Trademarks identify the source of goods or services. They serve to protect the public by reducing confusion in the marketplace regarding the person or company providing the goods or services. For example, if the corner gas station was permitted to slap a national coffee chain’s logo on its cups, the public would assume that coffee to be of the type and quality associated with the national brand. Trademark law prevents that confusion from taking place. To learn more about trademark registration, click here.
However, there is a situation in which a third party is permitted to provide another’s trademarked goods or services: trademark licensing agreements.
In this situation, two entities enter into an agreement that permits the licensee to provide the licensor’s goods or services. This agreement should contain a number of important points.
First, the licensor has a duty to control quality. Remember, this is a large part of a trademark’s function in the first place. The public expects a type and quality associated with a name brand. And when an entity other than the original creator is providing the goods or services, trademark law requires the licensor to take steps to ensure the quality of the goods or services.
If the licensee violates the standard for quality, the licensee is liable not only for breach of contract, but also for trademark infringement.
Second, the agreement should clearly detail the payment terms. These terms can vary greatly depending on the industry, however, a payment calculation, due date, and remedies for failure to pay as provided must be included.
Third, the license agreement should call for the licensee to keep accurate books and records and to provide detailed monthly reports to the licensor. This is critical as many times the payment is tied to the sales of the good or services.
The most serious trap in trademark licensing is naked licensing — granting a license without retaining adequate quality control. Courts have held that a trademark owner who licenses its mark without controlling the quality of the licensee’s goods or services has effectively abandoned the mark. In FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509 (9th Cir. 2010), the court found that a trademark owner who failed to exercise quality control over licensees risked forfeiting trademark rights entirely.
Quality control provisions in a trademark license can take many forms: approval rights over products or materials, on-site inspection rights, certification requirements, reporting obligations, and the right to terminate the license upon quality failures. The specific provisions will depend on the industry and the nature of the goods or services. What is non-negotiable is that some form of quality control must be exercised — a license that leaves the licensee entirely unsupervised is legally dangerous for the trademark owner regardless of what the written agreement says.
Beyond the three elements discussed above — quality control, payment terms, and recordkeeping — a well-drafted trademark license should address:
Royalty structures vary widely depending on the industry and the nature of the licensed rights. Common structures include: a percentage of net sales (the most common approach in consumer product licensing), a flat per-unit fee, a lump-sum upfront payment, a guaranteed minimum royalty with additional royalties based on actual sales, and hybrid structures combining upfront fees with ongoing royalties. The right structure depends on the value of the mark, the volume of expected sales, the licensee’s bargaining position, and the licensor’s cash flow needs.
If you need a trademark licensing agreement, or are experiencing problems enforcing your trademark licensing agreement, contact our experienced trademark lawyers today at 855-473-8474 or through our online contact form.
Franchising is one of the most developed forms of trademark licensing. A franchise agreement grants the franchisee the right to operate a business under the franchisor’s trademark in exchange for fees and compliance with the franchisor’s system standards. The Federal Trade Commission regulates franchising under the FTC Franchise Rule (16 C.F.R. Part 436), which requires franchisors to provide prospective franchisees with a Franchise Disclosure Document (FDD) at least 14 days before any agreement is signed or money changes hands.
The trademark licensing provisions of a franchise agreement are among its most important elements. The franchisee is typically granted a limited, non-exclusive license to use the franchisor’s trademarks in a specific territory for the duration of the franchise agreement. Quality control provisions are embedded throughout the franchise system standards, ensuring that the licensor’s obligation to control quality under trademark law is satisfied. Revision Legal advises both franchisors developing their FDD and trademark licensing framework and franchisees evaluating the trademark rights they are acquiring under a proposed franchise agreement.
If you need a trademark licensing agreement, or are experiencing problems enforcing your trademark licensing agreement, contact our experienced trademark lawyers today at 855-473-8474 or through our online contact form.
Revision Legal is a national intellectual property and internet law firm that represents clients across the United States in trademark, copyright, trade secret, and internet law matters. We are a firm of specialists — not general practitioners who handle IP work as one component of a broad practice, but attorneys whose entire professional focus is on the intersection of technology, creativity, and commerce.
Our attorneys have handled cases at every level of the federal court system, including the United States Court of Appeals for the Federal Circuit, the Sixth Circuit, the Ninth Circuit, and before the Trademark Trial and Appeal Board. We manage trademark portfolios for hundreds of clients, ranging from individual entrepreneurs registering their first mark to publicly traded companies maintaining global trademark portfolios across dozens of countries.
We believe that access to expert legal counsel should not depend on the size of your organization. Revision Legal’s flat-fee service model for routine IP matters — trademark registration, copyright registration, DMCA notices, and standard licensing agreements — allows small businesses, startups, and individual creators to access the same quality of legal representation that larger companies receive, at a price that is predictable and fair. For complex litigation and contested proceedings, we work efficiently to achieve the best possible outcome for our clients while managing costs responsibly.
Whatever your intellectual property or internet law need — whether you are protecting a new brand, enforcing your rights against an infringer, defending against a legal demand, or navigating a complex licensing transaction — Revision Legal has the expertise to help. Contact us today at 855-473-8474 or through our online contact form to discuss your matter.
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