Corporate Licensing: The Benefits and Downsides, and How It Impacts Your Trademark Rights.

Times have become tough. Businesses are increasingly looking for new ways to increase profitability and improve the sustainability of their business.

One such way is corporate licensing.

Definition: Corporate licensing occurs when a business licenses itself to other prospective business owners, known as licensees. They'll own and operate a separate branch of the company under the same brand and offer the same goods and services.

So, while there are quite a few benefits of corporate licensing for your business venture, there are also several downsides to look out for. In this article, we're going to explore this. We'll also assess how licensing agreements impact your trademark rights.

Let's begin:

The benefits of licensing

The benefits of a licensing agreement are numerous. They include but aren't limited to:

1. Less risk, more profit: There are potential profits. You'll earn royalty payments for merely having your brand name used by a licensee. And, you don't have to take any of the risks (and spend your own money), nor invest in marketing, production, or distribution.
2. Opportunity for international business expansion: Along with your domestic company, license arrangements let you expand into new markets without the need to build relationships with retailers or distributors. You can also avoid tariff barriers. In addition, you'll gain brand awareness as you'll be operating globally.
3. Catered marketing: The (1) culture, (2) trends, and (3) language in a foreign country are likely to be very different. The benefit of licensing your brand to an international team is apparent: marketing well-catered to prospective customers.
4. Contributions to the economy: As a licensor, you'll be contributing to the economy by giving people the opportunity to become self-employed, open up their own businesses (under your brand name), and contribute to the wealth of an economy (and create new job opportunities at the same time).
5. Mutual benefit: While you don't have to put in the time, effort, and money to start up another branch, the licensee avoids many monetary and time expenses, such as market testing.

The disadvantages of licensing

So while there are positives, like with anything, risks are involved. These include but aren't limited to:

1. Intellectual property theft: Intellectual property (IP) theft is a real risk. That's why it's essential that your licensing agreement clearly defines where and how a licensee may use your IP. However, it may be difficult to "police" this agreement at times.
2. Risking your reputation: Unfortunately, the licensing arrangement could risk your brand's reputation, particularly if you're not strict about enforcing all the terms and conditions you set out in the agreement.
3. Income isn't always guaranteed: Among the disadvantages of licensing, there's a genuine chance that you may never actually receive royalty payments. The success of the licensee is not guaranteed. But at least they do carry most of the risk.

How are trademark rights affected?

A licensing agreement can affect trademark rights differently. This depends on the contract's terms, conditions, and licensing requirements. Some things to consider include:

1. Trademark use and ownership: How does the agreement provide for how the licensee may use the trademark? What parameters have been set? The licensee will also typically not acquire ownership of the trademark. Ownership rests solely with the licensor.
2. Limitations of use: Can licensees enter foreign markets? In what territories may the licensee use the trademark? How long is the license valid? Is it renewable, or does it continue indefinitely? All these variables need to be set out in the agreement.
3. Quality control: Trademark owners must maintain control over their brand's reputation. In part, this means to ensure that the quality of the goods and services produced by the licensee's business is on-par with that produced by their own. Products and services must meet specific standards.

A way forward

Licensing agreements offer a way forward for businesses to (1) expand their reputation, (2) earn passive income, and (3) grow their reach nationally and internationally. Just make sure to set out clear stipulations in the agreement, or you risk damaging your brand's reputation.