In a session this morning, licensing experts from different countries will give tips on how to prepare trademark licensing agreements and how to avoid costly mistakes down the road
With the increasing globalization of brands, licensing is becoming an important tool for companies looking to expand into new markets. However, as moderator Shelagh Carnegie of Gowlings in Toronto points out, both the licensors and licensees have to be ready to spot the key issues that can cause headaches later on.
For example, both sides must ensure that they are clear and comfortable with the terms of the agreement on key issues involving not just royalties, but also taxes and product liability. These concerns are certain to be central to licensing agreements all around the world.
Attention to detail
Carnegie says that it is extremely important for the parties to ensure that they understand the finer details of the agreement. For example, with royalty payments, both sides need to be clear as to the structure of the payments, such as whether the royalties are off gross sums or net sums and whether there are any caps on payments for any given time period.
“Royalties are something that the parties absolutely have to nail down,” Carnegie says. “In fact, many agreements contain examples to help the parties understand how royalties will be calculated.”
There are also issues that may be more pertinent to one side of the agreement. For example, licensees need to ensure that the license provides the rights it needs to do its business, such as the right to advertise using the marks. Similarly, Carnegie points out that licensees need to have a clear understanding as to whether the license is exclusive, and whether the licensee will end up competing with the licensor in the same market.
Local issues
In addition to the concerns that are important in every licensing agreement, Carnegie points out that there are issues that are particular to certain jurisdictions. For example, in the European Union, licensees and licensors need to be particularly aware of the geographical reach of the licensing agreement to make sure that the rights granted do not bump up against those held by other licensees in other countries in the region.
Similarly, licensors entering into agreements in countries such as Canada and the U.S. must take care to have a certain level of control over the quality of service. Carnegie warns that if the licensor fails to have that level of direct or indirect control under the license, it may jeopardize the mark by undermining the distinctiveness of the brand, causing significant long term damage.
On this issue, Carnegie says that the biggest challenge is often ensuring that the licensor has that level of control under the agreement and exercises it. Though a licensor may make the effort to ensure that the licensing agreement has these provisions, sometimes they will fail to follow through exercising those rights after the agreement is finalized, even though these provisions were drafted for the licensor’s benefit.
However, licensors in countries such as Canada must also be concerned about inadvertently entering into a franchising agreement with the licensee, which has a separate set of laws and imposes additional legal requirements. One of the elements in finding that a licensing agreement is actually a franchising agreement is if there was significant control or assistance from the licensor to the licensee.
Because of the amount of material to cover in the session, Carnegie explains that in addition to the presentations, there will also be handouts of a sample licensing agreement along with the panelists’ annotations of the important sections.
CM02 Trademark Licensing: Best Practices will take place from 10:15 am to 11:30 am today.
