Trademark Licensing

This is an agreement between a trademark owner (“licensor”) and another party (“licensee”) wherein the licensor consents to the licensee using its trademark in commerce based on mutually agreeable terms. Some of the basic terms will include the identification of the parties, the trademark or trademarks being licensed, the geographic territory wherein the licensee can use the trademark in commerce, the nature and quality of the services or goods that may be offered under the trademark, quality control provisions, royalty terms, license term, and whether the license is exclusive. Quality control is the essence of a trademark license. There must be specific means for the licensor to monitor and control the licensee’s use, ensuring that there is consistency with the licensor’s interest. The consumer must receive the same quality of goods or services regardless of whether it is the licensee or licensor distributing the goods or rendering the services.

There are several benefits to trademark licensing. One is that it can generate revenue. Another is that the licensor can gain territorial expansion. A trademark owner may also receive the benefits of co-branding when it enters into a licensing agreement. In other words, the owner can team up with a strategic partner and benefit from the other’s marketing, sales, distributing or manufacturing abilities. In addition, trademark owners can increase consumer recognition of the brand. The more a mark is used the greater the recognition will be. An additional advantage is that a trademark owner may be able to share costs with a licensee with respect to advertising and promotion. Lastly, trademark licensing may be a tool to resolve infringement. Rather than having to incur costs for litigation, a trademark owner may be able to persuade an infringer to pay for a license to use the trademark.

How does licensing effect trademark registration?

Use of a trademark inures to the benefit of the party who controls the nature and quality of the services and goods (the licensor). This party is the owner of the trademark and is the only party who is allowed to register the mark. Section 5 of the Trademark Act, 15 U.S.C.§1055 states in part that where a registered trademark or a mark sought to be registered may be used by related companies, the use will inure to the benefit of the registrant or trademark applicant and such use will not impact the validity of the mark or registration as long as it is not used in a manner to deceive the consumer. Where the trademark application states that the use of the mark is by a related company the United States Patent & Trademark Office (USPTO) does not require the applicant to explain how it is controlling the use of the trademark. In the United States, there is no requirement that a license agreement be recorded with the USPTO. However, other countries may require a licensor to record the license for it to be effective against third parties.

As mentioned above, if an application states that use of the trademark is through a controlled licensee or franchisee, the Examining Attorney will not inquire about the relationship of the parties as long as the record contains nothing inconsistent with the claim of ownership by the applicant. In all license and franchise arrangements, the critical aspect to determine ownership is the nature and extent of the control by the applicant with respect to the goods or services to which the trademark is applied. The following are some examples of the ways the applicant may control the quality of the goods or services: (1) inspecting the licensee’s facilities to ensure compliance with the license terms and laws; (2) reviewing production samples under the license to ensure the licensor’s product standards are being adhered to; and (3) reviewing customer service complaints or comments or general feedback. Failure to exercise adequate control over the goods or services of the licensees or franchisees may cause a legal finding that the trademark owner (the licensor) has abandoned its rights in the trademark.

There are several significant advantages to licensing a trademark. Careful drafting of the written agreement is critical to the licensor. Protecting the licensor’s trademark rights is of paramount concern. If you or your organization is interested in licensing a trademark or if you have other general inquiries regarding trademarks, kindly contact one of our NY trademark lawyers for a courtesy consultation.