What Is the Purpose of Trade Mark Licencing?
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 licencing 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 Licencing?
One of the benefits of a trade mark includes the right to commercialise it, including licencing. Trade mark licencing 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 licencing 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 Licencing 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 licencing agreements.
|Sole||This type of licencing 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 licencing 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 Licencing
If you are a trade mark owner, some of the advantages of licencing are outlined in the table below.
|Passive income||Licencing agreements set up an avenue for passive income. Indeed, licencing 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 licencing 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 licencing agreement.|
|Increase brand recognition||A licensor can benefit from a licencing 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 Licencing
On the contrary, some of the disadvantages of licencing for a trade mark owner are explored in the table below.
|Loss of control||When entering a licencing 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 licencing 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 Licencing Agreement
A written contract should outline your licencing agreement. When drafting the licencing agreement, some things you should consider including are:
- the type of licencing 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 licencing 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.