One way that a manufacturer can expand the geographic scope of its marketing and sales activities is by entering into a Trademark License Agreement with a distributor that is active in a region where the manufacturer’s products are not currently available. Under the terms of the agreement the manufacturer-licensor licenses the right to use the trademark to the distributor-licensee in a specified geographic territory in which the licensor is not currently using the mark but for which the licensor has the legal right to do so on its own or through licensees. One of the most important concerns of a licensor in this context is ensuring that the licensee is obligated to maintain the quality of the goods bearing the trademark that the licensee intends to distribute in the territory and the licensee takes all reasonable steps necessary to protect the licensor’s rights in the trademark and avoid abandonment of the mark.
The basic issues and terms that need to be addressed in any trademark licensing arrangement include the following:
- Identification of the subject matter of the license including the registration number and description for each mark and copies of the logo marks of the licensed trademarks;
- Identification of the products with which the licensed trademarks can be used;
- Identification of the markets (e.g., geographic territory) in which the licensed trademarks can be used (i.e., the markets in which products bearing the licensed trademarks can be marketed and sold);
- Description of the licensee’s obligations under the agreement including compliance with applicable laws and regulations, maintenance of quality of the licensed products, standards of use of the licensed trademarks, and commitment to use best efforts with respect to manufacture and marketing of the licensed products;
- Description of the consideration to be paid by the licensee for the license including any licensing fees and royalties payments based on sales of licensed products;
- Description of licensee’s obligations relating to maintenance of books and records and licensor’s rights to audit such books and records and conduct inspections of processes used by licensee to comply with its obligations relating to use of the licensed trademarks and quality of licensed products;
- Restrictions on licensee’s ability to assign or sublicense the license;
- Procedures to be followed in the event of any actual or potential third party infringement of the licensed trademarks;
- Representations and warranties from the licensor regarding ownership of the licensed trademarks and right to assign, the absence of any pending infringement claims and the absence of any other licenses of the licensed trademarks that would be inconsistent with the rights granted to the licensee;
- Indemnification of the licensor by the licensee against claims made against the licensor based on or arising out of any manufacture, sale, or use of the licensed products (including products liability claims), based on the licensee's infringement or violation of any third party rights as a consequence of use of the licensed trademarks in accordance with the terms of the agreement, or based on or arising out of any violation of the agreement by the licensee;
- Indemnification of the licensee by the licensor against claims made against the licensee based on or arising out of any third party claim that licensee's use of the licensed trademarks infringes the rights of such third party (except to the extent the claim relates to a matter for which the licensee is obligated to indemnify the licensor), based on or arising out of any third party claim that the registration of the licensed trademarks or the ownership rights of the licensor therein are invalid or unenforceable or the agreement is invalid or unenforceable against the licensor, or breach of any of the representations and warranties made by the licensor under the agreement;
- The term of the license, renewal procedures, rights of both parties to terminate the agreement for cause, and procedures for orderly cessation of business following termination or expiration of the license; and
- Miscellaneous provisions include notice procedures, governing law, dispute resolution procedures, integration clauses, and procedures for amendments and waivers.
The content in this post has been adapted from material that will appear in Technology Management and Transactions (Fall 2008) and is presented with permission of Thomson/West. Copyright 2008 Thomson/West. For more information or to order call 1-800-762-5272.