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Assignments, Licenses and Valuation

Trademark Licensing

Updated, April 2015

1. What is a trademark license?

A trademark license is an agreement between a trademark owner (“licensor”) and another party (“licensee”) in which the licensor permits the licensee to use its trademark in commerce. Usually, a trademark license is expressed in a written contract specifying the scope of the license.

2. What provisions are essential to a trademark license?

A trademark license will identify the following:

  • The trademark;
  • The licensor and the licensee;
  • The territory where the licensee may use the trademark;
  • The goods and/or services that the licensee may offer under the trademark;
  • The duration of the license;
  • Whether the license is exclusive; and
  • The quality of the goods and/or services the licensee may offer under the trademark.

3. Why is a licensor required to exercise quality control over a licensee’s goods and services?

Quality control is needed because a trademark represents the trademark owner’s reputation for producing goods and services of a certain level of quality. Consumers tend to rely on this reputation in making purchasing decisions. If the trademark owner does not exercise sufficient control over the quality of the goods and/or services offered by the licensee, the trademark may, in some countries (e.g., the United Kingdom and Canada), become vulnerable to attack by the licensee or a third party. In other countries, such as the United States, the trademark may be deemed abandoned.

A license will provide for quality control by the licensor by including provisions such as the following:

  • Trademark Usage—The licensor may specify how the trademark will be used on or in connection with the goods and/or services of the licensee and on advertising and promotional materials. The licensee may be required to obtain the licensor’s permission before using any new presentation of the trademark or making any changes to the goods and/or services for which the trademark was approved for use.
  • Quality Control Monitoring—The licensor may require pre-approval of production samples and ongoing access to the licensee’s facilities, raw materials, finished products, personnel and subcontractors to monitor the licensee’s adherence to the licensor’s quality standards set out in the license.

4. What other issues are commonly addressed in a trademark license?

  • Royalty—When a licensor grants a trademark license in return for royalty payments from its licensee, a royalty amount usually is stated explicitly in the license.
  • Termination—A trademark license usually sets a fixed term for the license and the conditions under which the license may be (a) renewed for an additional period of time or (b) terminated for breach of the license conditions or failure to meet certain targets.
  • Exclusivity—A trademark may be licensed exclusively to a single licensee or licensed non-exclusively to more than one licensee. In a non-exclusive licensing arrangement, the licensor retains the right to use the trademark itself, to license it to others, or both. A license may also be “sole,” meaning that only the licensee may use the trademark.
  • Enforcement Action—Often, a trademark license will specify whether the licensee has the right to take legal action in respect of infringements of the trademark and rules for the conduct of those proceedings.

5. Should a trademark license be recorded with the trademark office?

In some countries (e.g., the United States and the United Kingdom), there is no legal requirement that a trademark license be recorded with the national trademark office. Such recordal will simply provide notice to the public and any prospective purchaser of the trademark of the existence of the license agreement. In other countries, however, a license must be recorded to be effective against third parties.

6. Should an attorney be consulted in preparing a trademark license?

An attorney familiar with trademark licensing may provide significant assistance to a client in drafting and negotiating a trademark license, whether as licensee or as licensor. In addition, the attorney can advise on local trademark licensing requirements, including avoiding terms that are potentially unenforceable because of unfair competition law, and on terms that are implied by law and any requirements for recordal of the license.

Additional INTA Resources 

Country Guides: Essential Information on Trademark Protection Worldwide
Searchable database of basic information on trademark filing, prosecution, registration, maintenance and enforcement in more than 100 jurisdictions. INTA membership required.

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