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Exploring Key Elements of Trademark License Agreements

May 10, 2023 | 0 comments

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May 10, 2023 | Essays | 0 comments

(A) – identify and discuss key terms in the Trademark license.

  1. The license grant

This is at the core of a trademark license agreement because it offers definitions of the answers to the following key questions.

  1. the license grant defines the trademarks that are being licensed and the specific rights that are conveyed
  2. The license grant defines what the licensee is permitted to do with the licensed right. Similarly, it also defines what the licensee is prohibited from doing with the licensed rights. Particularly, the types of products the licensee is allowed to sell or manufacture, which channels of distribution, and which territories.
  3. Finally, the license grant defines whether the grant is non-exclusive or exclusive. Moreover, the owner of a trademark may also license the copyrights (for brand-related contents that are original, logos), and publicity rights (for the celebrity licenses) (Herzfeld & Bergovoy, 2007).
  4. Distribution channels and territories


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Territory implies the geographic area whereby the license is allowed to the goods licensed and usually defined on a basis of a country.

Distribution channels mean the categories of buyers permissible from the licensee and the resellers of the licensed products to the general public. The most common channels of distribution include catalogs, the internet, specialty stores, mid-tier, and mass department stores.

According to Herzfeld & Bergovoy (2007), the conflict arises when negotiating the provision of channels where the licensor desire to only have the best quality and newest goods for sale in the channels that are most prestigious to enhance the brand image, whereas the desire of the licensee to maximize profits by using many channels as possible to sell many goods at whatever market price. In negotiating the provision of distribution channel, Herzfeld & Bergovoy (2007) indicated that licensors usually want well defined, limited channels and no right to sell-offs (inventory unsold at the agreement expiration), closeouts (unsold inventory out of season), or seconds (goods having merchantable but minor defects) to discount channels without proper approval. In contrast, licensees generally desire to sell through all channels possible and also want to right to selling sell-offs, close-outs, or seconds to discount channels without proper prior licensors approval.

  1. Exclusivity

This is to what extent if whether the license will possess exclusive rights. 5he licenses that are non-exclusive do not restrict the ability of the licensor to grant licenses for similar or like products to other groups or parties. They are the norm in brand licensing and trademark. As the name implies, exclusive rights grant exclusive rights to the licensees to produce and sell the licensed products in certain markets and territories during the term period of the license

  1. The license term

The initial term’s length and the ease or difficulty or difficulty of the licensee in getting a renewal term are driven largely by consideration of businesses. Generally, the licensor wants a short term without the option of automatic renewal for it to replace easily the licensee who is underperforming, or get better financial terms from the new licensee, or even by manufacturing the goods by itself. In contrast, the licensee wants a longer-term compounded with an option for automatic renewal with no of few preconditions for it to amortize the costs of development, and guarantee longer returns for the investments it made

  1. Royalty calculations

The trademark license currency is the royalties. The basis most common for calculation of royalties on license for goods is on a percentage of wholesale net sales, defined as the gross sales subtract the agreed deductions such as returns and taxes. The figure of net sales is then multiplied by the rate of royalty to give the royalties amount owing to the licensor (Herzfeld & Bergovoy, 2007). Herzfeld & Bergovoy (2007) further pointed out the most common contention points when negotiating the provision for net sales. They include:

  1. The permitted deductions from the gross sales when calculating the net sales and other limits within it.
  2. Whether the figure of net sales will be based on the licensees’ sales regardless of no pays or based on the actual receipts from the licensee, exclusive of the purchasers who failed to make payments for whatever reasons. Herzfeld & Bergovoy (2007) asserted that generally, the receipts favor the licensee whereas the sales generally favor the licensor
  3. Free on Board (FOB) sales treatment. FOB is a legal term specifying that the buyer of items from the international commerce will have the legal responsibility of arranging and paying for shipment of the goods purchased from the point the goods pas the rail of the ship at the home port of the seller. However, FOB is used in license agreement more broadly to any scenario where the other buyer or retailer takes the delivery of the location of the licensee and ships the products licensed to the expense of the buyer, essentially removing insurance, freight, related shipping expenses, and customs from the net sales price of the licensee. This definitely results in lower royalties on the part of the licensor, in comparison to the non-FOB sale of similar goods.
  4. Minimum guaranteed royalties

This represents a contractual commitment to pay the licensor an agreed amount of royalties by the licensee regardless of the exact sales amount of the products licensed if any. () stated that advance payments are also part of minimum guaranteed royalties paid at the license agreement inception. The minimum guaranteed royalties are usually negotiated based on a certain percentage of royalties expected to be earned. They intend to motivate the licensee to promote the sale and development of the products licensed diligently in the marketplace and reduce the risk of the licensor by guaranteeing a minimum rate of return.

  1. Quality control and approvals

According to (), trademarks operate as designators that give the consumers a predictive ability to predict product quality they buy. Without the consistency in quality, the buyers not aided would be misled, by relying on trademarks. The licensor of a trademark that does not control and monitor its licensed products is regarded as to have granted a naked license which may lead to complete loss or abandonment of the trademark rights of the licensor. To avoid that, every trademark license agreement must have provisions for quality control that applies to the products licensed and also related packaging, marketing, and advertising materials. Furthermore, the approval proviso should have mechanisms workable by which the licensor can monitor the compliance of the licensee.

(B)- Infringement quality control (bare license UK, naked license US)

Herzfeld, O., & Bergovoy, R. (2007). Trademark licensing is made easy.

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