How do you draw up your brand licensing contract? 7 essential clauses!
Are you the owner of a brand, but afraid of the legal steps involved? Would you like to be associated with a brand, but don't know how to go about it?
To build up your network and raise your profile, a brand licensing contract is an interesting solution. Follow our guide to avoid the legal pitfalls and ensure a proper partnership.
What is a brand licence agreement?
Definition
A trademark licence is a trademark exploitation contract in which the owner (licensor) of a trademark, patent or software authorises a third party (licensee) to make commercial use of its product and/or service in return for payment of a financial consideration (royalties). In practical terms, this involves making a trademark available.
The trademark licence contract may be exclusive (only the licensee has the right to use the trademark) or non-exclusive. It is preferable to draw it up in writing, setting out the various clauses of the contract.
What is the difference between a brand licensing contract, a franchise and a brand concession?
A trademark contract involves the lease of a trademark protected by a licensor.
A franchise contract, on the other hand, does not meet the same conditions.
Here are the 3 pillars of a franchise:
- the distinctive signs (the trademark)
- the know-how (the concept), which is kept secret, substantial and approved by the brand,
- the ongoing assistance provided by the franchisor to the franchisee (promotional visits, software, partnerships, etc.).
A franchise contract is more restrictive for both parties, but provides more comprehensive protection.
Finally, a brand concession is a partnership in which a brand (licensor) transfers its ownership rights to a third party (licensee), in other words, the total or partial use of its brand and the right to distribute a range of products based in a given territory. The licensor is not obliged to pass on any know-how to the licensee and the licensee is not obliged to follow the licensor's commercial strategy.
💡 Brand licensing and franchising are therefore very similar. The main difference lies in territorial exclusivity.
To make your choice, identify the degree of responsibility, investment you are prepared to guarantee and your needs. In the case of a franchise contract, the risk is greater, since a brand licence only holds you responsible for ensuring the existence of the brand and its validity in the eyes of the licensee.
What is the purpose of a brand licence agreement?
Let's take a look at why it's in your interests to adopt a trademark licence.
Advantages for the trademark owner
The trademark owner always keeps an eye on how the trademark is used , without interfering in the licensee's way of doing things. In this way, you adopt a very flexible way of developing that does not comply with the legal formalism of franchising.
You can :
- earn a fee without having to run the business yourself,
- save time and money,
- publicise your product
- test your product on the market
- boost your sales.
Benefits for the licensee
A brand licensing contract allows a licensee to exploit an existing brand and use it. The few formalities involved are a major strategic advantage. The brand licence contract can be used as a springboard to franchising until you have sufficient experience and are ready to expand.
Your advantages as a licensee include
- you are not limited by an entry fee,
- you have the freedom to choose the location of your business premises,
- you can sell several brands without being subject to brand exclusivity,
- you benefit from the reputation of a brand to develop.
💡 Good to know: for real long-term benefit, adopt a brand image with recognised commercial potential in the market.
7 essential clauses for drafting your brand licence agreement
Clause no. 1: the identity of the parties
Start by stating the names and addresses of the parties.
Clause 2: Exclusivity and type of licence
Indicate the terms of exclusivity or non-exclusivity in your contract. Specify the rights granted and their scope. A licence may be only partial, applying only to a category of products, or total.
Clause no. 3: the date and duration of the agreement
A fixed term that ends with the contract, or an indefinite term that you can terminate at any time.
The agreement may be granted for the legal term of protection of the trademark or for a shorter term. Otherwise, i.e. for a longer period, the trademark licensor is obliged to renew the protection at the end of the current protection period.
Clause 4: Purpose of the contract
Enter the use of the trademark.
Clause 5: geographical limits
Define the geographical area or zone of protection of the trademark.
Clause 6: the obligations of the parties
These are the duties of the parties, what you are committing yourself to. For example: information, exploitation, promotion of the product and/or service, etc.
Make sure you are aware of your obligations before signing your contract, because if you fail to meet them, you may incur legal penalties.
It may happen that one of the parties fails to fulfil its obligations. The other party is then still obliged to fulfil theirs, which may seem unfair as they no longer receive any compensation.
In this situation, you have the option of legally ceasing to perform your own obligations. This is known as the non-performance exception .
Clause 7: The amount of the royalties
Determine how the royalties are to be calculated (if the amount is not a lump sum). The royalty is the sum paid to the licensor to obtain the right to use a trademark. There are fixed royalties (paid on a regular basis), royalties proportional to the operating turnover or you can even combine the two.
The fixed royalty remains fixed, but the proportional royalty is measured as a percentage of monthly turnover. The amount of these royalties paid varies between 1% and 12% of sales, depending on the brand.
It's up to you to choose what's best for your turnover.
☝️ Please note: if you wish to modify or transfer the trademark, register the trademark licence agreement with the INPI (article L714-7 of the French Intellectual Property Code).
What type of contract have you opted for? Tell us in the comments!
Article translated from French