The Nuts and Bolts of a Trademark Licensing Agreement
Trademark License Agreements vary quite a bit in length and intricacies. While many licenses contain a similar structure each license will contain different details and clauses based on the goods or services being licensed. While it is more common to license trademarks rather than service marks, license agreements can encompass products or services. Moreover, license agreements often involve federally registered trademarks, but unregistered marks may also be the subject of a license. Regarding recordation, some countries maintain a legal requirement that license agreements must be recorded. The United States does not require a trademark license be recorded with the United States Patent & Trademark Office.
Certain provisions will be found in most trademark licenses. The following matters should be addressed in a license agreement:
Parties & Intellectual Property - Identify the parties to the Agreement and the Intellectual Property (the trademarks) that is being licensed (these matters may be delineated in the Grant Clause).
Goods or Services, Term & Territory - Identify the nature of the goods or services the licensee will offer under the trademark, the contract term, and the geographic territory in which the marks are being licensed. In addition to identifying the goods or services, often the licensed uses are specified. For example, the agreement may indicate the following uses are permitted: manufacturing, sales, promotion, distribution, and/or advertising. Moreover, the licensor may limit or permit the following channels of distribution, brick and mortar retail, Internet sales, wholesale or retail or sales limited to certain stores or classes of consumers.
Definitions - Often there will be a definitions section (key terms will be defined within the agreement).
Quality Control - A detailed quality control clause is critical to a trademark license. Control by the licensor is required because the mark represents the owner's reputation and good will. Consumers rely on a trademark owner's reputation with regard to the quality of the goods or services when making purchasing decisions. It is typical to have the licensee recite that "all good will inures to the benefit of the licensor".
Exclusivity - A license can be of three types:
(A) Exclusive -Rights will be granted to the licensee to the exclusion of all others including the licensor and this can pertain to a particular geographic area or region as well.
(B) Sole - Rights will be granted solely to one licensee, but not to the exclusion of the licensor.
(C) Non-exclusive - Rights can be granted to other third party licensees, in addition the licensor may use the trademark in commerce.
Compensation - One common form of compensation is a royalty payment based on the percentage of net sales. The licensor may even want to audit the licensee's operation to verify that the licensor is being appropriately compensated. This can be set forth in a records and audit clause. The licensor may also desire some form of assurance that the licensee will use its best efforts to exploit the licensed brands. This can take the form of a "best efforts" clause or there can be a minimum royalty provision.
Litigation - This clause establishes the parties' rights to enforce the mark.
Insurance - This provision requires the licensee to obtain insurance to protect the licensor from liability for claims brought against the licensee and possibly to cover a failure of the licensee to satisfy its obligations under the license agreement.
Warranty - A licensee may require that its interests be protected through a clause wherein the licensor provides an express warranty of non-infringement. This may involve the licensor agreeing to indemnify the licensee for any expenses relating to infringement of the intellectual property.
Termination & Right to Remedy - This provision is included in a license as a means to encourage the parties to work together to resolve minor disputes that arise under the agreement. If a breach occurs, the defaulting party is given an opportunity to correct the deficiency within a specified time period. If the defaulting party remains in breach of the agreement, the non-breaching party will have the right to terminate the agreement.
Arbitration - Should a dispute arise under the licensing agreement, it is common practice to provide that the dispute be resolved via arbitration because it is a cost effective method. The clause will specify if the arbitration will be binding on the parties and what type of relief will be obtained through the arbitration.
Choice of Law & Forum - Choice of law provisions are favored because they provide some certainty pertaining to the enforcement of the license agreement. In addition, courts often enforce choice of forum clauses as long as the forum has a reasonable and logical relationship to the parties and the license.
These are some of the most common provisions included in a trademark license agreement, should you require counsel on more detailed matters, kindly contact our office for a courtesy consultation with one of our trademark attorneys.