What Is the Purpose of Trade Mark Licensing?
Trade marks are one form of intellectual property (IP) protection that you can seek for your business. A trade mark gives you exclusive use to your trade marked brand asset, including the right to its commercial use. Indeed, a trade mark licensing agreement is one way you can commercialise your trade mark. This article will take you through what a trade mark licence is and the advantages and disadvantages of trade mark licences to better understand their purpose.
What is Trade Mark Licensing?
One of the benefits of a trade mark includes the right to commercialise it, including licensing. Trade mark licensing refers to an agreement where a trade mark owner (the licensor) permits someone else (the licensee) to use their trade mark. Usually, this is done within certain parameters. For example, they may only be able to use it within a certain geographical location.
The agreement between the licensor and licensee is referred to as a licensing agreement. This arrangement is particularly prevalent amongst franchises, where the licensee pays the licensor for access to the licensor’s trade mark portfolio. Generally, this will include an upfront fee and an ongoing royalty fee to the licensor.
Types of Licensing Agreements
As a trade mark owner, it is up to you to decide the degree to which you wish to licence your trade mark to the licensee. There are three main types of licensing agreements.
|Sole||This type of licensing agreement allows the licensee and licensor to use the same trade mark in the same area simultaneously. However, the licensor cannot grant any other licences within the same area.|
|Exclusive||This licensing agreement provides that the licensee is the only party allowed to use the trade mark, excluding even the licensor.|
|Non-exclusive||A non-exclusive agreement allows the licensor to use the trade mark and grant other third parties the same licence.|
Advantages of Trade Mark Licensing
If you are a trade mark owner, some of the advantages of licensing are outlined in the table below.
|Passive income||Licensing agreements set up an avenue for passive income. Indeed, licensing agreements usually incur an upfront fee and a royalty fee, which means you can continue making money from your trade marks without ever giving up your trade mark rights.|
|Entry into foreign markets||Granting licensing agreements means you will not have to do anything to have your brand enter foreign markets. Instead, a licensee can help increase your brand awareness overseas through a licensing agreement.|
|Increase brand recognition||A licensor can benefit from a licensing agreement when the licensee partakes in business ventures. Indeed, a licensee provides an avenue to distribute your goods or services without any investment from the licensor. Therefore, you can benefit from the reputation of the licensor business and increase brand awareness.|
Disadvantages of Trade Mark Licensing
On the contrary, some of the disadvantages of licensing for a trade mark owner are explored in the table below.
|Loss of control||When entering a licensing agreement, the licensor gives up a degree of control. Therefore, this increases your level of exposure to IP theft and misuse.|
|Added competition||The very nature of such agreements means that the relationship between licensor and licensee can become competitive. For this reason, it is common to stipulate geographical limitations.|
|Reputational damage||If a licensee incurs a bad reputation, this can result in the brand as a whole suffering. To avoid this, quality control measures should be outlined carefully in licensing agreements to ensure there are measures to remove the licensee’s rights in such instances before the brand suffers too much damage.|
How to Obtain a Licensing Agreement
A written contract should outline your licensing agreement. When drafting the licensing agreement, some things you should consider including are:
- the type of licensing agreement (i.e., sole, exclusive or non-exclusive);
- the duration of the agreement;
- any geographical limitations;
- what will constitute a breach of contract; and
- the scope of the agreement (e.g. rights to manufacture and sell products).
For businesses that grant licences regularly, information concerning their standard procedures may be readily available online. Otherwise, you will need to contact the business directly and discuss any opportunities to negotiate.
A licensing agreement is an excellent way to commercialise your trade mark. Some of the key benefits include the ability to:
- receive a passive income;
- enter into foreign markets; and
- increase brand recognition.
Frequently Asked Questions
The purpose is to grant someone else rights to use their trade mark for commercial use. This is a great way for a business to receive a passive income, enter new markets and increase brand recognition.
The contract between a licensor and licensee is written into an agreement. This written contract outlines the parameters of the arrangement. For example, it should include the type of agreement, the duration of the agreement, what will constitute a breach of contract and the agreement’s scope.