Mistakes to Avoid When Licensing Your Trade Mark
A trade mark licensing agreement can be one of the most important elements to expanding or franchising your business. However, there are many mistakes trade mark owners make when using a trademark license. This can lead to unwanted complications down the path, which often places you or your licensee in precarious positions. To avoid facing potential complications, this article outlines some common mistakes to avoid when drafting a trade mark licensing agreement.
1. Misunderstanding Trade Mark Licensing
Often, trade mark owners are unaware of their rights and obligations with respect to licensing their intellectual property. Licensing is where a licensor agrees to let a third party (a licensee) use their personal property. Ultimately, the licensor can grant different rights which will determine the licensee’s use of the personal property. A licence can grant:
- exclusive rights, which allows only the licensee to use your trade mark during the licensing period;
- non-exclusive rights, which allow multiple parties, including you as the licensor, to use your trade mark during the licensing period; and
- sole rights, which include a combination of both exclusive and non-exclusive rights.
Whilst a licensing agreement may mean that you cannot use your trade mark during the licensing period, this does not mean that you lose ownership of your trade mark. Rather, you remain the owner of your trade mark throughout the licensing period.
For this reason, licensing presents a great opportunity to commercialise your trade mark when you are not currently using it, but you nevertheless do not wish to sell your trade mark.
2. Drafting a Licensing Agreement
Like many things nowadays, it is best and often required by law that you put agreements into writing. However, some trade mark owners who licence their trade marks overlook the importance of licensing agreements. The terms of a trade mark licensing agreement largely depend on the negotiations between the licensor and the licensee. Typically, however, the terms will include:
- the licensing period in which the licensee can use the trade mark;
- how the licensee can use the trade mark (i.e. in relation to a specific product or service);
- the geographic region in which the licensee can use your trade mark;
- any royalty agreements formed by both parties based on the sales of the products sold by the licensee during the licensing period;
- whether the licensee can sub-license the trade mark; and
- quality control provisions that ensure the licensor has some stake in the representation of their trade mark.
By clearly setting out the terms of your agreement, the agreement essentially functions as a guide for your licensee to know what they can and cannot do with respect to your trade mark. In this way, setting out your licensee’s use rights on paper will also help avoid any potential breaches of the licensing agreement.
3. Enforcing Your Rights
If a licensee breaches the licensing agreement, you should enforce your rights, especially where your business has suffered a loss due to the breach. A licensing agreement ultimately provides you with the legal means to protect your intellectual property under contract law. As the licensor, you could pursue a claim for breach of contract, which could entitle you to different remedies such as monetary damages.
In your licensing agreement, you can also include a clause that determines remedies available if the licensee is in breach of the agreement. By negotiating and agreeing to these terms with the licensee, you can form an amicable relationship where both parties are aware of the consequences of their actions.
4. Failing to Seek Advice Early
Before you license your trade mark, you should consider seeking the advice of a trade mark attorney. A trade mark attorney is an experienced lawyer who has specialist expertise in Australian trade mark law. They can help you:
- draft effective terms in your licensing agreement;
- advise you on any clauses in a royalty agreement;
- identify potential issues that could arise if you were to license your trade mark; and
- outline the different remedies available to you in the instance where the trade mark licensing agreement has been breached.
By seeking legal advice early, you can ultimately ensure that your licence goes as planned.
If you are deciding to license your trade mark, you should:
- be aware of the different rights and obligations that a licensor can vest in a licensee;
- consider drafting a licensing agreement to clarify the licensee’s obligation under the agreement;
- enforce your rights if the agreement has been breached; and
- seek the advice of a trade mark attorney before commercialising your registered trade mark.
Frequently Asked Questions
Selling a trade mark involves the legal process of assignment. This will require you to notify IP Australia that there has been a change in legal ownership with respect to your trade mark.
Trade mark infringement can arise where someone uses an identical or similar mark to your own registered trade mark in relation to similar goods or services.