License to Bill – Properly Licensing a Trademark

Your brand is booming and your business is a huge success. You need a business expansion plan, or to sell to someone who can execute one. You don’t want to sell. You are not ready to franchise. What options do you have?

Many brand owners decide to license their trademarks to third parties as a means to grow. Licensing trademarks enables a business to expand their brand while maintaining control and ownership over their trademarks. Licensing trademarks also has several other business benefits such as expanding a brand's reach and providing the opportunity to collect royalty fees.

Licensing a trademark also carries legal benefits. In Canadian law, trademark rights are based on use. Failing to use your trademark puts a brand owner at risk of having their trademark expunged or invalidated. In other words, “use it or lose it”. One way to ensure that the trademark is validly used is through a license. An owner can license the use of a trademark to a third party. Any valid use of the mark by this party will be credited to the owner as if the owner was using it themselves. This tool can be handy in maintaining the validity of a trademark - especially when a business owner no longer directly uses its trademarks.

Licensing trademarks can be tricky. Third parties can challenge trademarks on the basis that the trademark was improperly licensed. A licensor should always ensure that it maintains direct or indirect control over the character or quality of the goods and services provided under the trademark. If this is not done, the licence may not comply with the Trademarks Act and the trademark owner’s rights will be at risk.

The most effective way of ensuring a trademark is properly licensed is through a written agreement. A properly written agreement provides certainty between the relationship of the parties. Moreover, it allows the owner to maintain the requisite control over its trademark.

If a written agreement is not in place, a licensor should ensure that public notice is given that the trademark is being used under licence. If the owner gives public notice, then, unless the contrary is proven, it will be presumed the use is licensed by the owner and the owner maintains the character of the goods and services. This is typically done by putting a notice on product packaging and labels. For example, “RED BOX used under licence from ABC co.”

One final point of caution – under Ontario law, it is possible for certain agreements to be characterized as franchise agreements. If characterized by a franchise agreement, it will be subject to the Arthur Wishart Act and Ontario franchise law. To avoid this, a licensor should only reserve the right and obligation required to protect the integrity of its trademark and avoid exercising significant control or offer assistance to the licensees business.

For more information contact our office at any time.