Trademark Licensing

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A trademark is a name, symbol, mark, device, image, design or phrase used to distinguish a certain product, business or individual. trademark licensing is the temporary right to use a trademark (typically on merchandise) in return for periodic payments known as royalties. The underlying principle of trademark licensing is that consumers are more likely to buy merchandise if it includes a familiar trademark.

Examples of Trademark Licenses

Trademarks are often licensed in the following situations:

  • Characters such as Barney or the Power Rangers are often licensed to merchandise producers, providing lucrative licensing income for the trademark owners.
  • Licensing collegiate trademarks to merchandise producers provides an important revenue source for universities. (In 1999, Ohio University and Ohio State settled a bitter dispute over which university could license the word “Ohio.” )
  • Companies such as Harley-Davidson and Jack Daniels earn income by licensing their corporate trademarks.
  • Designers such as Calvin Klein have created billion-dollar enterprises placing their names on a wide array of products.
  • Entertainment trademarks such as  “MTV” or “Late Night With David Letterman” provide additional earnings for entertainment companies.
  • Annual festivals and activities such as  the Gilroy Garlic Festival license their trademarks to augment income for the event.
  • State and municipal tourism offices license trademarks such as “Ski Colorado.”
  • Trademark licensing earns revenue nonprofit causes—for example, the Audubon Society licenses its name for a clock that provides birdcalls.
  • Licensing league and sports trademarks for teams like the Chicago Bulls or the San Francisco Forty- Niners is probably the greatest single generator of trademark licensing revenue.  

The Licensing Process

The trademark owner often has a strong interest in controlling the quality and consistency of affiliated merchandise and is concerned about misuse of the mark or that shoddy The trademark licensing process is initiated in one of three ways:

  • a licensee locates a trademark owner,
  • the trademark owner contacts a licensee, or
  • a third-party agency facilitates the licensing arrangement.

Many famous trademarks, such as “Harley- Davidson,” are represented by agencies who seek out suitable merchandise partners. After the parties make contact, they sort out the basic terms of the agreement It is quite common for owners of well known trademarks to dictate the terms and furnish the agreements for merchandise licensing. Often these terms are on a “take it or leave it” basis—if the licensee does not agree, the trademark owner will go elsewhere. In other cases, a licensee will furnish the trademark license agreement. Usually, prior to furnishing the agreement, the licensee and the licensor have worked out all of the business terms. Even after the terms are agreed upon and the license is furnished, the parties can make additional changes. Payment of royalties depends on industry trends. To use a trademark on merchandise such as clothing or ceramic goods, a licensee must pay royalties ranging from 2% to 10% of net sales. A trademark owner may accept a lump-sum payment for a one-time license—for example, the use of the image on 10,000 T-shirts at a sporting event. 

Avoid Naked Licenses

Because the license transfers some of the goodwill (the consumer perception of the brand) associated with the mark, the trademark owner must maintain quality control over the mark.  Without such control, the agreement is called a "naked license" and it may be argued that the owner has abandoned trademark rights. Therefore all provisions for the licensing of trademarks should provide some means of regulating the nature and quality of the licensee's goods or services associated with the mark.