What Is a License Agreement?

One of the two ways to let others use your trademark is through a trademark license agreement.

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TRANSCRIPT

There are two ways you can let somebody else use your trademark. One is through an assignment agreement, and we're going to have a separate video for that, and the other one is through a license agreement.

The difference between the two is, with an assignment agreement, you actually sell your trademark. You no longer own it. Somebody else will become the next owner of your brand. With a trademark license agreement, it's like renting. It's allowing somebody else to use it while you remain the lawful owner of that trademark.

In this video, I will provide some ideas about what should go in the trademark license agreement and what you should be aware of. The first thing is that there are three types of trademark license agreements in terms of what the licensor, or the party who owns the trademark, can do with respect to the trademark. There is exclusive, non-exclusive, and sole.

Exclusive trademark license agreement means that the licensee, somebody that you allowed to use your trademark, is the only party that can use the trademark. Not even the licensor can use that trademark anymore. When you give somebody an exclusive trademark license, it means that they can use it and you cannot use it anymore.

Sole trademark license means that the licensee can use it and you yourself can use it, but you are not allowed to offer similar licenses to others, which means the licensee, the first licensee you're giving it to, is the only licensee that can use the trademark plus you yourself.

And there is non-exclusive license agreement, which means this licensee can use it, you can use it, and you're allowed to give the same license to anybody else without asking the licensee. That's the first thing you need to be clear about.

Then you need to be clear about the term. Again, because it's a license, it’s not an assignment, it's not necessarily forever. It's like renting. You specify how long they will enjoy the right of using your trademark.

Then the territory. That one can be tricky because in theory, your contract, your trademark license agreement, can specify the territory where they can use your trademark. The interesting thing is, for example, you have a trademark registered in Canada and the U.S. and you want to license it for use in European Union. There's nothing that prevents you from signing a contract like this, but the question really is do you even own the brand in Europe if you haven't trademarked it there—because most countries, as you know from my videos, don't protect unregistered trademarks. So be very careful when you're defining the territory to at least have a proper understanding of whether you have the right to grant for those other territories.

Then the other thing is obviously how you get paid. Are you getting paid a royalty, are you getting paid a flat fee, are you getting paid monthly, are you getting paid annually, is that a one flat ... whatever it is, there is really no right and wrong answer here, but you have to be clear what's the benefit to the licensor from granting the right to use the trademark.

Another element of trademark license agreement is, is it sub-licensable, which means is the party, is the licensee allowed to further license your brand. For example, Company A licenses the trademark to Company B, will Company B be able to sub-license it to Company C? Again, there is no right or wrong answer, but it's something that you should think about when you sign the trademark license agreement.

Most importantly ... even though I say it's most importantly, it's from the legal perspective most importantly, but a lot of people who sign license agreements don't know about this, is that the licensor must include in the trademark license agreement the provision that the licensor will exercise control over the quality of the products and services offered by the licensee under that trademark. The idea behind that is a trademark is designed to act as an identifier for the source of products and services to make it easier for the consumers to buy the proper product that they're looking for.

If you have really high quality for your products and then you license it to somebody else who's not going to maintain that high level of quality, it would create a situation when products of completely different quality could be offered under the same brand, which would create a nightmare for consumers. If your trademark license agreement does not provide a mechanism for the trademark licensor to control the quality, to inspect the quality, and maybe even to discontinue the trademark license if that quality does not match, then you may have a problem with validity of your trademark license agreement, so make sure you include that.

There is obviously a lot of other subtleties, but the most important thing you should understand about how trademark licenses work is that it's about renting, while the licensor still owns the trademark, and the licensee is given a limited right to use the trademark, and the contract that describes the terms of this license can be very creative. You can put as many limitations as you want and as you need to make sure that the arrangement meets the requirements of both parties.


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Disclaimer: Please note that this post and this video are not and are not intended as legal advice. Your situation may be different from the facts assumed in this post or video. Your reading this post or watching this video does not create a lawyer-client relationship between you and Trademark Factory International Inc., and you should not rely on this post or this video as the only source of information to make important decisions about your intellectual property.

See our answers to other frequently asked questions about trademarks or leave your comments below!


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