When you enter into a trademark license agreement with another business, you have certain rights and obligations. If you are the licensor, you grant another party the right to use your trademark(s) on products or services in a specific geographic area. If you are the licensee, you agree to pay the other business in exchange for the rights to use their mark(s).
Defining a Trademark License Agreement
Simply put, the license agreement documents the terms under which one party may use the other party's trademark. This type of legal contract is common and has a variety of uses for products and services, including clothing, food wrappers, and beverage labels.
Many well-known consumer product companies license their trademarks, but the practice is not limited to corporate entities. Musical performers, artists, and others also use these agreements.
In the case of a musical performer who has trademarked his or her image, name, or other protected intellectual property, a license gives permission to someone else to use those marks for commercial purposes on t-shirts, posters, and other products. The licensee pays royalties to the musician in exchange for this right.
Requirements for Trademark License Agreements
Your trademark license agreement should be written, include negotiated terms and provisions, and be signed by all parties. To be valid, your agreement must address and include each of the following provisions:
- Parties: identification of the licensor and licensee (full, legal names)
- Identification of the trademark: the trademark(s) covered by the agreement
- Approved uses: the specific products or services for which it can be used
- Geography: the geographic area(s) where the licensee can offer, use, and distribute related products or services
- Quality control: quality standards the licensee must adhere to when using the trademark(s), which are in place so the licensee does not damage the licensor's reputation
Additional Provisions for Trademark License Agreements
Trademark license agreements often include additional requirements. These include the following:
- Approval of promotional materials: some licensors demand the right to approve any marketing or promotional materials using or related to the licensed trademark.
- Exclusivity: an exclusive agreement means the licensee is the only business allowed to use the mark in the covered geographical area. A nonexclusive trademark license agreement is one where the licensor reserves the right to enter into similar engagements with other companies who will also have similar rights in the same geographic area.
- Duration: the agreement should also address how long the licensee may use it, including whether and how they can renew it.
- Compensation: payment under trademark license agreements is typically structured as lump-sum fees or ongoing royalty payments. The contract should specify the amount of the one-time payment or calculations for royalty payments and when the licensee must pay the licensor.
- Consequences for breach of agreement: these documents should also address what happens when one of the parties breaches their duties.
Trademark License Agreement vs. Franchise Agreement
License agreements are limited in scope, granting the right to use a specific trademark under certain terms. The licensor can enforce the agreement but only to the extent of the covered mark.
In contrast, franchising a business is broader. Franchise agreements establish additional controls and interdependencies between the franchisor and franchisee, governing how the franchisee conducts business.
When drafting license agreements, take care to avoid inadvertently triggering franchise law by giving the licensor control that extends beyond the trademark.
Protecting Your Brand with a Trademark License Agreement
Whether you have a trademark that other businesses want to use or you want to use another company's mark, a license agreement can help protect your company and brand.