The BLE Blog

4 brand licensing pitfalls to avoid

Guest post from John Burns, partner at the national law firm Gateley LLP.

In the excitement of entering into a Licence Agreement, whether you are a licensee or licensor, you may be guilty of overlooking the detailed terms of the agreement and turning straight to the signature page only to find out, at a later date, that the terms you have signed up to are not what you initially thought.

The list of pitfalls that a party to a Licence Agreement may face is long and can vary from agreement to agreement – which is why there is no substitute for seeking professional advice. To give you some guidance, we have set out below four issues that every licensee and licensor must consider when entering into a Licence Agreement.

1. Getting the duration of the licence agreement right. The term of the Licence Agreement is important to grow the product and have the best chance of making it a success. As a licensor, however, it is important that you ensure that the term of the agreement is not too long. If it is this could leave the licensor facing a situation where it is tied into the agreement long after the licensee’s business has gone stale.

For a licensee, on the other hand, if the term is too short the licensee may not have enough time to make a return on its investment.

2. Getting the minimum guarantee wrong. If as a licensor you set an unrealistic minimum guarantee for the licensee, not only does it set unrealistic expectations for both parties but it can also be demotivating for the licensee. The minimum target should reflect what the licensee can reasonably be expected to achieve in sales having regard to a number of circumstantial factors including the popularity of the product and recognition of the brand in the territory. As a rough guide, we advise that by the end of year two at the latest, royalties should be exceeding the minimum guarantee.

3. Uncertainty over what is being licensed. As a licensee, you should always check that you are being granted the rights you need to use the brand as you intend. Ensure that the definition of “Licensed Materials” or “Licensed Property” is as detailed as possible. A detailed description will also work in the licensor’s favour as the better packaged and presented the available property –  the more attractive the package will be for potential licensees.

4. Don’t just use any old agreement. It is tempting to save costs by using someone else’s agreement rather than having a bespoke agreement drafted, but if something goes wrong then the cost of remedy could be four times as expensive as the cost of having your own agreement drafted in the first place.

Unless you are an experienced licensee, you should enlist the help of an expert to guide you through the agreement and negotiate any unusual or onerous terms, and to put you in the best position moving forward.

John Burns is a partner at national law firm Gateley LLP. For more informatiJohn Burns (2)on about this article and brand licensing in general please contact John on 0161 836 7923 or via: JBurns@gateleyuk.com.

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