Trademark Law: General Precautions When Licensing Your Own Trademark Rights
When having other companies manufacture products under license, it is common to license your own trademark rights.
Additionally, when expanding into a new business area different from your own, there are cases where you may license your trademark rights to another company to develop the new business instead of entering the market directly.
In such cases, you should at least pay attention to the following:
(1) Maintaining the quality of products, etc.,
(2) Verifying sales of products, etc.
Licensing your own trademark rights is the same as lending your company's "existing" reputation to the licensee.
Furthermore, a portion of your company's "post-licensing" reputation will be formed by the licensee's business activities. For this reason, if the quality of products manufactured and sold by the licensee is lower than before, the reputation associated with your trademark rights will decline. There is also a possibility that the trademark rights could be canceled due to improper use (Article 53 of the Trademark Act).
Therefore, it is advisable to include a clause regarding the maintenance of product quality in the license agreement.
Next, regarding the verification of product sales, if the license fee is based on the number of products sold (known as a running royalty agreement), there is a possibility that the licensee may underreport sales. For this reason, it is advisable to include a clause in the license agreement to verify sales in some form.
* In running royalty agreements, it is common to hear of contracts based on a percentage of the product price per unit, or a fixed amount in yen per unit.
* If the contract involves a lump-sum payment of license fees at the time of the agreement, or a fixed license fee (e.g., XX yen per year), sales verification is unnecessary.
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