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Trademark License Agreements; Some Basic Considerations for Licensing Companies

As your company grows and garners a reputation for quality products and/or outstanding service, its trademarks (or service marks) become more valuable. Most successful businesses recognize the need, first-and-foremost, to protect these valuable assets by registering them with the U.S. Patent and Trademark Office, or with the state(s) in which the company does business. Trademark registration allows the company the unfettered opportunity to develop its brand(s) represented by its trademarks. It also opens the door to converting these assets into revenues in the form of a trademark license agreement.

Trademark licensing has grown exponentially in the past decade and is no longer just for large corporations. Even smaller or niche-market businesses with recognized products or services can benefit from trademark license agreements. The advantage is two-fold: (1) increased revenues in the form of royalty payments from the company to whom the license is granted (“licensee"); and (2) wider exposure for the licensing company’s (“licensor’s") brand. Trademark licensing can take a number of forms including:

Brand-Extension Licensing: The licensing of trademarks for use on related products or services, such as licensing for use on an accessory item that frequently sold with the main product to which the trademark relates. An example would be the use of the CORVETTE® mark on certain automotive performance accessories.

Merchandise Licensing: The licensing of a trademark for use on merchandise specifically to promote the brand. Examples may include the placing of trademarks on kitchen magnets or key chains.

Ingredient Licensing: The licensing of a trademark as a means of securing an endorsement for a specific brand used with, or made a part of, other products. This benefits not only the licensor but, depending upon the strength of the brand, the licensee as well. An example would be INTEL INSIDE® which serves not only to promote Intel, but, because of the strength of the brand, the machines which bear the mark. Ingredient licensing has proliferated in recent years through the use of the “Powered by…" moniker for both products and services which allows brand recognition of component parts or services which support the main product or service.

Why a Written License Agreement is Necessary

Companies that choose to license trademarks without a written agreement run the risk of losing their trademark rights. This is because trademark law, in a sense, infers too much from the absence of a written license agreement. Trademark rights are acquired through use and maintained through the active protection of the rights thus acquired. A licensee allowed to use a trademark can gain broad legal rights to it unless it is clear, in a written license agreement executed at the outset of that use, that the rights are limited to those specifically spelled out in the license agreement. By failing to legally limit and control the use of its trademarks, a licensor weakens its own rights to sue for possible infringement or to take other actions to protect its ownership of the mark.

Basic Provisions of a Trademark License Agreement

While the specific terms of a trademark license agreement may vary widely from case to case, a well-crafted agreement should contain some basic provisions. Future Client Alerts on this subject will contain in-depth discussions of these provisions. For now, we present the following list:

A clear description of the mark.

The purpose or purposes of the license (i.e. for merchandising).

The territory and/or distribution channels to which the license applies.

Whether the license is exclusive or non-exclusive.

A statement or statements that no other right title or interest in the mark is granted beyond the terms and conditions specifically set forth in the license.

The term of the license.

The royalty to be paid and the terms of payment.

Audit rights.

Proper use of the mark and the licensor’s rights of prior approval.

A non-assignment clause.

A hold-harmless clause with indemnity/insurance for product liability claims involving the products or services on which the mark is used.

Conditions under which the license may be terminated and post-termination rights and duties.

Ohio Businesses Only -To discuss how we may assist you with your trademark protection or trademark licensing program, please feel free to contact us.

Attorney contact:

Scott Lawson, Managing Attorney

E: [email protected]

P: (440) 666-9735

Additional resources provided by the author

The Lawson Firm, LLC (“TLF”) is a law firm providing legal counsel and value-added legal services to its business clients. Further information about TLF may be found at www.lawsonfirm.net. This article is intended to provide general information only and is not intended to provide solutions to specific issues. Readers are cautioned not to attempt to solve specific issues solely on the basis of the information contained in the article. TLF does not claim expertise in the laws of jurisdictions other than those in which our attorneys are licensed. Certification in any of the practice areas mentioned in this article is not available in Ohio.

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