Whether it’s allowing sales partners to use your brand name to resell products, allowing franchisees to use your name with their business, or participating in joint offerings with commercial partners, there are many scenarios where you may end up licensing your trademark to a third-party. However, there are a number of important considerations when allowing others to use your valuable brand names and trademarks:
- Quality Control and Reputational Damage: When you license your trademark to a third party, you lose some degree of control over how your brand is presented, marketed, and used. If the licensee does not uphold the standards or quality associated with your trademark, it can harm your brand’s reputation. For instance, if you allow your trademark to be associated with inferior products, consumers will ultimately associate that low quality with your brand.
- Naked Licensing: Naked licensing refers to the practice of allowing someone to use a trademark without maintaining adequate control over how that trademark is used, particularly without adequate quality standards or oversight. In addition to reputational harm to your brand, this can ultimately lead to the trademark becoming diluted or losing its distinctiveness.
- Dilution: In the worst case, if your trademark has become diluted so much that consumers no longer associate it uniquely with you, you can lose trademark protection altogether. This can happen through failure to enforce your trademarks, failure to include adequate quality controls in your contracts, and naked licensing of your marks.
- Abandonment of Trademark: Courts may also determine that a trademark has been abandoned if the trademark owner does not exercise proper control over the use of the mark. This is because the owner is seen as not actively protecting the mark, and thus, it could be considered “abandoned” under trademark law.
Companies should ensure that in contracts licensing their trademarks there are clear restrictions regarding how those marks may be used, on what products, through what channels, and for what duration to avoid any of these and other issues.