How to draw up your brand licensing contract: 7 essential clauses!
Are you the owner of a brand, but you're worried about legal procedures? Would you like to be associated with a brand, but don't know how to go about it?
To build up your network and raise your profile, a brand licensing contract is an interesting solution. Follow our guide to avoid the legal pitfalls and ensure a proper partnership.
What is a brand licensing contract?
Definition
A trademark license is a contract under which the owner (licensor) of a trademark, patent or software authorizes a third party (licensee) to make commercial use of its product and/or service, in return for payment of a financial consideration (royalties). In practical terms, this involves making a trademark available.
The trademark license contract may be exclusive (the licensee alone has the right to use the trademark) or non-exclusive. It is preferable to draw it up in writing, setting out the various clauses of the contract.
What's the difference between a trademark license, a franchise and a trademark concession?
A trademark contract involves the lease of a brand protected by a licensor.
A franchise contract, on the other hand, does not meet the same conditions.
Here are the 3 pillars of a franchise:
- distinctive signs (the brand),
- know-how (the concept), which is kept secret, substantial and approved by the brand,
- ongoing assistance provided by the franchisor to the franchisee (promotional visits, software, partnerships, etc.).
The franchise contract is more restrictive for both parties, but provides more comprehensive protection.
Finally, a brand concession is a partnership in which a brand (licensor) transfers its ownership rights to a third party (licensee), in other words, the total or partial use of its brand and the right to distribute a range of products based in a given territory. The licensor is under no obligation to pass on any know-how to the licensee, and the licensee is under no obligation to follow the licensor's business strategy.
💡 Brand licensing and franchising are therefore very similar. The main difference lies in territorial exclusivity.
To make your choice, identify the degree of responsibility, investment you're prepared to guarantee and your needs. In the case of a franchise agreement, the risk is greater, since a brand license only holds you responsible for ensuring the brand's existence and validity in the eyes of the licensee.
What is the purpose of a trademark license agreement?
Let's take a look at why it's in your interest to adopt a trademark license agreement.
Advantages for the brand owner
The brand owner always keeps an eye on how the brand is used , without interfering in the licensee's way of doing things. In this way, you adopt a highly flexible way of developing that does not meet the legal formalism of franchising.
You can :
- earn a fee without having to run it yourself,
- save time and money,
- promote your product,
- test your product on the market,
- boost your sales.
Benefits for the licensee
A trademark license agreement enables a licensee to exploit and use an existing trademark. The minimal formalities involved are a major strategic advantage. A trademark license agreement can serve as a springboard to franchising until you have sufficient experience to expand.
Your advantages as a licensee include
- you are not limited by an entry fee,
- you have the freedom to choose the location of your business premises,
- you can market several brands without being subject to brand exclusivity,
- you can take advantage of a brand's reputation to expand.
💡 Good to know: for real long-term benefit, adopt a brand image with recognized market potential.
7 essential clauses for drafting your brand licensing contract
Clause no. 1: the identity of the parties
Start by stating the names and addresses of the parties.
Clause 2: Exclusivity and type of license
Indicate the terms of exclusivity or non-exclusivity on your contract. Specify the rights granted and their scope. A license may be only partial, applying to only one product category, or total.
Clause no. 3: date and duration of the agreement
A fixed term which ends with the contract, or an indefinite term which you may terminate at any time.
The agreement may be granted for the legal duration of trademark protection, or for a shorter period. In the opposite case, i.e. for a longer period, the trademark licensor is obliged to renew the protection at the end of the current protection period.
Clause 4: Purpose of the contract
Enter the purpose for which the trademark is to be used.
Clause no. 5: geographical limits
Determine the geographical area or zone of protection of the trademark.
Clause no. 6: obligations of the parties
These are the duties of the parties, what you agree to. For example: information, exploitation, promotion of the product and/or service, etc.
Make sure you are aware of your obligations before signing your contract, as failure to comply may result in legal sanctions.
It may happen that one of the parties fails to fulfill its obligations. In this case, the other party is still obliged to fulfill his or her obligations, which may seem unfair since he or she no longer receives compensation.
In this case, you have the option of legally ceasing to perform your own obligations. This is known as the non-performance exception .
Clause 7: The amount of royalties
Determine the calculation of royalties (if the amount is not a lump sum). The royalty is the sum paid to the licensor to obtain the right to use a trademark. There are fixed royalties (paid on a regular basis), royalties proportional to operating sales, or a combination of both.
The fixed royalty remains fixed, but the proportional royalty is measured as a percentage of monthly sales. The amount of royalties paid varies between 1% and 12% of sales, depending on the brand.
It's up to you to choose what's best for your sales.
☝️ Please note: if you wish to modify or transfer the trademark, register the trademark license agreement with the INPI (article L714-7 of the French Intellectual Property Code).
What type of contract have you opted for? Tell us in the comments!
Article translated from French