Trademark Licensing 101: Fundamentals for Brand Monetization & Protection

Presented to Licensing Executives Society (LES) Toronto Chapter October 30, 2014

Lorraine M. Fleck

Outline• It’s all about control.

• License only when required.

• Get it in writing - even when it’s your (business’) relatives.

• Licensing problems can be relative.

• Give notice.

• Set the standard.

• Train your licensees.

• Keep an eye on the situation.

• Sometimes you just have to end things.

• Beware the “accidental franchisor”.

It’s all about control• Single source theory and distinctiveness.

• Distinctiveness is required to acquire, maintain and enforce trademark rights.

• Distinctiveness means some aspect of the trademark is distinct from other providers of identical/similar goods and/or services.

• Single source theory is a form of consumer protection.

• Single provider of goods/services; “know your supplier”.

• Canadian Trademarks Act (TMA) codifies common law that a trademark functions as a source identifier of goods and/or services.

• Distinctiveness essential to such identification.

It’s all about control• Why does this matter?

• Distinctiveness is required to acquire, maintain and enforce trademark rights.

• Trademark rights are “use it or lose it”.

• TMA subs. 50(1):

“For the purposes of this Act, if an entity is licensed by or with the authority of the owner of a trade-mark to use the trade-mark in a country and the owner has, under the licence, direct or indirect control of the character or quality of the wares or services, then the use, advertisement or display of the trade-mark in that country as or in a trade-mark, trade-name or otherwise by that entity has, and is deemed always to have had, the same effect as such a use, advertisement or display of the trade-mark in that country by the owner.”

It’s all about control• Control allows trademark owners to grant permission to

others to use their marks in association with goods and/or services without losing their rights.

• The mere appearance of control is insufficient.

• Beware of “naked” or “bare” licensing.

• Control crucial for enforcement or defence of trademark rights.

License only when required • License not required for “conduits”.

• TMA s. 50 does not automatically apply to distributors, wholesalers, retailers.

• Sometimes a license may be required e.g. when the retailer is more than a mere conduit. Look at the relationship and how that relationship may be perceived by a third party.

• E.g. when a license may be required for a distribution/retailer.

• Franchised restaurant, car dealership.

• E.g. when a license is usually not required.

• Retailer, television program.

Get it in writing - even when it’s your (business’) relatives• TMA s. 50 does not require written license.

• Best practice: have a license agreement to act as a reference document - paper the deal and set out the rights and obligations of both parties.

• Even more critical when licensing between related companies.

• While a court may rule that there was a license relationship, best to paper the deal and not take chances.

• Which leads to…

Licensing problems can be relative• TMA s. 50 does not specify that the ownership/control of a

licensee by a licensor is sufficient to establish quality control.

• Exception for related companies in respect of pharmaceutical distribution (TMA s. 51).

• Sometimes quality control can be inferred.

• Best practice: have a written license with robust control provisions regardless of whether licensee is a “relative”.

• Can be critical in enforcement scenarios.

• May require an agent to exercise required control if licensor is an intellectual property holding company.

Give notice• TMA does not require notice of a license. Such notice creates a

rebuttable presumption.

• TMA subs. 50(2):

“For the purposes of this Act, to the extent that public notice is given of the fact that the use of a trade-mark is a licensed use and of the identity of the owner, it shall be presumed, unless the contrary is proven, that the use is licensed by the owner of the trade-mark and the character or quality of the wares or services is under the control of the owner.”

• E.g. of notice: “TRADEMARK is a trademark of OWNER’S NAME, used under license”.

• Often such notice is required as part of a license agreement.

Set the standard• TMA s. 50 requires trademark owner to have direct/

indirect control of the quality of the goods/services under license.

• License agreement should specify that the goods/services must confirm to the owner’s standards or specifications.

• Standards/specifications can be in a separate document. Allows for flexibility when updating/improving goods/services.

• May need to supply components for requisite control.

Train your licensees• Key when offering services under license.

• May apply to goods as well (e.g. quick serve restaurants).

• Institute mandatory training e.g. McDonald’s Hamburger University.

• Those enforcing the standards should partake in such training.

• Provide regularly updated operations/standards manuals.

Keep an eye on the situation• Inspections and monitoring are key to avoiding “naked” or “bare”

licensing.

• Specify inspection rights in the license agreement to ensure compliance with trademark owner’s standards.

• Considerations:

• Timing of inspections (how often, how much notice).

• Inspect samples.

• Inspect premises.

• Monitor returns of products, customer feedback to flag possible quality control issues.

Sometimes you just have to end things• Right to terminate license allows licensor to maintain quality

control.

• Licensor should maintain right to terminate license if:

• Licensee does not adhere to quality control standards.

• Licensee does not allow inspections permitted under the agreement.

• Licensee under reports royalties due to licensor.

• Specify license term and renewal rights.

• Consider whether automatic renewal appropriate.

Beware the “accidental franchisor”• General definition of a franchise:

• Grant rights to operate a business in association with franchisor’s trademarks;

• Direct or indirect, initial or ongoing, payment of money by the franchisee;

• Significant control/assistance by the franchisor in the franchisee’s operation.

• Board definition can capture many licensed relationships.

Beware the “accidental franchisor”• Why important?

• Provinces with franchise disclosure requirements requires franchisees to receive a “disclosure document” before paying royalties/signing agreement.

• Failure to disclose allows franchisee to terminate agreement, recover royalties and any losses.

• Sums and damage to franchisor’s reputation can be significant.

Inspiration Partners™Lorraine M. FleckPartner, Lawyer & Trademark Agent401 Bay Street Suite 1220A, Box 88Toronto, ONM5H 2Y4

Tel. 416-855-0111 x 221Fax 647-689-2870Email lorraine@fleckchumak.comwww.fleckchumak.comTwitter: @FleckChumak | @lorrainefleck