Trademark works as a “source identifier,” to the consumer. It is the goodwill and the reputation of the mark’s owner or related products or services provided by the owner. Trademark can be licensed like any other intellectual property. However, extra affirmative steps need to be taken to protect trademarks from being abandoned.
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Grant clause should include information about the “licensed trademark,” and any other related marks agreed under the term sheet. Any territory or geographical region limitation should be included in the grant clause. Any sub-licensing allowed can also be included in the grant clause. Grant clause also should identify uses, and any available channels of distribution.
Sub-licensing by non-exclusive licenses
Sub-licensing is the process of giving authority to non-exclusive licensees to authorize the use of the trademark license by a third party. Sub-licensing require prior written approval from licensor (or the owner of the trademark).
Quality Control provisions
Any trademark license should have adequate quality control provisions listing the type of things that need to managed, and notify regularly about the status of the steps by the licensee (including sub-contractors hired by licensee):
1. Make sure that the overall look and feel of the trade dress is the same as licensor’s desire.
2. Allow for regular inspection and audit to check the quality of product labeling, packaging etc, if the product is being manufactured by the licensee.
“A mark shall be deemed to be ‘abandoned’ if either of the following occurs:
(1) When its use has been discontinued with intent not to resume such use. Intent not to resume may be inferred from circumstances… [or] (2) When any course of conduct of the owner, including acts of omission as well as commission, causes the mark to become the generic name for the goods or services on or in connection with which it is used or otherwise to lose its significance as a mark.” 15 U.S.C. § 1127.
From the above statute there are several ways abandonment can occur:
1. Non-use of the mark with no intent to resume use.
2. Genericide: Trademark becomes generic over-time due to recognition by the public as everyday item.
3. Naked licensing: Uncontrolled licensing the trademark to anyone with any reasonableness to maintain the good will lead to abandonment.
Avoiding gray market goods
Gray market goods are authorized by the trademark owner or the licensee acting on conditions set by the owner. Usually gray market goods are sold overseas, where for “geographical price differentiation” purposes, are sold at a lower price compared to United States. Those gray market goods cannot be imported into the United States and be sold here illegitimately at a much lower price resulting in losses to the trademark owner in the form of royalties. Lack of enforcement steps taken by the trademark owner may result in abandonment of trademark.
Trademark license v. Contract for sale of goods
The grant clause need to be clear enough that the terms in it will not implicate a contract for sale of goods. Most of the distributorship agreements are for sale of goods and thus are governed by UCC article-2. However, what motivated the transaction along with terms in the grant clause dictate whether it is a trademark license. The grant of a trademark license is not a sale of goods contract.