What are the Vital Clauses in Trademark Licensing Agreement?

An immense number of brands are choosing Trademark Licensing to expand their businesses and generate more significant revenue from their Trademark or brand name. The most vital factor in a business agreement is the Licensing Agreement. Both the Licensee and the Licensor should necessarily confirm that the signed license agreement is complete and precise in nature & covers all future possibilities. In the instances where the license agreement is not correctly drafted, it could result in future litigation & could also impact the commercial interests of both parties. In this blog, we will discuss some vital clauses in Trademark Licensing Agreement.

What is Trademark Licensing? – An Overview

Before we discuss the vital clauses in Trademark Licensing Agreement, let’s understand the meaning of Trademark Licensing. Trademark Licensing is the process or a method wherein a registered owner of a Trademark certifies a 3^rd party to use the mark or brand name in the course of trade without transferring the mark ownership. The Trademark Licensing allows the registered owner to let others use the mark without assigning the Trademark ownership. The owner can also put other restrictions on the use of the mark through the terms that he or she puts into the Trademark Licensing Agreement. For instance, the owner may license a Trademark to be used for only particular products & services.

Trademark Licensing has become a regular practice as it benefits both the Licensee and the Licensor. The Licensor earns money through royalty, while the Licensee gets to commercially exploit the mark. In addition to financial benefits, the Licensor also benefits due to the growing reach and reputation of the mark. However, if left unchecked, licensing could also harm the reputation of the mark. Therefore, it’s of greatest importance to incorporate clauses concerning quality checks of products or services in the Licensing Agreement. Section 49 of the Act mandates or orders that Licensing Agreements shall state the level of quality control. The object in this provision is that a relationship in the course of trade between the owner and the registered user should show in the licensed use of the mark.

Vital Clauses in Trademark Licensing Agreement

Following are some essential clauses in Trademark Licensing Agreement:

1. Royalties Clause: All the clauses relating to the royalties concerning Licensing Agreement must purposely lay down all the methods of calculation of the pertinent royalty, which is to be paid by the Licensor to the Licensee. It should also state all the terms concerning the payment, i.e., the manner inclusive of the timeline for all payments of royalties, comprising the documentation mentioning the estimation of royalties.
2. Insurance Clause: The Licensing Agreement usually contains the insurance clauses that are comprised to safeguard the Licensor from future 3^rd party claims that might arise against the Licensee. This can comprise the extent of damages or loss or the expenses to be incurred by them due to such future 3^rd party claims.
3. Grant Clause: This is one of the vital clauses in the Trademark Licensing Agreement because it permits or allows the Licensee the right to use the Trademark of Licensor. It must evidently lay down the extent to which the rights are permitted to the Licensee. The granted right can be regarding exclusive or of the non-exclusive type; or type of a transferable or the non-transferable one; the geographical or territorial limit within which one of the parties that is the Licensee is given the right to use the provided mark; all the products & services on which the Licensee can use the pertinent Trademark; whether the given right to sub-license will be permitted to the party which is the Licensee. In the instances where the Trademark is licensed on an exclusive basis, the Licensing Agreement should necessarily define all the relative terms & conditions, which, if not fulfilled, will allow the Licensor to cancel the whole completely given license.
4. Rights & Liabilities: The Licensing Agreement should necessarily include a clause that is clearly suggestive of the rights & obligations of each of the parties. The obligation of the Licensor should involve the fact ensuring the value concerning the Trademark is purely maintained, and enough technique of marketing & advertising is done in conformity to the applicable extent. The obligations of the Licensee must extend into ensuring the quality of goods and all the services upon which a Trademark of Licensor is mentioned and used and is also maintained. Both the parties (Licensor and Licensee) must also lay down all the responsibilities or the roles of each of the parties in situations where there is a 3^rd party infringement^[1] of the registered Trademark.
5. Quality Control Clause: Since, it’s one of the most vital aspects of Trademark Licensing, the Licensing Agreement should provide for the provision where the Licensor shall exercise the quality control practice over the goods provided to the Licensee, i.e., should provide all the exclusive details of the proposed design, as to how the Trademark or brand name should be used and all the dissimilar products which should be placed & encouraged in future, whether in future there will be inspections by the Licensor and their frequency etc. The clause must also define the process for disposing of all types of goods that don’t meet the required standards.
6. Governing Law Clause: This is one of the most vital clauses in the Trademark Licensing Agreement, which defines the law that will govern the Licensing Agreement during its effectiveness. This clause has its own importance in the cases where the parties belong to different jurisdictions. This clause is instrumental when it comes to finding out the rights & liabilities of the parties to the Agreement & also the remedies which are available to them in case of an infringement.
7. Confidentiality Clause: In a Licensing Agreement of Trademark, it is common that both Licensee and the Licensor have their own confidential information concerning the other party. It would be quite careful to have clauses concerning confidentiality. Both the Licensor and the Licensee should be eligible for using the confidential information throughout the agreement duration; but, such information should not be revealed to any 3^rd party.

The Agreement must have a provision for the return of the exchanged confidential details made between the Licensor and the Licensee as soon as the Agreement is terminated.  It is vital to clearly mention to which details will be deemed as “confidential” in nature & in what conditions such information could be expected to be revealed.

Conclusion

After discussing the vital clauses in Trademark Licensing Agreement, it is crucial that the Trademark Licensing Agreement is completely drafted and is comprehensive so that it eliminates potential disputes which might arise in the future between the parties. Moreover, it is also vital to remember that every Licensing Agreement which is drafted is dissimilar because it is based on the type of commercial arrangement between the parties. Hence, it is vital to be clear concerning the interests of both the Licensor and the Licensee to the Agreement and then draft the Agreement accordingly.

Read our Article:Dilution Doctrine under Trademark Law: An Overview