Trademark Licensing: How to License Your Brand and Protect Your Trademark

Building a recognizable brand takes time. Customers may begin to associate your business name, logo, products, or services with a particular level of quality and experience. As that recognition grows, other businesses may become interested in using the brand you have developed.

For example, a manufacturer may want to put your brand on merchandise, a distributor may want to sell branded products in a new market, or another company may approach you about collaborating on a new product line. You may also decide that you want to generate additional revenue from your brand without manufacturing and selling every product yourself.

Trademark licensing can provide a way to pursue these opportunities. Through a licensing arrangement, a trademark owner can allow another company to use its brand while continuing to own the underlying trademark rights. However, licensing a trademark involves more than simply giving someone permission to place your name or logo on a product. A brand owner should consider what the other company can sell, where it can sell those products, how the brand can be presented, how the trademark owner will be compensated, and how much control the owner will retain.

Control is particularly important because another company's use of your trademark can affect how consumers perceive your brand. A poorly structured licensing relationship can therefore create problems that extend beyond the terms of a single business deal. Understanding how trademark licensing works can help businesses identify opportunities to expand their brands while protecting the reputation and goodwill they have already built.

What Is Trademark Licensing?

Trademark licensing is an arrangement in which a trademark owner gives another person or company permission to use a trademark under specified conditions. The trademark owner is generally called the licensor, while the person or business receiving permission to use the trademark is called the licensee.

For example, suppose a company owns a clothing brand and another business approaches it about producing bags bearing the brand's name. The brand owner could manufacture the bags itself, sell its trademark rights to the other company, or potentially license the trademark to the manufacturer. Under a licensing arrangement, the manufacturer could receive permission to produce and sell bags using the brand while the original company continues to own the trademark.

The licensing agreement could identify which trademarks the manufacturer may use, which products may display the brand, where those products may be sold, and how the brand must appear on products and packaging. The agreement could also establish quality standards, payment obligations, the duration of the relationship, and what happens when the license ends.

In other words, licensing your brand does not necessarily mean giving away your brand. Instead, a trademark license can establish the circumstances under which another business may use it.

Do You Still Own Your Trademark If You License It?

A trademark owner can generally license another party to use a trademark while continuing to own the underlying trademark rights. This distinction is important because a trademark license and a trademark assignment accomplish different things.

A license generally gives another party permission to use the trademark according to the terms established by the parties. An assignment, by contrast, generally involves transferring ownership of trademark rights to another party.

If your objective is to let another company use your brand rather than sell the brand itself, this distinction matters. A brand owner should therefore consider not only whether another company can use the trademark, but also exactly what the company will be permitted to do with it. The scope of those rights can determine how much control the trademark owner retains.

Why Would a Business License Its Brand?

Generating revenue through royalties or licensing fees is one reason a company may consider brand licensing, but it is not the only reason. Licensing can also allow a business to expand without developing every component of a new operation internally.

For example, a company may have developed a recognizable brand but have no experience manufacturing accessories. Another business may already have the factories, supply chain, distribution network, and retail relationships necessary to manufacture and sell those products. Rather than building that infrastructure itself, the trademark owner could consider licensing its brand for use on a particular line of accessories.

Licensing may also allow a business to enter new geographic markets, develop merchandise, expand into additional product categories, work with manufacturers or distributors, collaborate with other brands, or reach customers through new sales channels.

These opportunities come with an important tradeoff. As another company begins interacting with consumers under the licensed trademark, its conduct can influence the reputation of the brand itself. A licensing arrangement should therefore address both the commercial opportunity created by the relationship and the trademark owner's need to maintain appropriate control over the brand.

How Do You License Your Brand?

The licensing process generally begins by determining what intellectual property the brand owner controls and what rights the owner is willing to grant to another party. A statement such as “we want to license your brand” may sound straightforward, but it leaves many important questions unanswered.

The parties should determine which trademarks will be licensed, which products or services may use those trademarks, where the licensed products may be sold, and how long the arrangement will last. They should also consider whether the licensee can sell through online marketplaces, whether it can modify the brand's logos or other visual assets, whether it can work with third-party manufacturers, and whether it can give another company permission to use the trademark.

Financial and commercial terms must also be considered. The parties may need to determine whether the license is exclusive, how the trademark owner will be paid, how sales will be reported, and what happens if either party fails to meet its obligations.

These decisions collectively define the scope of the license and can be incorporated into a trademark licensing agreement that establishes the rights and responsibilities of both the licensor and the licensee.

Decide Exactly What You Are Licensing

A brand can contain several forms of intellectual property. A business may use a company name, product names, logos, slogans, packaging, copyrighted artwork, and other creative or commercial assets.

A trademark licensing agreement should clearly identify which trademarks the licensee has permission to use. Permission to use one trademark should not create unnecessary uncertainty about whether the licensee can also use other logos, slogans, product names, or brand assets. Businesses still building their brand portfolio may also want to review whether a business name can be trademarked before licensing it to others.

The agreement may also establish how the licensed trademark can be displayed and whether the licensee can modify its appearance. These issues become particularly important when a company uses several versions of its logo or maintains detailed brand guidelines.

Decide Which Products or Services Can Use Your Brand

A trademark owner does not necessarily have to give a licensee permission to use its brand on every product or service the licensee offers. The scope of the license can instead be limited to particular categories.

For example, a lifestyle brand may want another company to manufacture branded hats. The trademark owner could potentially grant rights relating specifically to hats rather than granting unrestricted rights covering clothing, bags, footwear, cosmetics, and other products.

Clearly defining the licensed products or services can establish where the licensee's permission begins and ends. It can also preserve the trademark owner's ability to work with other companies in different product categories.

Consider Territory and Sales Channels

The parties should also determine where the licensee will have permission to use and commercialize the brand. A trademark license may cover the entire United States, individual states, particular countries, or another defined geographic territory.

Territory can become particularly important when a brand intends to work with multiple licensing partners. For example, a trademark owner may grant one company rights within the United States while entering into a separate arrangement with another company for a different market.

Geography is not the only consideration. The agreement may also distinguish among different sales channels. A company could receive permission to sell branded products through its own website while facing restrictions on sales through third-party marketplaces. Another arrangement might permit wholesale distribution while limiting direct-to-consumer sales.

For e-commerce businesses, rights involving Amazon, Walmart Marketplace, social commerce platforms, and other online channels can become as important as the physical territory covered by the agreement.

Understand Exclusive and Non-Exclusive Licensing

Whether a license is exclusive or non-exclusive can significantly affect what the trademark owner and licensee are permitted to do during the relationship.

An exclusive license may restrict the trademark owner's ability to grant the same or similar rights to another party within the scope of the agreement. A non-exclusive license generally allows the owner to grant rights to multiple licensees.

Exclusivity can also be narrowly defined. A licensee might receive exclusive rights for a particular product category, within a particular territory, through a particular sales channel, or for a specified period of time. For example, a company might receive exclusive rights to manufacture branded watches in a defined territory while the trademark owner retains the ability to license other products or work with partners elsewhere.

As a result, the word “exclusive” should not be evaluated in isolation. The parties should understand which rights are exclusive, where that exclusivity applies, which products or services it covers, and how long it will last.

How Do You Get Paid for Licensing Your Brand?

Trademark licensing arrangements can compensate a brand owner in several ways. One common structure involves a royalty, under which the licensee pays the trademark owner an agreed percentage based on sales. Other arrangements may involve fixed licensing fees, upfront payments, minimum guarantees, performance requirements, or a combination of several payment structures.

Even an apparently straightforward royalty arrangement can require careful definition. For example, an agreement providing for a 10 percent royalty should identify the amount against which that percentage will be calculated. A percentage of gross sales may produce a substantially different result from a percentage calculated after returns, discounts, or other permitted deductions.

The parties may also need to determine how frequently royalties will be paid, how the licensee will report its sales, what records it must maintain, and whether the trademark owner has the right to review or audit those records.

There is no universal royalty rate that applies to every trademark licensing arrangement. The economics of a deal can depend on factors such as the strength of the brand, the industry, the licensed product category, the territory, exclusivity, anticipated sales, the obligations of each party, and their respective bargaining positions. Businesses evaluating a licensing opportunity should therefore consider the overall economics of the arrangement rather than focusing solely on a single royalty percentage.

Quality Control Is an Important Part of Protecting Your Trademark

Quality control is one of the most important considerations in trademark licensing because consumers encounter the licensee's products or services under the trademark owner's brand.

If a licensee sells poorly manufactured products bearing a licensed trademark, customers may associate that poor experience with the brand itself rather than distinguishing between the trademark owner and the company that manufactured the product. Quality control can therefore affect both the commercial reputation of the brand and the trademark rights associated with it.

Under federal trademark law, use of a mark by a related company can benefit the trademark owner when the owner controls the nature and quality of the goods or services associated with the mark. A trademark licensing agreement may therefore establish standards governing product quality, packaging, approved manufacturers, marketing materials, customer experience, product samples, advertising claims, logo placement, or approval of new products.

The appropriate controls will depend on the particular brand and licensing relationship. However, allowing another company to operate under your brand should generally involve considering how the quality associated with that trademark will be maintained.

Establish Brand Standards Before Problems Arise

Quality control is not limited to whether a physical product functions properly. A company's brand also includes its visual identity, reputation, and the expectations it creates among consumers.

A licensee may want to alter a logo so that it fits particular packaging, create advertisements using the trademark, develop product listings, or publish social media content promoting the licensed products. These activities can affect how the brand appears to consumers even when the underlying product meets the required manufacturing standards.

A licensing agreement can therefore establish rules governing logo placement and modification, packaging, advertisements, product photography, marketing claims, social media content, marketplace listings, co-branding, and promotional materials. Depending on the arrangement, the trademark owner may also retain approval rights over certain uses.

For a company that has spent years developing a recognizable identity, these provisions can help prevent a commercial licensing opportunity from gradually weakening the consistency of the brand.

Can the Licensee Let Someone Else Use Your Brand?

A licensing arrangement should also address sublicensing, which occurs when a licensee grants some or all of its licensed rights to another party.

For example, a trademark owner may carefully evaluate one company and determine that it is an appropriate partner to manufacture products under the brand. If that company subsequently wants another business to manufacture, distribute, or otherwise use the trademark, the original agreement should address whether that arrangement is permitted.

A trademark licensing agreement can specify whether sublicensing is allowed and whether the trademark owner's prior approval is required. Similar considerations can arise if a licensee is acquired, reorganizes its business, or attempts to transfer its rights under the agreement.

These provisions allow the trademark owner to establish greater clarity over which businesses actually have permission to operate under the brand.

What Happens When the Licensing Agreement Ends?

Licensing relationships do not necessarily continue indefinitely. An agreement may expire after a specified term, provide renewal options, allow termination following a breach, or permit either party to end the relationship under defined circumstances.

Termination also creates practical questions concerning materials that already display the trademark. A licensee may still possess inventory, packaging, advertisements, website content, marketplace listings, or promotional materials bearing the licensed brand.

The licensing agreement can address when trademark use must stop and how existing inventory will be handled. In some circumstances, the parties may agree to a limited period during which the licensee can sell remaining inventory. The agreement may also establish requirements concerning online listings, marketing materials, domains, social media, and other uses of the trademark after termination.

Addressing these issues when the licensing relationship begins can reduce uncertainty if the relationship later ends.

What Are the Risks of Licensing Your Brand?

Trademark licensing can create opportunities for expansion and revenue, but it can also create new business and legal risks. Another company may manufacture products associated with your name, interact with customers under your trademark, and make marketing decisions that influence how consumers perceive the brand.

Potential disputes may involve inadequate quality control, inconsistent branding, unpaid or incorrectly calculated royalties, unauthorized sublicensing, disagreements over exclusivity, sales outside the agreed territory, or continued trademark use after the agreement ends.

These risks do not necessarily mean that a business should avoid licensing. Instead, they demonstrate why the value of a licensing opportunity should not be measured solely by how much another company is willing to pay for the right to use a brand. The trademark owner should also consider the rights being granted, the controls that will remain in place, and the consequences if the commercial relationship does not develop as expected.

Protect the Trademark Before You License the Brand

Before entering a licensing arrangement, a business should understand the trademark rights underlying the brand it intends to license. This may include reviewing federal trademark registrations, pending applications, ownership records, the goods and services covered by existing registrations, common-law rights, and potential conflicts involving similar trademarks.

Businesses that are still developing a brand may benefit from conducting a trademark clearance search before investing substantially in the name or logo. Federal trademark registration can also provide important protections as a business grows, enters new markets, and develops commercial relationships involving its brand.

Licensing can therefore be understood as one stage in the broader lifecycle of a trademark. A business may begin by creating a brand, clearing the proposed trademark, pursuing registration, protecting the mark from unauthorized use, and eventually exploring ways to commercialize the goodwill associated with it.

At that point, the question is no longer limited to how the business can protect its trademark. The business can also begin considering how the trademark can function as a commercial asset.

How Can You License Your Brand Without Losing Control of It?

Licensing a brand without unnecessarily surrendering control begins with clearly defining the relationship between the trademark owner and the licensee. The parties should determine which trademarks the licensee can use, which products or services are covered, where those products can be sold, whether the rights are exclusive, whether sublicensing is permitted, how the trademark owner will be compensated, what quality standards must be maintained, and what happens when the relationship ends.

It is also important to distinguish between licensing a trademark and selling the underlying trademark rights. A properly structured licensing relationship can allow another company to benefit from a recognizable brand while the trademark owner retains ownership and establishes boundaries governing how the mark can be used.

The objective is not simply to find someone willing to pay to place a logo on a product. For a trademark owner, licensing is an opportunity to turn the reputation and goodwill associated with a brand into a commercial asset while continuing to protect what made that brand valuable.

Considering Licensing Your Brand?

If another company has approached your business about using its trademark, or if you are exploring ways to license your brand for merchandise, products, distribution, or expansion, the terms of the arrangement can affect both the revenue you receive and the control you retain.

Stockman & Poropat, PLLC assists businesses and entrepreneurs with trademark protection, intellectual property agreements, and licensing matters. Our firm can assist with evaluating proposed licensing terms, structuring and negotiating trademark licensing agreements, and addressing provisions involving royalties, exclusivity, territory, sublicensing, quality control, and brand protection.

Contact Stockman & Poropat, PLLC to discuss your trademark licensing needs.

This article is provided for general informational purposes only and does not constitute legal advice.