What Is Trademark Licensing?
Trademark licensing is the process by which a registered trademark owner, called a licensor or proprietor, allows another party, called a licensee, to make and distribute specific products or services under the licensor’s trademark agreement. Trademark licensing is a type of merchandise agreement. The licensor receives a certain amount of money or royalties, a percentage of all sales, in exchange for sharing the trademark. This compensation is also called consideration. Fashion and consumer products concerned with sports and entertainment are often sold under a trademark licensing agreement.
The licensee usually creates a trademark licensing agreement, but a licensor can also create this document. Both parties usually agree upon the terms before creating a trademark licensing agreement.
Trademark licensing is regulated by the Trademark Law and the Measures for Putting on Record of Trademark License Contracts. A trademark registrant may authorize other parties to use its registered trademark by signing a trademark license agreement, and the goods that bear the registered trademark must indicate the name of the licensee and the origin of the goods. Although currently not mandatory, the license agreement should be registered with the Trademark Office within 3 months of signing the agreement. The right to sub-license a trademark or service mark does not exist statutorily, and must be granted contractually with the authorization or the consent of the licensee.
Quality control is the essence of trademark licensing
Trademark licensing became acceptable where the licensor (the owner of the trademark) remained in control of the nature and quality of the goods or services sold in association with the trademark. Quality control is, therefore, the essence of trademark licensing, providing the means for ensuring that the licensee’s use is consistent with the licensor’s interest in the trademark and at the same time ensuring that the consumer will get essentially the same quality good or service no matter where the trademarked good is purchased or the service is experienced.
The necessity to record a license agreement at the SIPO
First of all, we should mention that it is not compulsory for a licensor, typically a patent owner, to record his license agreement under the Chinese Patent Law. The license agreement shall be concluded under the Contract Law in China, and takes effect as of the effective date of the agreement. The recordal is, by no means, the condition for the license to be valid in China. Nevertheless, the recordal is beneficial for the sake of the licensor and licensee.
The standard document is drafted in favor of the licensor but aims to be reasonable and includes provisions that are common to negotiated trademark license agreements. The document has integrated notes with important explanations and drafting and negotiating tips.