One of the most important indicators of success for many companies around the world is the company’s ability to grow, expand and remain viable even after the life of its founder (s). The longing of many business owners for a sustainable business model sometimes requires such business owners to issue brand licenses to interested companies that come into play in different forms. While getting branded licenses can be beneficial for a company, there are sometimes some persistent problems that can ruin any business / business model.
Accordingly, this article explains what trademark licenses are and how they work. Highlight the pros and cons associated with having branded licenses, and finally, give some insight into a few things that should be considered before both licensor and licensee brand licenses are run.
The applicable trademark law in Nigeria is the Nigerian Trademark Law, Cap T13, Federation of Nigeria Laws 2004 (TMA). The TMA defines a mark as “a mark used in relation to goods or the use of which is proposed to indicate a link between the goods and a person who has the right to use the mark, either as an owner or as a registered user , regardless of whether with or without the identity of the person … ”
Trademark licensing is simply defined as an agreement whereby one trademark owner (licensor) grants permission to another (licensee) to use that trademark on mutually agreed terms. By licensing the trademark, the registered owner allows others to use the trademark without assigning ownership. The owner can also restrict the use of the trademark in other ways by means of the terms that he inserts in the license agreement. Thus, a trademark is infringed if it is used by someone other than the owner or a registered user in a similar or identical class of goods in such a way that it is likely to mislead or cause confusion or suggest a connection between the owner or registered user and the alleged infringing user.
The concept of trademark licensing is provided for in Section 33 of the TMA which provides that, subject to the provisions of this and the next following section, a person other than the owner of a trademark may be registered as a registered user with respect to all or some of the goods for which they are registered (except as a trademark) and either with or without conditions or restrictions. It can be said that the term “registered user” is synonymous with the term “licensee” in the law. In addition, Section 33 Paragraph 3 provides: “For the purposes of Section 31 of this Act and for any other purpose for which the use of a trademark is essential under this Act or under general law, the permissible use of a trademark is considered permissible – –
(a) used by the owner; and
(b) not used by anyone other than the holder.
Trademark licenses can be exclusive, non-exclusive, or sole. It’s exclusive when the licensee is the only one who can use the brand. It is not exclusive for the licensor to grant a license to more than one licensee. The licensor agrees to only use one licensee. However, the licensor reserves the right to continue using the trademark.
Some of the benefits of trademark licensing are:
1. Passive income – A trademark owner can license the use of the trademark to as many users or licensees as possible without the risk of losing ownership, creating additional revenue streams for each of those users.
2. Business expansion – Having a license agreement makes it easier to penetrate foreign markets as the license eliminates potentially cumbersome regulatory compliance requirements between countries.
3. Advertising – The more a brand is used, the greater the brand awareness. Common costs can be shared, especially advertising and promotional costs.
4. Strategic partnership – The licensor can bring his product into new markets more easily than if he did the work alone.
Some disadvantages are:
1. Brand theft – Licensing a trademark sometimes increases an owner’s risk of theft as it can be difficult for an owner to monitor the use of the licensed trademark.
2. Reputation threats – If any element of the license agreement is mistreated or violated in such a way that it causes harm or discomfort to a customer / customer; The licensor and the licensee may suffer a reduction in brand awareness. If multiple licenses are offered, global reputations can suffer and affect multiple companies that are not involved in the situation. The only way to fix this potential bug is to have a good quality control clause / policy in place. For this reason, many license agreements contain a number of best practices that must be followed in order to achieve a consistent branding across all licenses.
3. Trust in the quality of the trademarkk – The licensee bears the risk in this regard. The profitability of the licensee’s business depends on the quality and continued strength of the brand, which cannot be fully guaranteed.
The pros and cons of licensing can be managed with due care by both parties before agreeing to do business.
It is of the utmost importance to include clauses on quality testing of goods or services in the license agreement. Although the terms of each license are different and can be freely negotiated between the licensor and the licensee, all licenses must contain at least certain conditions in order to be valid. License agreements should include:
• Information about both parties
• the type of license offered
• all trademarks included in the agreement
• Permitted use of the trademark
• the geographic region in which the licensee is intended to operate
• the products or services that the licensee can offer with the registered trademark
• Quality control arrangements
• Dispute settlement clause
• Duration clause • Remuneration / license fee clause
• Effective Date
Trademark licenses can be beneficial as both parties have the opportunity to make a profit. It can also be detrimental if a license is renewed or if either party acts in bad faith.
It is noteworthy, however, that the only possible limitation on registering a trademark license agreement in Nigeria is that the registrar can refuse to do so on the grounds that such registration will make it easier to trade in the market.