make it grounds for termination if the licensee fails to comply.
- Scope of License: Let’s say you have registered your mark in connection with hats and purses, and permitted a licensee to manufacture and sell those goods on your behalf. What if the licensee starts using your brand to identify shoes? Reduce the risk of such a scenario by making sure your license agreement identifies the specific products the licensee can sell, and reserve all other rights for yourself. You’ll also probably want to include registration or application numbers for the licensed marks.
- Term & Termination: Your license should specify how long the license will last, and what happens when the license ends. Spell out how the licensee’s remaining inventory will be handled post-termination: through what channels and in what jurisdictions, if any, can the licensee sell off such inventory after the license terminates?
- Recordation: Some jurisdictions’ laws require all trademark licenses to be recorded with the Trademark Office. If not recorded, you may not be able to enforce your trademark rights against infringers. (The theory is, unless the license has been officially recorded, the licensee’s use of the mark will not inure to the benefit of the trademark owner – thus exposing the registration to attack on the ground that the mark has not been properly used in the jurisdiction.) Check with local counsel as to whether the laws of the licensed territory require recordation, and whether licenses can be recorded only against registrations, or against both applications and registrations.
There are many nuances to any trademark license agreement. We hope that this list helps guide your licensing discussions and drafting. As you know, it is not always easy to secure your trademark rights – so use your licenses to help protect them!