Written by: Sechaba Ntsiu

What is a merchandising licence agreement?

A contractual agreement between parties whereby a party (known as the licensor) grants a licence (i.e. permission) to another party (known as the licensee) to use the licensor’s intellectual property (IP) for the purposes of creating products for sale or marketing to consumers.

Trade marks and rights in copyright are usually the forms of IP that apply to agreements of this kind.

What is a common example?

A common example in this area is often seen where a licensor grants a licensee permission to use their IP on clothing.

For example:

  • The Las Vegas Raiders (the American football team) granting ASOS permission to use their trade marked logo on hoodies that are available to purchase on ASOS’ website (see here).
  • The owner of the copyright of this image relating to the TV show Friends granting BooHoo the permission to use their image on t-shirts that are available to purchase on BooHoo’s website (see here).
  • Arsenal Football club granting Adidas permission to use their trade marked logo on t-shirts that are available to purchase on Adidas’ website (see here).

What are some of the contractual clauses that are included in a merchandising licensing agreement?

Grant

This clause might cover the following:

  • The level of exclusivity which is being granted to the licensee. The licensor may choose to grant the licensee:
  • an exclusive licence (i.e. giving them permission to use the relevant IP in a manner that excludes all other people using the IP, including the licensor).
  • a sole licence (i.e. giving them permission to use the relevant IP in a manner that excludes all other people using the IP, apart from the licensor); or
  • a non-exclusive licence (i.e. giving them permission to use the relevant IP without restrictions being placed on the licensor being able to issue another licence to a third party).
  • The territory in which the licence applies. For example, the licensor might choose to licence their IP for use by retailer A in the UK, and then choose to licence their IP for use by retailer B in the US, based on commercial considerations, such as each retailer’s popularity in the relevant territories.
  • The specific purpose in which the licensee is allowed to use the IP. For example, if the specified purpose noted in a merchandising licensing agreement states that the licensee is only allowed to use a trade mark protected logo to make, distribute, sell, and advertise t-shirts, and the licensee proceeds to make and sell trainers displaying the logo, the licensee will likely be in breach of contract.

Quality Control

A quality control clause focuses on ensuring that the product(s) produced under the agreement meet an agreed standard, and that those products are reflected as doing so in any advertising and marketing materials.

The clause may also make it clear that no other IP (whether owned by the licensor or a third party) will feature on the product(s) produced under the agreement, unless agreed by the licensor.

Approval of Products

A approval of products clause aims to ensure that the licensee provides the licensor with sample product(s) for review and approval, before the licensee goes to market with the final product(s).

Consideration

Consideration clauses aim to detail the ways in which the licensor will be remunerated for granting the licensee with permission to use their IP in line with the terms of the agreement.

  • Flat Fee: a licensor might choose to charge the licensee a flat fee in exchange for their permission to use the IP. It is up to both parties to determine when the fee would be paid – e.g. paid annually, paid in one lump sum, etc.
  • Royalties: a licensor might choose to agree to be paid via royalties on the basis that they allow the licensor to be paid based on the licensee’s commercial success. In other words, the licensor would agree to take x% (royalty rate) for each product that is sold or distributed by the licensee.
  • Flat Fee and Royalties: a licensor might choose to charge a licensee a flat fee figure as well as agreeing to be paid via royalties.

Confidentiality

A confidentiality clause aims to ensure that any confidential information shared between the parties under the agreement is prevented from being shared with any third party that is not permitted access to that information. This clause generally details which parties are allowed access to confidential information under the agreement, and it details how long the confidentiality clause remains active after the agreement expires or is terminated.

Title

A title clause aims to ensure that the licensor is noted as being the owner of the IP, and that the licensee gains no ownership of the IP under the terms of the agreement.

Registration of Licence

Though not application to all forms of IP, a licence of a registered right must itself be registered (e.g. a licence granted for use of a trade mark should be registered as rights under trade mark ownership are registered rights).

This clause aims to ensure that the licensee registers the existence of the licence as required under law, and it often holds that costs of registration will be paid by the licensee.

Sub-Licensing

The term sub-licence refers to a contractual agreement which allows a licensee the right to grant their own licence to a third party permitting them use of IP assets which the licensee was given the original right to use via an existing, and overarching, licensing agreement. It is up to the licensor to permit or refuse the licensee rights of sub-licence.

Other clauses

Merchandising licensing agreements will also contain the standard clauses which you will find in most contractual agreements. For instance:  

  • Entire Agreement – ensures that no other terms apart from the terms contained in the agreement govern the licensing relationship between the parties.
  • Duration – details when the agreement starts to run, and how long it will run for.
  • Termination – details the rights each party has to terminate the agreement.
  • Governing Law – details which laws will determine the result of a dispute should one arise between the parties. For example, the clause might state that any dispute or claim arising out of or in connection with the agreement will be governed by the laws of England and Wales

This article should hopefully give you a better understanding of some of the legal and commercial considerations that play a part in merchandising partnerships between businesses.

The clauses above are examples of some of the clauses which might feature in a merchandising licensing agreement. The above is provided for educational purposes only. Legal advice should always be sought where required.