When you have registered your trademark, you have absolute rights to use your trademark and reap all the benefits which the trademark gives you. However, earning money from having your trademark registered is another aspect. It is called trademark licensing. When the trademark owner grants permission to other individuals/businesses to use his trademark and make a profit on some mutually agreed terms and conditions, the process is called trademark licensing. The trademark owner is called the licensor, and the person who will use the trademark right is the licensee. In this article, we will explore this concept in detail.
Why would a business give a license to its trademark?
A business has many advantages when it delegates its trademark rights to other individuals/businesses. Some of them are:
When some individuals want to take a license of a business’s trademark, they have to pay an amount to the trademark owner. It can be a lump sum or in the form of royalties. So every license granted would mean extra income for the business owner.
Some businesses run on the model to make their presence worldwide, and it is not financially feasible to own and run their units in different countries. Therefore granting a trademark license can greatly help a business expand in other countries.
By granting a license of its business products, it means that the product is available at different locations, thereby increasing sales of the business, meaning extra revenue.
Some business models want their brand to be recognized, and trademark licensing is just the perfect way to do that.
There are many other advantages of trademark licensing, and it gives a reason for a business to license its trademark.
What are some ways of trademark licensing?
A business can give trademark rights of its products and services in different ways such as:
The concept of franchising is popular in food businesses. A trademark owner will delegate the business model with standards and training to private individuals who may make profits under the trademark and, in exchange, has to pay fees to the trademark owner or commission based on their mutually agreed terms and conditions.
Franchising allows businesses to spread their business in different locations with fewer costs. This also increases the revenue of the business. One of the limitations of franchising is that the business goodwill may be affected if the franchisee does not maintain the standard of the business.
When two businesses come together to create a different product or do business with an existing product, they create mutual rights for each other to use their trademark.
Other ways are Merchandising, Brand extension, ingredient branding, etc.
What must a trademark license include?
Although the terms of each license vary and may be freely negotiated between the licensor and the licensee, all valid licenses must include the following provisions:
– The licensor and licensee’s legal names
– The trademark that is the subject of the licensing agreement is identified.
– Identification of the items and services that may be associated with the licensed mark
– The geographical area in which the licensee is permitted to operate and sell its goods and services.
– Provisions for quality control that provide clear criteria for the nature and quality of licensed products/services
How does licensing affect trademark registration?
The party in charge of the nature and quality of the services and commodities benefits from using a trademark (the licensor). The United Specifies Patent & Trademark Office (USPTO) does not need the applicant to explain how it regulates the use of the trademark if the trademark application states that a connected firm is using it. A license agreement is not required to be recorded with the USPTO in the United States. On the other hand, other countries may demand that a licensor register the license for it to be effective against third parties.
As previously stated, if an application specifies that the trademark is being used through a controlled licensee or franchisee, the Examining Attorney will not query about the parties’ relationship as long as the record contains nothing that contradicts the applicant’s claim of ownership. The type and amount of the applicant’s control over the goods or services to which the trademark is used are crucial in determining ownership in all license and franchise agreements.
Some examples of how the applicant can control the quality of the goods or services are as follows:
(1) examining the licensee business unit whether it complies with the standards of the licensor’s agreement.
(2) assessing production samples under the license to ensure conformity with the licensor’s product standards; and
(3) Review customer service complaints, comments, and general feedback.
Failure to exercise proper control over licensees’ or franchisees’ goods or services may result in a legal decision that the trademark owner (licensor) has relinquished its trademark rights.
Licensing and Quality assurance
The quality control provisions of a trademark license are the most significant from a licensor’s perspective. The licensor must always ensure that the licensee’s products/services match a specific quality, or the licensor’s trademark value may suffer. Furthermore, licensors frequently ask that any advertising or promotional materials developed by their licensees be approved before being distributed to the public. When a licensor fails to require and enforce strong quality control, the licensor’s trademark becomes subject to third-party attacks, and the trademark is eventually deemed abandoned.
We hope that you are cleared of your doubts about trademark licensing. If you still have any further questions, we will be delighted to guide you on them.