Hidden Assets: Licensing Your Company’s Trademarks
Trademark licensing can provide additional income streams to established brands through brand extensions. ARM & HAMMER toothpaste, an outgrowth of the kitchen staple, baking soda, is one recent example. Co-branding is another example of brand extension and trademark licensing: M & M brand candies in KEEBLER brand cookies, or OREO brand cookies in ice cream. Co-branding also arises in joint marketing on the internet, where companies share the marketing space of a web site for their respective products. This will provide an overview of how trademark licensing can expand a company’s footprint and profits. Topics include registration, basics of licensing and using outside consultants as master licensors.
Protecting the Brand By Trademark Registration
Before a company can engage in any meaningful trademark licensing, it must ensure that its trademarks are federally registered. This is the first step: a comprehensive filing strategy for all domestic and international brands. Start with core registrations for the products on which the marks are already used, and expand to complimentary products. Typical product extensions would run along these lines:
1. Hit skateboard product — expand to clothing, footwear, paper products (stickers and the like), backpacks, personal accessories.
2. Popular truck brand — expand to clothing, footwear, toys, video or CD ROMs, figurines, backpacks
3. Hit sports towel — expand to bath robes, head turbans, lotions, bath gels, cosmetics, shampoos
International protection must be considered because the economy is global. First, foreign distributors and subsidiaries should be taken into account in trademark ownership due to the pitfalls of mark ownership by different business organizations on an international scale. Second, keep it simple by having one entity, a parent or holding company, own all trademark registrations worldwide. Lastly, consult with tax counsel on the benefits and disadvantages of trademark holding companies.
Generally, the sole basis for international (non-U.S.) protection of marks is registration, except in the case of famous marks. Therefore, register important marks internationally as soon as possible.
Building Brand Awareness
No brand extension program should be undertaken without a strategic plan. These can be developed in-house or by licensing agents.
Some brands have built-in awareness. For example, university alumni and fans of their teams seek to identify themselves with the university’s marks. Many schools have licensing guidelines on their web sites administered by in-house licensing personnel. A model for collegiate licensing is the Collegiate Licensing Company. Similarly, sports teams have broad-based pre-existing brand awareness.
For brands that do not have broad awareness, a cost-benefit analysis should be done comparing the revenue likely to be generated from licensing with the cost of building the awareness. A combination of social media, conventional advertising, public relations, product placement and strong licensing partners builds brand awareness. The cost can be high, but the payback can be enormous. For example, Intel Corporation is famous for how it built brand awareness of an obscure, invisible computer chip, by creating and promoting the INTEL INSIDE Design mark. The emergence of the CATERPILLAR mark as a fashion brand is another example of the successful building of brand awareness.
Protecting the brand’s reputation is perhaps the key element of any trademark license and any trademark licensing program. Core elements of any trademark license are quality control provisions. These include review and approval of all proposed products, advertising for them, and ongoing quality control review procedures. Termination provisions must allow for immediate termination of any license and distribution of any product if the licensed product becomes sub standard.
Licensing For Profit
Through the use of outside licensing experts or in-house administrators, licenses can be managed and made profitable. Some key points are, deal with established vendors with experience in licensing, keep control over the product, have uniform sales tracking information to determine which products are successful and which are not, and retain the flexibility to terminate unprofitable or nonperforming licensees. Also, be realistic in dividing your product among licensees. It may not be wise to have one license for cards, one for posters, and another for calendars since those products can be marketed together, and indeed a good licensee may require licenses in all three categories. Creativity never hurts: note the crossovers between movie products and books, tie-ins with fast-food vendors, cereal products, and so forth.
The company must be prepared to protect its licensees by enforcing its rights against third parties and remember the cost of enforcing trademark rights when doing so. Getting the word out through a strong enforcement program can help stem infringements. Protection of the PLAYBOY brand, for example, has been instrumental in maintaining the source-identifying quality of the name and RABBIT LOGO, most famously in a string of cases involving infringement on the internet. See, e.g., Playboy Enterprises, Inc. v. Universal Tel-ATalk Inc. 1998 U.S. Dist. LEXIS 17282 ( E.D.Pa. 1998).
The U.S. market is huge, but the rest of the world is even bigger. As product distribution globalizes, many consumer industries will follow. STARBUCKS, used on coffee and retail services, KRAFT used on cheese and other food products, SANYO used on electronics equipment, MERCK used on pharmaceuticals, LAND ROVER used on automobiles, PEPSI used on soft drinks, are examples of a handful of international brands.
Even niche products can be expected to enjoy international sales. Hospital equipment, airplanes, biotech laboratory supplies, gene or cable splicers, digital imaging equipment — you name it and the product that is the market leader will have worldwide demand.
The foundation of international expansion must be trademark registration because rights in most countries are based on registration, not use. For example, a mark registered in the United States does not guarantee the protection of your mark overseas. Therefore, register at least in one trademark class for the core product, and expand into registration for the two or three most important ancillary products.
The next most important aspect to consider is partnerships. Team with in-country companies that can distribute your product, unless and until your company is large enough to expand in-country itself.
A company’s trademarks can be a source of additional revenue through licensing. They are assets that can be exploited profitably to create nontraditional sources of income, while also building the overall awareness of the brand in its core product areas.
The article entitled “Hidden Assets: Licensing Your Company’s Trademarks ” was published in the 2017 Legal & Accounting Resource Guide published by the North Bay Business Journal.