Why should I license a trademark in the United States?

Why should I license a trademark in the United States?

A trademark is a word or phrase that tells consumers who made a product.  The purpose of trademark law in the United States is to protect consumers from inferior quality goods.  When a product manufacturer starts using a trademark in the United States, the manufacturer is granted certain exclusive rights to the trademark.  Trademark law in the United States allows the owner of a trademark to exclude other people from using the trademark on similar products.  When a trademark is used without the trademark owner’s permission this is considered trademark infringement.

The money that a trademark owner invests in advertising and promotion of their trademark is known as goodwill.  Goodwill is the reputation of a trademark and the association that consumers make between a trademark and quality products.  Trademark law in the United States creates a duty for trademark owners to police the use of their trademarks.  If a trademark owner lets competitors use their trademark, then the trademark owners goodwill will shrink.  But a trademark can be used by other companies with the trademark owner’s permission without shrinking the goodwill associated with the trademark.  When a trademark owner gives other companies permission to use a trademark this is known as a license.  A trademark license can be beneficial to the licensor and the licensee.

Some reasons to license a trademark are:

  • Improve business-  The licensing agreement creates a partnership which can benefit both the licensee and the licensor in the long term. For example, licensees can leverage the goodwill of the trademark, such as pride in a sports team’s logo or the trust embodied by a famous trademark.
  • Reach new markets – A trademark owner can expand business through licensee’s marketing and distribution channels.
  • Increase brand recognition – Licensing improves the visibility o the trademark putting it on new products and in new channels. As a result, licensing agreements can raise awareness among consumers.
  • Distribute workload – The licensee can take some pressure off of the licensor.  For example, when a licensor signs a trademark licensing agreement, the licensee becomes responsible for quality of goods and services it creates using the trademark.  If a licensor wants to exit a product line, but maintain the goodwill associated with those products the licensor can license the trademark to another manufacturer that still wants to make the products.

An agreement to license a trademark is a contract and the terms of the contract can be freely negotiated between the licensor and the licensee.  There are some key points that should be included to protect the value of the trademark.  For instance, the licensor should have provisions in the contract about product quality control and approval of advertising material.  An attorney familiar with United States trademark law should be consulted from the beginning to ensure that both parties are protected in the licensing agreement.

If the trademark is registered with the United States Patent and Trademark Office a copy of the licensing agreement can be recorded.

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