What a Trademark Licensing Agreement Covers

26 Sep What a Trademark Licensing Agreement Covers

A trademark licensing agreement is the document that turns a brand into a licensed product line. It
tells a partner exactly what they may do with your marks, what they must do in return, and what happens when
things change. Brand owners who understand its parts negotiate better deals and avoid the problems that surface
years later.

The licensed property

The agreement starts by naming the marks being licensed: word marks, logos, designs, slogans and sometimes
artwork or characters. Precision matters. A license to use a logo is not a license to use every variation of it,
and a license to use a brand name on apparel is not a license to use it on a website domain or social account
unless the agreement says so.

Products, channels and territory

Licenses are granted for specific products, sold through specific channels, in specific places. A partner
may be licensed for t shirts and hats sold through specialty retail in North America, and nothing else. Clear
product definitions keep one licensee from drifting into another’s category. Channel terms keep premium brands
out of discount bins. Territory terms keep partners from competing with each other overseas.

Term and exclusivity

The term sets how long the license lasts and whether it renews. Renewal is often tied to performance, such
as reaching a sales level. Exclusivity promises the licensee that no one else will receive the same rights in
the same category and territory. Exclusivity has value, so it usually comes with higher guaranteed minimums.

Money: royalties, advances and minimums

Most agreements pay the brand owner a royalty, a percentage of the licensee’s net sales of licensed products.
The definition of net sales deserves as much attention as the rate: which returns, discounts and allowances can
be deducted, and whether there is a cap on deductions. Many agreements also require an advance at signing and a
guaranteed minimum royalty over each period, so the brand is protected if sales disappoint.

Approvals and quality control

A trademark owner is expected to control the quality of goods sold under its marks. The agreement should
spell out an approval process for concepts, samples, final products, packaging and marketing, along with the
standards products must meet. Without real quality control, a licensing program can weaken the very mark it
depends on.

Reporting and audits

Licensees report sales and pay royalties on a schedule, typically quarterly. The agreement should give the
brand owner the right to audit the licensee’s books, and set out who pays for the audit if it uncovers an
underpayment.

Ending the deal

Every license ends eventually. Termination clauses describe when either side can end the agreement early,
such as for missed payments or unapproved products. Sell off provisions describe what happens to inventory
already made, and for how long the licensee may sell it. These terms decide whether an ending is clean or
contested.

Where to start

A good agreement begins with a clear program: which categories, which kind of partner and which standards.
Garfield Agency helps brand owners build licensing programs and brings meticulous contract negotiation to the
agreements behind them.

Thinking about what a trademark licensing agreement covers? Start a conversation with Garfield Agency or read more in our licensing FAQ.

Garfield Agency provides licensing strategy and business services. It is not a law firm and does not give legal advice. For trademark filings, clearance opinions and disputes, work with a licensed attorney.