A century ago, brand licensing didn't exist.

In fact it was considered illegal in many countries. This is because brands were supposed to indicate goods or services of a particular trader. Allowing someone else to use your brand was thought to confuse the public.

Circle forward to 2013 and brand licensing is a huge global business worth billions of dollars each year. Take a business like Apple. Its brands are among the most valuable in the world, but outside its 'core' products lie a vast array of accessories it doesn't need to manufacture - headphones, docking stations, covers and so on. Apple licenses others to develop these products and market them in association with its brands.

Brand owners now realise they can extract more value by licensing others under their brand rather than continuously developing products themselves. Product manufacturers have worked out they can grow sales quicker by licensing in a well known brand, saving the time and cost involved in sales and marketing.  

Brand licensing and how you go about it

Brand licensing is typically conducted via agents who are appointed to represent brands and consider deals. These are then approved by brand owners on a case by case basis. 

However, other brand licensing takes place at a business-to-business level as part of ad hoc deals. For example, technology licensing or distribution deals often result in the licensee or distributor having rights to use the licensor's brand to promote the products.

The scope of the licence

You need to set clear boundaries on what is being licensed and what the other party can do with your brand. You should consider:

  • What brands are being licensed? Is it the brand in word form or does it include the logo?
  • What territories does the licence cover?
  • What goods or services can the brand be applied to?  For example, if it is used by you as a service mark, be very careful about allowing it to be applied to goods.
  • Is the license exclusive or non-exclusive?
  • How are royalties calculated?

Ensuring quality control

If a third party uses your brand without control by you, your trade mark registrations can become vulnerable to attack and the market can become confused by variations in quality.

You can establish control by imposing standards on your licensees. These will often be contained in brand guidelines documentation. Brand guidelines set out how the brand should look and prohibit things such as use of the brand with other trade marks or logos, or use of the brand in a descriptive or generic manner.

Quality control also requires standards around the products and services themselves. Your documentation should include provisions requiring that the goods or services meet your quality specifications. You should be able to get samples of goods and promotional material bearing your brand before they go to market and regularly throughout the term. You should also be able to audit facilities and require sub-standard stock be pulled from sale.

Is your brand protected?

Aside from issues of look and quality, your licence should also protect your legal rights in your brand.

For example, you should have control and discretion over what registrations you file and maintain to protect the brand and what legal action is brought against third parties who infringe your brand.   

Your licence agreement should also prohibit licensees from challenging your trade mark or registering similar marks in their own name. This is common problem with distributors overseas. In many Asian countries in particular, laws giving trade mark rights to those who are first to file can spell disaster for brand owners entering those markets. Apple has found this out to its cost with the iPad trade mark in China.

Ultimately you want the ability to terminate quickly and easily if your licensee is not performing. It is also important to check local rules if you are licensing offshore. Many countries have peculiar laws requiring licences to be recorded and limiting rights of termination.

As all marketers know, reputation and goodwill are everything when it comes to a company's brand. The key to successful licensing is finding the balance between a good deal and maintaining sufficient control over the licensee to make sure your brand comes out the other side enhanced and unscathed.

An edited version of this column appeared in NZ Marketing magazine, May/Jun 2013.