A Trademark License Agreement is a legal contract where the owner of a registered trademark (the “licensor”) permits another party (the “licensee”) to use the trademark under specific terms and conditions. This agreement helps protect brand identity while expanding the brand’s reach in the market.
In this guide, we’ll explain everything you need to know about trademark licensing agreements, including types, benefits, risks, legal requirements, real-life examples, and frequently asked questions.
What is a Trademark License Agreement?
A Trademark License Agreement is a legal document that allows the trademark owner to grant rights to another individual or business to use the trademark for specified purposes. The licensor retains ownership of the trademark, but the licensee gains the right to use it in connection with particular goods or services.
This type of agreement is commonly used in franchising, brand collaborations, product distribution, and marketing partnerships.
Let’s understand this with the help of an example:
Let’s say there is a popular coffee brand called “BrewJoy” that owns a registered trademark for its name and logo. A local entrepreneur wants to open a coffee shop under the “BrewJoy” name in Abu Dhabi.
What Happens:
BrewJoy (the trademark owner) signs a Trademark License Agreement with the entrepreneur (the licensee).
The agreement says that the entrepreneur can use the BrewJoy name, logo, and branding at their shop.
In return, the entrepreneur agrees to pay a fee and follow certain quality standards to protect the brand’s reputation.
Important Point:
BrewJoy still owns the trademark, but the entrepreneur has permission to use it as per the agreement.
Why is a Trademark Licensing Agreement Important?
Licensing a trademark without a formal agreement can lead to confusion, legal disputes, or loss of trademark protection. A trademark licensing agreement ensures that:
- The licensee uses the trademark only as agreed.
- The licensor maintains control over the quality of goods/services.
- The trademark’s reputation and goodwill are protected.
- Legal risks such as unauthorized use or brand dilution are minimized.
Key Elements of a Trademark License Agreement
To make the agreement effective and enforceable, it should contain the following essential clauses:
Parties Involved
- Clearly identify the licensor (trademark owner) and the licensee (authorized user).
Scope of License
- Define what products or services the licensee can use the trademark for.
- Specify whether the license is exclusive, non-exclusive, or sole.
Territory and Duration
- Mention the geographical area where the trademark can be used.
- Define the term of the license — whether it’s for 1 year, 5 years, or perpetual.
Quality Control
- The licensor has the right to monitor and control the quality of goods/services sold under the trademark.
- Quality control is mandatory under most laws to maintain trademark rights.
Royalty or Payment Terms
- Specify whether the licensee will pay royalties, fixed fees, or a percentage of revenue.
Termination Clause
- Define the conditions under which either party can terminate the agreement.
Dispute Resolution
- Mention how disputes will be handled — through arbitration, mediation, or court proceedings.
Types of Trademark Licensing
There are different ways to license a trademark, depending on the needs of the parties:
1. Exclusive License
The licensee has exclusive rights to use the trademark. Even the trademark owner cannot use it in the specified territory.
2. Non-Exclusive License
Multiple licensees can use the same trademark. This is commonly used for widespread product distribution.
3. Sole License
Only one licensee is granted rights, but the licensor can also continue using the trademark.
Risks of Not Having a Poor Trademark License Agreement
If you don’t have a trademark license agreement, it can lead to serious problems for both trademark owners and those using the trademark. Here’s why having a proper agreement is important:
Loss of Trademark Rights:
Without an agreement, the trademark owner may lose their legal rights over the trademark. This can happen if the trademark is misused or becomes generic.
Brand Reputation Damage:
Misuse of the trademark by others can harm the brand’s image. For example, using the trademark on low-quality products may lower customer trust.
Legal Conflicts:
Not having clear terms leads to disagreements about who can use the trademark, where it can be used, and under what conditions. These conflicts can result in expensive legal battles.
Financial Loss:
The trademark owner may miss out on earning royalties or fees if the licensing terms are not clearly set.
Trademark Abandonment:
If the trademark is not properly monitored or controlled, it might be considered abandoned, which means losing its legal protection.
Trademark Licensing in the UAE (Example Jurisdiction)
In the UAE, a trademark owner can license their trademark to others under Federal Decree-Law No. 36 of 2021 on Trademarks. However, the agreement must be in writing and registered with the Ministry of Economy to be enforceable.
The law also requires that the license does not transfer ownership of the trademark, and the licensor should maintain control over the use of the mark.
Real Cases Showing the Risks of Poor or Missing Trademark Licensing Agreements
Case: Dawn Donut Co., Inc. v. Hart’s Food Stores, Inc., 267 F.2d 358 (2d Cir. 1959)
Facts: Dawn Donut Co., holding a federal trademark for “Dawn,” sold doughnut mixes wholesale across several states, including parts of New York. Hart’s Food Stores began selling “Dawn Donuts” in a six-county area around Rochester, New York, where Dawn Donut Co. had not operated at the retail level for decades.
Issue: Can a federal trademark holder enjoin another’s use of the same mark in a geographically separate market where the holder does not currently operate?
Decision: The court held that, under the Lanham Act, a trademark owner cannot enjoin another’s use of the mark in a different market unless there is a likelihood of public confusion. Since Dawn Donut Co. was not operating in Hart’s market area and had no immediate plans to do so, there was no likelihood of confusion, and thus, no basis for injunctive relief.
2.FreecycleSunnyvale v. The Freecycle Network (U.S. Ninth Circuit, 2010)
Facts of the Case: The Freecycle Network (TFN) licensed its trademark to FreecycleSunnyvale (FS), a local group. However, TFN did not enforce quality control over FS’s use of the trademark, leading to disputes about trademark validity.
Issues Involved: The main issue was whether TFN’s failure to maintain quality control over its licensees constituted “naked licensing,” which could result in abandonment of trademark rights.
Final Decision: The court ruled in favor of FreecycleSunnyvale, finding that TFN had engaged in naked licensing by not retaining adequate control over the trademark’s use. As a result, TFN lost its trademark rights.
This case highlights the importance of maintaining quality control in trademark licensing agreements to protect trademark rights.
3. Eva’s Bridal Ltd. v. Halanick Enterprises (U.S. 2011)
Key Issue: Lack of quality control = “Naked licensing”
Facts of the Case:
- Eva’s Bridal Ltd. licensed the use of its trademark to Halanick Enterprises for an annual fee.
- The licensing agreement expired in 2002, but Halanick continued using the trademark without paying royalties or having a valid license.
- Eva’s Bridal sued under the Lanham Act for unauthorized use of the trademark.
Issues Involved: The key issue was whether Eva’s Bridal had abandoned its trademark rights by engaging in “naked licensing,” which occurs when a trademark owner fails to maintain control over the quality of goods or services associated with the mark.
Final Decision: The court ruled against Eva’s Bridal, finding that it had abandoned its trademark rights. The court determined that Eva’s Bridal did not exercise sufficient control over the quality of goods and services provided by Halanick Enterprises, which constituted naked licensing and led to the loss of trademark protection.
Risk Highlighted:
Even with a license, failing to supervise use can make your trademark invalid.
Frequently Asked Questions (FAQs)
You can, but it’s not recommended. Registering your trademark gives you legal protection and ensures better enforcement of your rights.
In many countries, including the UAE, recording the agreement with a government authority (like the Ministry of Economy) is mandatory for legal validity.
Only if the agreement explicitly allows sub-licensing. If not mentioned, sub-licensing is usually not permitted.
The licensor can terminate the agreement and may also seek legal remedies such as damages or injunctions.
It is highly recommended to consult a trademark lawyer to ensure the agreement is legally valid and includes all necessary protections.
Tips for Drafting a Strong Trademark Licensing Agreement
Here are some tips for drafting a strong trademark licensing agreement, along with examples to illustrate each point:
1. Clearly Define the Scope: Specify the trademark being licensed, the permitted uses, and the geographical area.
Example: “The licensee is granted the exclusive right to use the trademark ‘BrandX’ solely for the sale of electronics in the United States.”
2. Include Quality Control Measures: Establish guidelines to maintain the quality of products or services associated with the trademark.
Example: “The licensee must adhere to the licensor’s quality standards, as outlined in Appendix A, and submit quarterly reports for review.”
3. Set Payment Terms: Clearly outline financial arrangements, such as royalties or lump sums.
Example: “The licensee shall pay the licensor a royalty of 5% of gross sales revenue, payable on the first day of each month.”
4. Specify Duration and Renewal Terms: State the agreement’s duration and conditions for renewal or termination.
Example: “This agreement is valid for a period of three years, with an option to renew upon mutual agreement.”
5. Address Ownership of Intellectual Property: Define who owns any new intellectual property created using the trademark.
Example: “Any derivative works created using the trademark shall remain the sole property of the licensor.”
6. Include Dispute Resolution Clauses: Add provisions for resolving disputes, such as mediation or arbitration.
Example: “Any disputes arising under this agreement shall be resolved through binding arbitration in accordance with the rules of the American Arbitration Association.”
7. Protect Confidential Information: Include clauses to safeguard sensitive information shared during the licensing arrangement.
Example: “The licensee agrees not to disclose any proprietary information received from the licensor to third parties.”
8. Consult Legal Experts: Work with an intellectual property lawyer to ensure compliance with local laws.
Example: “The agreement has been reviewed and approved by legal counsel specializing in intellectual property law.”
Conclusion
A Trademark License Agreement is more than just permission to use a logo or name — it’s a legally binding tool that protects your brand while expanding your business reach. Whether you’re a licensor or a licensee, having a well-drafted agreement is crucial to avoid disputes, maintain quality, and ensure legal compliance.
Make sure to work with a legal professional who specializes in trademark licensing agreements to safeguard your rights and interests. A strong agreement today can prevent major problems tomorrow.
Looking to Draft a Trademark License Agreement?
If you’re planning to license your brand or want to protect it with a complete and legal compliant agreement, feel free to reach out. I can help you draft a clear, professional, and enforceable Trademark License Agreement based on your needs.
You can contact me directly through my Upwork profile for assistance.
