A trademark licensing agreement is a contract in which a licensor allows a licensee to use the licensor’s registered trademark. The licensee may then produce, manufacture, distribute, or sell products under that licensed trademark.
Although there are several ways by which a trademark licensing agreement can be managed, there are several options which tend to provide more beneficial outcomes for both the licensor and licensee. For this reason, these options form part of the ideal management of a trademark licensing agreement.
The proper management of any trademark licensing agreement requires adequate quality control measures. Quality control ensures that the licensee uses the trademark according to the licensor’s instructions while also improving the quality of the product or service which customers receive. To enact quality control measures, the licensor is to set reasonable quality standards and expectations by which the licensee must abide. Additionally, either the licensor or a representative must verify that the licensee is adhering to the stated standards.
If a licensor fails to implement proper quality control measures related to the licensee’s use of the trademark, this trademark will lose its ability to symbolize a specific source. When this happens, the licensor might lose any exclusive rights or protectable interest regarding the trademark. Quality control measures do not have to be maintained by the licensor; they may sometimes be outsourced to an external agency.
Non-compete clauses in trademark licensing agreements prohibit a licensee from operating a business which directly competes with the licensor’s for the entire duration of any such agreement. They ensure that the licensee will not abuse the agreement to sabotage the licensor. Some trademark licensing agreements even have non-compete clauses which prevent the licensee from doing so even after the termination of the agreement.
In many areas of the world, any such restriction after the agreement’s termination is illegal. In other jurisdictions, such restrictions are legal and enforceable unless deemed to be unreasonable in the eyes of the law. Where these restrictions are illegal, they will not be enforced and the licensor will be punished accordingly as stated in the contract’s terms. Therefore, all licensors and licensees ought to carefully examine every detail of a trademark licensing agreement’s non-compete clauses and how they relate to prevailing laws before they enter into it.
Avoidance of Agreement Termination
The licensor and licensee are to work together to prevent termination of a trademark licensing agreement. If the licensor fails to properly advertise the products, provide the licensee with training, or conduct promotions and sales to expose the products to the broader public, the licensee may have grounds to terminate the trademark licensing agreement.
The licensor, meanwhile, may terminate the agreement if the licensee repeatedly fails to adhere to quality control standards or pay all due royalties. The bankruptcy of the licensee may also be a cause for the licensor to terminate the agreement. Should the licensee have committed a legal violation resulting in the termination of the agreement, the licensor may sometimes have the right to sue the licensee for the violation.
Maintenance of Trademark Rights
In most trademark licensing agreements, the maintenance of trademark rights is carried out by the licensor. As part of ideal management of such an agreement, a licensor is to ensure that the related trademark rights are valid at all times. The licensor is also tasked with ensuring that the licensee receives complete trademark rights for as long as the agreement is valid. This concept is known as “purity of the contract”.
To maintain trademark rights, licensors must also avoid committing any acts of unethical behaviour or negligence in their role. Licensors are not to sign any exclusive licenses with two or more other parties in the same jurisdiction. They must also file legal action in a timely manner if their trademark rights are violated. Of course, it should also be mentioned that licensors are not to violate any third parties’ intellectual property rights in their efforts to protect and maintain their trademark rights.
This article is brought to you by Exy Intellectual Property Malaysia and Singapore.