Generally speaking, trademark licensing is a way for the trademark owner to further commercialize his intellectual property asset(-s) by allowing someone else to use his trademark under the terms defined by the trademark license agreement.
From franchising to co-branding, one can license his trademark in various ways. Common to all of them, though, is the underlying premise that quality control must remain in the hands of the trademark owner. This premise is consistent with the purpose of a trademark, which is – to act as an indication of the origin of goods or services.
While in the case of trademark licensing, the goods or services will originate from the licensee, consumers should be able to expect that trademarked goods or services have essentially the same consistent quality.
In this sense, one could say that quality control by the trademark owner is fundamental in trademark licensing.
As to the possible ways to license one’s trademarks, they can be broadly categorized as follows:
1. To begin with – FRANCHISING.
This is essentially a special form of a license agreement that gives a person or group of people (the franchisee) the rights to market a product or service using the trademark of another company (the franchisor). Aside from the trademark license, the particular (proven successful) business model, technical support, training and mentoring are part of a deal.
The classic examples of companies licensing their trademarks through franchising are McDonald’s, Subway or Tony&Guy hairdresser-salon.
2. Another common trademark licensing way is CO-BRANDING.
It might be strategically interesting to brands who seek to break into a new market or refresh their appeal to existing customers. In co-branding, trademarks will be cross-licensed, which calls for a double as diligent preparation to avoid potential pitfalls both from a legal as from a marketing standpoint.
There are quite a lot of examples of successful co-branding, such as:
- BMW and Louis Vuitton, when the latter designed an exclusive, four-piece set of bags, perfectly fitting into the rear parcel shelf of the new BMW i8.
- MasterCard and Apple Pay, with MasterCard being the first credit card company to allow customers to store their debit/credit cards on Apple Pay.
3. In BRAND EXTENSION, the trademark owner likewise frequently teams up with another company to which the trademark is then licensed (without cross-licensing) for use in respect of a new category of products or services. From a marketing perspective, successful brand extensions leverage the brand associations and secure a foothold into a new product or service category. Callaway, for example, successfully extended from golf clubs into clothing and footwear, while Ferrari – from luxury cars to theme parks.
While sometimes lucrative, at the same time, in the case of brand extension, there is a high risk to dilute (“overstretch”) the core brand.
In this sense, the company willing to go into a different product/service category has to carefully evaluate what would better fit with their strategic goals and trademark/brand profile (incl. (1) the actual scope of protection of the trademark from a legal perspective; and (2) the “brand extendibility” – the strength of consumers’ associations with brand values and goals – from a marketing perspective).
4. Moving on, undoubtedly known to everyone who has ever been to a cinema, a theme park or a museum, another way of trademark licensing is MERCHANDISING.
The broad term “merchandising” usually refers to licensing of trademarks, artworks, characters, or designs to be used on ordinary consumer goods. This adds additional appeal to an otherwise mundane mug or t-shirt and generates an additional revenue stream (and visibility) to the IP owner.
While this way of trademark licensing might somewhat resemble the previously mentioned brand extension, there are, nonetheless, significant differences.
Thus, in the case of brand extension, while the trademark owner seeks to enter a new product/service category, the choice thereof is usually determined by the natural fit with the trademark owner’s customer base. In contrast, in merchandising, the product category is, by definition, “ordinary consumer goods”. There could, of course, be an overlap in practice, yet these remain two separate ways of trademark licensing.
5. Finally, worth mentioning are the sort of trademark licensing as “a quality stamp”.
The first way is STANDARDS.
In this way, the trademark owner licenses the use of his trademark to companies whose products or services satisfy the defined quality standard or other requirements. To note that in this case, the core trademark is most often the certification mark (Fairtrade, Woolmark, etc.)
The second way of “a quality stamp”-licensing is COMPONENT OR INGREDIENT BRANDING.
Probably the most known example thereof is “Intel Inside” stickers on PCs. When the component has an established reputation, its trademark use could add significant value to the licensee’s product, which includes this component.
Irrespective of the particular way trademark licensing is structured, the main reasons for considering it in the first place pertain to the possibility of increasing brand recognition, reaching new geographical or product/service markets, and, of course, generating an additional revenue stream. Moreover, frequently trademark licensing is a perfect way to form new strategic partnerships and even get the best out of a trademark infringement. For instance, recently, one of the trademark infringement cases we had, ended in a settlement that included a trademark licensing arrangement.
To conclude, while trademark licensing might seem straightforward – the licensor allows the use of his trademark while the licensee pays for it – there are many nuances to consider. At a minimum, the trademark license agreement must align with the trademark law of the particular jurisdiction and with the companies’ strategic goals.
Moreover, there are a lot of steps to be done:
- before (due diligence, valuation etc.),
- during (negotiations on the scope, royalties, reservation of rights etc.) and
- after the signing of the license agreement (reporting, auditing, dealing with infringements etc.).
What is certain, however, is that proper management of the trademark licensing process and a well-thought-through eventual trademark license agreement enables mutually beneficial results for everyone involved.
About the blogpost author:
Maria is a partner with Starks, a niche IP and International trade law boutique in Ghent, Belgium. She is a Latvian Patent and Trademark Attorney, European Trademark and Design Attorney, as well as European Mediator in civil and commercial cross-border disputes for almost two decades. Her main areas of expertise are IP strategy, contracts, and alternative dispute resolution. She is also a mediator and art law expert on the list of the Court of Arbitration for Art (the Hague), and the Mediator on the WIPO ADR Centre’s List of neutrals.
For more information about Maria’s firm, Starks: IP and International Trade law, please visit https://www.starks.be/en/