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In non-legal terms, a trademark license is the giving of permission to use a trademark from the owner of a trademark to another. In legal terms, the owner of the trademark — who grants permission — is called the “Licensor,” and the business or person receiving permission is called the “Licensee.” With a license, importantly, the owner of the trademark retains ownership. In this manner, a license is different from the sale of a trademark, where ownership changes hands.
Generally, the person/business receiving permission to use the trademark pays ongoing fees — royalties or licensing fees — for the right to use the trademark, and the license to use a trademark is generally limited in time. In this sense, one might think of a license to use a trademark as a rental agreement of sorts. In addition, a trademark license is in writing and subject to extensive negotiations between the Licensor and the Licensee.
The essential key to trademark licensing is that the owner MUST maintain contractual power to control the use of the trademark and also exercise that control. If the Licensee is using the trademark incorrectly, the Licensor must object, correct the usage or terminate the license if the violations of use continue. Otherwise, the existence and legal protections afforded by the trademark can be called into question.
Trademark licensing arrangements are very common. One common use of trademark licensing is in franchise business relationships. This is often observed in restaurants like McDonald’s and Starbucks. Often, the main company operates most of the restaurants but allows others to operate franchise locations. These franchise relationships involve the licensing of the parent company’s trademarks for use by the franchise operators. In franchise relationships, typically, a large number of trademarks are licensed so that the franchise operation has the same look, feel, and quality control as the company-operated locations.
Another common example of trademark licensing involves the use of trademarks for ancillary merchandising. Generally, a trademark denotes the commercial source of a product. Thus, the Mercedes symbol seen on vehicles indicates that the vehicles were made and sold by Mercedes-Benz. However, that same symbol can be licensed for use on non-automotive products like hats and t-shirts. This is very common with trademarks associated with sports teams.
Another common use of trademark licensing exists with co-trademarking. For example, a trademarked ice cream brand might partner with a trademarked cookie brand to create a dessert that combines the two trademarked items. This applies, too, with a trademarked component or ingredient being included in a larger product. Certain trademarked sweeteners, for example, are used as ingredients in foods and beverages. Under these types of license agreements, the trademark for the ingredient/component is allowed — or required — to be placed on the larger product. Generally, the license agreement will specify that no alteration of the component/ingredient is allowed. This is part of the quality control mentioned above.
Contact the Trademark Attorneys at Revision Legal
For more information, contact the experienced Trademark Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.
Trademark licensing is one of the most commercially significant — and legally demanding — areas of trademark law. Done correctly, licensing transforms a registered trademark into a recurring revenue stream and allows a brand to expand its market footprint without the capital expenditure of direct operations. Done incorrectly, it can result in the weakening or complete loss of trademark rights. Here is a more complete analysis of how trademark licenses work and what every licensor and licensee needs to understand.
Trademark licenses are governed by the Lanham Act, 15 U.S.C. § 1051 et seq., and by state common law. Unlike patent licenses or copyright licenses, the Lanham Act imposes a critical ongoing obligation on the trademark licensor: quality control. Under the “related company” doctrine codified at 15 U.S.C. § 1055, use of a registered trademark by a licensee inures to the benefit of the licensor — but only if the licensor controls the nature and quality of the goods or services in connection with which the mark is used.
If a licensor fails to exercise adequate quality control over a licensee’s use, the trademark can be found “naked” — unenforceable and potentially abandoned. The legal doctrine is sometimes called “naked licensing.” Courts have found naked licensing where the licensor executed a license agreement with quality control provisions but never actually monitored or enforced them. The existence of quality control language in the agreement, without actual exercise of that control, is insufficient. Barcamerica Int’l USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002), is a leading case on this point: the court found that a licensor who failed to monitor the licensee’s use of the mark had effectively abandoned the trademark.
A well-drafted trademark license agreement should address the following core terms:
An exclusive trademark license grants the licensee the sole right to use the mark in a defined field or territory. In an exclusive license, the licensor typically commits not to license the same mark to any other party within that field or territory — and often commits not to use the mark itself within that scope. Non-exclusive licenses allow the licensor to grant the same rights to multiple licensees simultaneously.
The choice between exclusive and non-exclusive has major implications for pricing, enforcement, and brand strategy. Exclusive licenses command higher royalties and greater licensee investment because the licensee has market exclusivity. However, the licensor must carefully police the boundaries of exclusivity — granting overlapping exclusive licenses creates serious legal exposure including breach of contract liability. Non-exclusive licenses are simpler to administer but typically generate lower per-licensee royalties.
Unlike trademark assignments, which must be recorded with the USPTO to be effective against subsequent bona fide purchasers, trademark licenses do not require USPTO recording to be valid. However, recording a license agreement with the USPTO creates a public record that can be useful in priority disputes and can provide notice to third parties of the licensee’s authorized use.
Internationally, the rules differ significantly. Many countries require trademark licenses to be recorded with the national trademark office before the licensee’s use can inure to the licensor’s benefit. Failing to record in required jurisdictions can result in loss of trademark rights in those markets — a serious risk for brands operating globally.
The treatment of trademark licenses in bankruptcy has historically been an area of legal uncertainty. When a licensor files for bankruptcy, the trustee has the right to reject executory contracts — including trademark licenses — under 11 U.S.C. § 365. The Trademark Licensing Protection Act, introduced multiple times in Congress but not yet enacted, would align trademark license treatment with patent and copyright license protections under § 365(n), which allows licensees to retain their rights upon rejection. Until federal law is clarified, trademark licensees should negotiate protective language in their license agreements and consider what remedies they would have if the licensor enters bankruptcy and seeks to reject the license.
The trademark attorneys at Revision Legal draft, negotiate, and review trademark license agreements for both licensors and licensees. If you are building a licensing program or evaluating an agreement put forward by the other side, contact us for experienced counsel.
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