Licensing is a practice that has been used in the fashion industry for decades. In particular, its been a popular way for apparel brands to branch out into accessories or housewares. Many of the most renown fashion houses have expanded their brands and made substantial revenues from such agreements. If you are thinking about using licensing to introduce new products into your brand, here is a quick introduction to this legal concept.
This post is meant to be taken as general information, not legal advice. If you are considering licensing your brand, contact an attorney to help you draft a licensing agreement.
What is licensing?
Licensing consists in an owner (the licenser) giving another party (the licensee) the right to use a certain aspect of his company’s intellectual property (a trademark, for instance) for a certain amount of time and in accordance with certain conditions, in exchange for a set fee or royalties on sold products, and without any transfer of ownership. Some of the most common licensing agreements in the fashion industry consist in agreeing to another company manufacturing, selling and distributing products under someone else’s trademark. Licensing agreements are usually quite specific and therefore involve a determined duration, precise categories of goods, and a constricted territory.
What are the benefits of licensing?
There are many positive aspects to licensing deals. Allowing another company to use or name or logo is a very efficient way to expand your brand onto other product categories, especially if your goal is to venture into merchandise from more specialized industries, such as perfume, cosmetics or eyewear. Doing so on your own is very costly and requires a lot of expertise. Licensing in this case might just be the more time-efficient solution to tap into in these industries.
Such agreements also broaden your exposure to new markets, whether that would be customers of a specific industry or a new territory, without having to invest as much into the operations required to get to a bigger brand recognition. Not only does this lead to extra revenues without putting in a massive investment, but it also prevents you from having to take care of the different formalities that might be involved with exporting your products in other countries (local regulations and laws that might be different from what you are currently dealing with in your place of business, label translation, etc.)
What should you be careful about?
Of course, signing a licensing agreement does not completely protect you from possible mishaps. For instance, many brands have previously run into quality issues with the products their licensee was manufacturing and selling. Such problems, if not taken care of as early as possible, could be very damageable to your brand’s reputation, especially if part of your success relies upon the quality of your products. Another problem you could possibly run into is over-using licensing. These types of agreements should not solely be seen as easy and fast ways to expand for the sake of having more products associated to your brand. Such a reasoning could easily lead to your brand eventually becoming generic. Moderation and thoughtful deals are key here.
A few elements to keep in mind before licensing your brand:
1. Make sure your agreement is complete and precise Do not leave out any details. Make sure the duration, the royalties or set fees, the territory, product category, and of course, the intellectual property right you are planning on letting your future licensee use, are all present in your agreement. Discuss who will be taking charge of the different aspects involved in making the product and bringing it to the customer.
2. Choose your partners well Remember that getting into business with individuals who have different standards than you do could be very damaging to your brand. If expanding your brand through licensing is something you are seriously considering, take enough time to discuss your ideas and your vision with your potential licensees. Inquire about the products they are currently manufacturing for other brands. Give your licensee clear instructions regarding the quality of the merchandise you will be working on and plan regular quality control checks to make sure the quality stays constant throughout the duration of your agreement.
3. Register your trademarks If it is not already done, take the time to protect your trademarks (logos, names, etc.) by registering them before allowing anyone else to use them.
4. Keep track of the licenses you grant As your business expands into more niche or specialized products, you might have to sign agreements with different companies who manufacture a multitude of items to fulfill your needs. Make sure the different deals you sign do not overlap, as that will cause many problems.
As with all Law on the Runway posts, please use this as general information, not as legal advice. If you have any questions, you may email email@example.com.