The devil wears Prada - but would he license it?
The McCartney scenario raises the issue - is it easier to license or develop a brand? And what are the key issues involved in licensing?
Obviously it is a hell of a lot of work to develop a brand and to build the goodwill associated with it. However, the rewards can be greater than by simply licensing an existing brand. But, those are commercial considerations. This article sets out some of the main legal considerations when licensing a brand.
What's in a brand?
Simply, a brand is a mark (whether registered or not) that provides an indication of the origin of goods or services. In common terms it simply means, for instance, "I made this manufactured garment." By so doing, it distinguishes those goods and services from those of any other trader. To the consumer, a brand means a badge of quality upon which they can rely in order to make their purchase.
So why are brands important?
In the current business world, it can't be underestimated how important brands are. As a result of globalisation (including) for instance the internet), importers, wholesalers and retailers are fighting increasingly difficult battles in order to capture and retain the loyalty of consumers. That, in turn, means $$$.
Do I license or assign a brand?
There are two basic ways that one can acquire the rights to a brand. The most fundamental of ways is to take an "assignment" of those rights. Simply, that means that the licensor totally hands over ownership of the brand. The second way is to take a license of the brand rights. The license can be as to a certain range of goods, for a certain period of time and in respect of a certain territory. It is a useful way to break into a brand new market. For instance, a North American menswear manufacturer could use a licensing arrangement in order to break into the Australia/New Zealand market. Clearly, if the arrangement is a successful one then it's only of benefit to the North American (global) brand.
Key considerations when licensing from both perspectives
The first issue for a licensor is to ensure that they license to a suitable licensee. Important considerations are the attributes of the licensee. For instance, do they have the resources and financial commitment to actually succeed? Do they have a well-established distribution network? Do they have a proven track record in that product category? Are their references suitable? Ultimately, will they be of value to your brand?
On the flip side, when choosing a licensor, a licensee may have entirely different considerations. The primary consideration will be the strength of the brand in the territory in which the licensor operates. They key issues to be addressed in a license are:
* Will the license be exclusive or non-exclusive. An exclusive license provides a licensee with rights that are its and which will provide it some protection from competition. A non-exclusive license does not offer the same form of protection and (generally) the licensor remains free to exploit in the relevant territory.
* What rights are to be licensed? Will it be in the full range of commercial activities (manufacture, promotion, distribution and retail)? Or, is it for instance, just to manufacture? Or is it to manufacture and distribute? What about online rights?
* Remuneration. In common terms, the royalty. Often, licensors will seek some form of guarantee plus a royalty. You will need to make sure that the royalty is carefully negotiated and worded in the contract. If you are the licensor, you will need to ensure (amongst other things) that there can be a reversion of the rights if payment is not made. If you are the licensee, you will need to make sure that the royalty is properly calculated and that there are no glaring problems. Ensure that currency issues and any deductions are carefully considered. It would also be prudent to ensure that attached to any agreement is a sample break down of how the royalty is calculated including all deductions.
* Quality control issues are critical. A successful licensing venture can benefit both parties. On the other hand, an unsuccessful one can also be damaging. Accordingly, any licence agreement needs to address suitable provisions relating to usage and quality control. The licensor should ensure that they have control over all the uses of the brand and the mark. Those provisions should also address rights to inspect samples of goods.
* Obligations in respect of the use of the brand or mark in advertising, promotion and marketing. At the very least, the licensor should have a right of approval over those matters.
* If as licensor you are providing important know-how and trade secrets, you will need to ensure that the agreement includes suitable confidentiality provisions preserving those rights to your benefit.
* Finally, any licensing agreement should include certain "warranties" or assurances from each party.
Finally, as with any deal it should be a "win-win" for both parties - otherwise the arrangement will fail. But don't forget - the devil's in the detail. Good luck.