Licensing a trademark makes sense for many companies in order to broaden a trademark’s exposure and enter into financially lucrative relationships for both the trademark owner and licensee. However, there are some common pitfalls which are easily avoidable, yet can create big problems for trademark owners if not addressed early on in the licensing process.
Canadian law provides that use of a trademark by a licensee has the same effect as that of the trademark owner in most circumstances. Section 50 of the Canadian Trademark Act lends protection to trademark owners, but only upon compliance with the requirements of the law. Licensees must comply as if they are the trademark owners in order to continue protection of the subject trademark.
Some of the important requirements of the law follow.
Section 50 requires that trademark owners exercise control, either directly or indirectly, over the character or quality of the goods or services at issue. Trademark licensing agreements should specifically state
(1) that the licensee shall comply with all standards, specifications and/or instructions given by the trademark owner;
(2) that the trademark owner has a right to inspect any all goods and/or services offered by the licensee in order to ensure compliance with standards of use;
(3) if necessary, that employees of licensee must undergo mandatory training offered by trademark owner;
(4) a prohibition clause against sub-licensing or a clause stating that any sub-licensee is subject to the same requirements set forth in the licensing agreement;
(5) that the trademark owner has the right to terminate the agreement, should the licensee not comply with the requirements set forth in the agreement.
Lastly, a trademark owner must exercise its quality-control rights as set forth in the agreement in order to ensure that the good or services offered under the subject mark are up to par. It is always advisable for trademark owners to consult with an intellectual property attorney before entering into any type of licensing arrangement in order to maintain proper protection of the subject mark.