A License to Thrill

By Michael A. Mann

This article by Michael A. Mann discussing the importance of protecting a brand by obtaining a trade-mark registration and then the ability to license that unique brand on terms which can be negotiated in the form of a License Agreement.

Have you developed a unique brand name or business model that others are interested in using? In order to take advantage of this situation, you may opt to create a franchised system where you dictate how the franchisee must carry on its business. As a franchisor, you can exert a significant degree of control over how and where the products or services are sold. This can be a good thing, but in Ontario there are significant disclosure requirements that must be met by franchisors who are trying to attract franchisees.

Another alternative may be to enter into a license agreement with the individual or the business that wants to use your brand as a part of their trade. In a typical licensor and licensee relationship, the licensee gains limited rights to use a name, logo or other form of intellectual property which is owned by the licensor. A common restriction on use may limit the licensee to a specific territory in which the branded products or services can be sold; however, in most cases, a licensor will retain the ability to grant licenses to other businesses outside of the protected territory. In most cases, the licensee is not permitted to make any modifications to the brand without getting the consent of the licensor. Consistency in presentation of the brand in marketing and advertising materials is critical to the owner.

In addition, the licensee may be prohibited from selling other competing types of products or services that are associated with the brand; however, in most cases, this will not restrict the licensee from selling other (non-competitive) products or services at the same time and from the same business location.

As consideration for the ability to use the licensor’s brand, the licensee typically pays a license fee to the licensor. This may include an up front fee as well as ongoing charges throughout the term of the agreement. It is also possible to tie the license fee into a percentage of the revenues from the sale of products or services which are associated with the brand. This would obligate the licensee to provide a record of sales to the licensor on some regular basis, and is often subject to an independent audit by the licensor.

It is key to the licensor to ensure exclusive ownership of the brand and the best way to accomplish this is for the owner of the brand to seek Trade-Mark protection with the Canadian Intellectual Property Office. Obtaining a Trade-Mark registration and protecting that mark against unauthorized use will increase the value of the brand and will provide comfort to the licensee in its use.

The terms of a license agreement can be rather complex, and care must be taken to avoid the rela-tionship being characterized as a franchise, so it is strongly recommended that you seek legal ad-vice to draft the contract and to advise you accordingly.

Mike Mann is a senior partner at Lancaster Brooks & Welch LLP and may be contacted at 905-641-1551

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