The Brand Licensing Race: Steering Brands to Success

The Brand Licensing Race: Steering Brands to Success August 7, 2015

Marjorie M. Goux and Thomas A. Magnani

THE BRAND LICENSING RACE: STEERING BRANDS TO SUCCESS

By: Marjorie M. Goux and Thomas A. Magnani[1]

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 Incentives of Licensor and Licensee / ·  Require Significant Up-Front Fees or Advances
·  Impose Minimums That Licensor Would Define as Modest Success
·  Do Not Allow Licensee to “Make Up” Royalties That Fall Below Minimums
·  Restrict Licensee’s Ability to Develop or Sell Competing Products
·  Require Regular In-Person Meetings to Discuss Development and Marketing Plans
·  Require Approval of Collateral Materials / ·  Communicate Directly with Potential Licensees (Don’t Just Rely on a Licensing Agent)
·  Ask Licensee How Licensed Products Would Fit Into Licensee’s Business Plans or Product Lines
·  Confirm Licensor and Licensee Share the Same View of the Size of the Opportunity
·  Confirm that Licensor and Licensee Share the Same View of the Competitive Landscape
Reducing Risk of Products Liability Claims / ·  Impose Strict Quality Control Standards
·  Require Compliance with Laws and Industry Guidelines
·  Require Approval of Designs and Commercial Specimens
·  Require Continuing Submissions Throughout Term
·  Allow for Regular Licensor Inspections of Manufacturing and Storage Facilities / ·  Choose a Licensee Experienced with Similar Products
·  Research Licensee’s Safety Record
·  Review Product Manuals, in Addition to Products Themselves
·  Avoid Contributing to Product Design or Manufacture
Reducing Impact of Products Liability Claims / ·  Provide that Licensor’s Approval of Submissions Does NOT Constitute Certification as to Safety/Efficacy
·  Require Licensee to Indemnify Licensor, but 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 / ·  Manage Product Recalls and Related Publicity
·  Ensure Licensee Has Resources to Defend Claims and Pay Judgments
Reducing Risk of Third Party IP Claims (Not Based on Licensor’s Trademark) / ·  Obtain No Infringement and Misappropriation Warranties from Licensee
·  Require Licensee to Have Good Legal Counsel in Place to Advise on Freedom to Operate Matters / ·  Require Licensee to Provide Proof of Independent Product Design
·  Ensure Licensee Uses Legitimate Advertising and Design Firms
·  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 Third Party IP Claims (Not Based on Licensor’s Trademark) / ·  Require Licensee to Indemnify Licensor / ·  Ensure Licensee Has Resources to Defend Claims and Pay Judgments
Reducing Risk of Third Party IP Claims Based on Licensor’s Trademark / ·  Require Approval of All Uses of Trademark on Products and Collateral Materials / ·  Conduct Trademark Clearance Searches
·  Register Trademark for Licensed Goods/Services Wherever Practicable
Reducing Impact of Third Party IP Claims Based on Licensor’s Trademark / ·  Disclaim Warranties of Non-Infringement
·  Avoid Indemnifying Licensee, If Possible
·  Require Control of Defense of Any 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 / ·  Control Defense of Trademark Claims and Related Publicity
Avoiding Loss of Control Over Licensor’s Brand / ·  Restrict Licensee’s Ability to Sublicense or Assign Rights
·  Don’t Rely on Ipso Facto Clauses
·  Provide for Specific Termination Triggers, such as Failure to Pay Royalties, Failure to Make Submissions, Failure to Meet Minimums, Defaults on Loans or Leases, Insolvency
·  Require that Subcontractors of Licensee Enter into Direct Covenants with Licensor / ·  Choose Licensee Carefully
·  License a Major Retailer Instead of a Manufacturer, If Appropriate
·  Ensure that Subcontractor Authorization Documents Are Signed and Delivered to Licensor

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[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.