This article has appeared in the July edition of ‘Tackle and Guns’.
Your brand is identified by your trade mark, a form of intellectual property. Like any piece of property you can use it or permit others to do so.
Third party use can add value to your brand. First in generating an income stream through licence fees. Second by growing the brand envelope. Third by giving rise to the possibility that at some point you will take back the licence and build on the goodwill which has been built up for you by the licensee.
So what are some of the do’s and don’ts of licensing?
Do think carefully about your objective
What is your objective in licensing your brand? Is it to generate an income stream? Or do you wish to grow the brand and anticipate taking it back at some point in the future as Burberry has recently done for childwear?
Licensing will usually take place once the brand has built its reputation in particular lines. Before thinking about the financials, make sure that relevant trade mark registrations have been obtained or at least applied for in the relevant product lines and in the countries which matter for a prospective licensee.
Do control the quality of the goods sold under your trade mark
The right to use the trade mark granted to the licensee is temporary. The trade mark will remain the property of the trade mark owner either to use or re-licence in the future. It is critical therefore that the reputation and value of the trade mark increases during the course of the licence, not decreases.
Key to this is quality and ethical control provisions in the licence agreement. This can be achieved by carefully specifying the nature and quality of the licensed goods to which the trade mark may be attached. If the licensee offers commercially unsuccessful products, the future of the brand may be compromised.
Provide for the right to see and approve samples and the places where they are made before products are put on the market.
Do ensure that your ownership of the trade mark is protected
Under UK law, any mark that has not been used commercially for five years can be declared invalid. Safeguards should be put in place to ensure that a licensee does make use of its rights and keeps the registration alive.
Conversely, in the UK and some other territories, licensees can acquire rights through use of a mark. This can happen if a mark which is not registered for particular goods is used for those goods and acquires distinctiveness.
To prevent a licensee acquiring ownership rights in the trade mark, the brand owner should:
- restrict the licence to use of the mark only for the goods for which the mark is registered;
- restrict the licence to use of the mark only to the territories specified in the licence agreement; and
- state in the agreement that any rights in the trade mark that arise out of or during the course of the licensing belong to the trade mark owner; not the licensee.
The licence agreement should also ensure that the licensor controls any claim for trade mark infringement. This may make it difficult to justify the licensee having to pay any costs associated with an infringement action, but it does mean that the brand owner can maintain full control of the process to ensure its rights are not jeopardised.
Don’t think that licensing is a one way bet
Licensing objective determined, give thought to possible licensees. What is the track record? Can you work with the licensee? How easy or otherwise will it be to manage them – a very significant issue given the ability of a licensee to damage your brand.
It is important to ensure that you have the resources to police the licence agreement.
Don’t find yourself liable for defective goods
Even if the goods have been inspected to ensure they are of sufficiently high quality to match the brand and carry the trade mark, a trade mark owner will not want to be held liable for any claims relating to defective goods.
The brand owner should therefore insist that, as the producer of the goods, it is the licensee’s name and address that features on the goods or their packaging. Moreover, if the trade mark owner suffers loss or damage as a result of defective goods, the licensee should indemnify the brand owner.
Don’t find yourself in breach of competition law
While it may be tempting to fix the price at which the licensee sells (particularly in the luxury goods sector, where a brand owner wishes to protect its reputation for quality and luxury), such activity is prohibited under EU competition law and is illegal in the UK.
Brand owners may also wish to control the territories in which the trade mark licensed goods are sold. Under EU competition law however, as soon as the goods are put on to the market in one EU member state, they are in free circulation throughout the EU.
Done correctly, licensing can add greatly to a brand but the pitfalls are there for unprepared brand owners.