The Brand Licensing Race: Steering Brands to Success

August 7, 2015 THE BRAND LICENSING RACE: STEERING BRANDS TO SUCCESS

By: Marjorie M. Goux and Thomas A. Magnani1

Below is a chart listing various issues that may be faced by a brand owner seeking to extend its brand into a new product category, along with possible ways to address those issues, not only in the applicable license agreement but also in the real world. We hope you find it useful!

LICENSOR ISSUE AGREEMENT SOLUTIONS PRACTICAL SOLUTIONS

Aligning Vision and  Require Significant Up-Front Fees or  Communicate Directly with Potential Incentives of Licensor Advances Licensees (Don’t Just Rely on a and Licensee  Impose Minimums That Licensor Would Licensing Agent) Define as Modest Success  Ask Licensee How Licensed Products  Do Not Allow Licensee to “Make Up” Would Fit Into Licensee’s Business Royalties That Fall Below Minimums Plans or Product Lines  Restrict Licensee’s Ability to Develop or Sell  Confirm Licensor and Licensee Share Competing Products the Same View of the Size of the Opportunity  Require Regular In-Person Meetings to Discuss Development and Marketing Plans  Confirm that Licensor and Licensee Share the Same View of the  Require Approval of Collateral Materials Competitive Landscape

Reducing Risk of  Impose Strict Quality Control Standards  Choose a Licensee Experienced with Products Liability  Require Compliance with Laws and Industry Similar Products Claims Guidelines  Research Licensee’s Safety Record  Require Approval of Designs and  Review Product Manuals, in Addition Commercial Specimens to Products Themselves  Require Continuing Submissions  Avoid Contributing to Product Design Throughout Term or Manufacture  Allow for Regular Licensor Inspections of Manufacturing and Storage Facilities

1 Ms. Goux is Senior Corporate Counsel at The Clorox Company. Mr. Magnani is a partner at Arnold & Porter LLP. Both of them specialize in intellectual property transactions. The information presented here does not represent the official position of The Clorox Company, nor does it constitute legal advice. The Brand Licensing Race: Steering Brands to Success August 7, 2015 Marjorie M. Goux and Thomas A. Magnani

Reducing Impact of  Provide that Licensor’s Approval of  Manage Product Recalls and Related Products Liability Submissions Does NOT Constitute Publicity Claims Certification as to Safety/Efficacy  Ensure Licensee Has Resources to  Require Licensee to Indemnify Licensor, but Defend Claims and Pay Judgments Retain Control of Defense and Settlement  Require Licensee to Carry Products Liability Insurance Naming Licensor as Additional Insured  Allow Licensor to Participate in Product Recall Planning and Possibly Execution  Give Licensor the Right to Control Public Statements about Products Liability Matters

Reducing Risk of Third  Obtain No Infringement and  Require Licensee to Provide Proof of Party IP Claims (Not Misappropriation Warranties from Licensee Independent Product Design Based on Licensor’s  Require Licensee to Have Good Legal  Ensure Licensee Uses Legitimate Trademark) Counsel in Place to Advise on Freedom to Advertising and Design Firms Operate Matters  Avoid Contributing to Design of Products or Collateral Materials  Require Licensee to Conduct Trademark Clearance Searches Before Use of Any Non-Licensor Trademarks

Reducing Impact of  Require Licensee to Indemnify Licensor  Ensure Licensee Has Resources to Third Party IP Claims Defend Claims and Pay Judgments (Not Based on Licensor’s Trademark)

Reducing Risk of Third  Require Approval of All Uses of Trademark  Conduct Trademark Clearance Party IP Claims Based on Products and Collateral Materials Searches on Licensor’s  Register Trademark for Licensed Trademark Goods/Services Wherever Practicable

Reducing Impact of  Disclaim Warranties of Non-Infringement  Control Defense of Trademark Claims Third Party IP Claims  Avoid Indemnifying Licensee, If Possible and Related Publicity Based on Licensor’s  Require Control of Defense of Any Trademark Trademark Claims  Allow Licensor to Substitute Equivalent Trademark, If Appropriate  Give Licensor Right to Control Public Statements about IP Claims  Exclude Lost Profits and Consequential Damages  Limit Licensor’s Liability to Royalties Paid by Licensee

2 The Brand Licensing Race: Steering Brands to Success August 7, 2015 Marjorie M. Goux and Thomas A. Magnani

Avoiding Loss of Control  Restrict Licensee’s Ability to Sublicense or  Choose Licensee Carefully Over Licensor’s Brand Assign Rights  License a Major Retailer Instead of a  Don’t Rely on Ipso Facto Clauses Manufacturer, If Appropriate  Provide for Specific Termination Triggers,  Ensure that Subcontractor such as Failure to Pay Royalties, Failure to Authorization Documents Are Signed Make Submissions, Failure to Meet and Delivered to Licensor Minimums, Defaults on Loans or Leases, Insolvency  Require that Subcontractors of Licensee Enter into Direct Covenants with Licensor