Licensing a trade mark to a third party

The primary purpose of having registered trade marks is to provide a business with defendable rights against third parties who might be inclined to infringe, and take unfair advantage of, its branding and market position.

However, it is also important for a business to remain aware that its registered trade marks are  potentially valuable business assets which may make the business and its brand more attractive to investors and other third parties.

Consequently, in many commercial settings, a business may find that it makes good commercial sense to further exploit its trade marks by permitting certain third parties to use them under licence. Such ‘licensing out’ can either (i) permit third party use of the trade mark in addition to use by the business itself; or (ii) permit third party use of the trade mark instead of the business itself.

Potential advantages of licensing out a business’s trade mark

In its broadest sense, the primary benefit of licensing out is that it allows the business to retain ownership and control of a trade mark while permitting a nominated third party to use it. The scope and extent of the permitted use, and any fee or royalty payments payable to the business, can be controlled under a detailed and legally binding licensing agreement.

In addition to the overreaching primary benefit, the other commercial benefits may include:

• Increasing a brand’s reach – the licensing out of a trade mark to an established business in a new territory, for example overseas, has the potential to open up new opportunities and revenues for the trade mark owner.
• Increasing capacity and/or productivity – the licensing out of a trade mark may be commercially attractive where a business does not have the capacity, resources or facilities to manufacture and/or offer all its products and/or services itself.
• Increasing revenue generation – the licensing of a trade mark to a third party will often result in the realisation of the inherent market value of the trade mark (which would not otherwise be realised were it not for the licensing out arrangements).
• Reducing costs – the licensing out of a trade mark may be commercially useful where the business has insufficient financial resources to meet the necessary advertising and marketing costs associated with particular products and/or services.

Potential disadvantages of licensing out a business’s trade mark

While it is clear that there may be many potential benefits of licensing out a trade mark, it is also important for businesses to consider the potential disadvantages. These could include:

• Disputes between the parties – if the arrangements between the licensing business and its third party licensee breaks down, the business may find that it has enabled and assisted in the development of a direct competitor.
• Ongoing obligations in respect of the trade mark – irrespective of the licensing arrangements put in place, a business licensing its trade marks will still need to have a proactive and strategic approach in respect of monitoring and enforcing any infringement of the trade mark.

How do I get started?

If you want to licence out your trade mark, think about what you are willing to share and your reasons for doing this.

Do market research to help identify suitable partners and to help you prepare for any negotiations.  In initial discussions with potential companies make sure you use a Non-Disclosure Agreement.

What paperwork do I need in place once I’ve negotiated a licensing arrangement?

A commercial agreement will need to be drafted – a solicitor who specialises in IP will be able to guide you through the process and ensure the licence meets all your needs.