Licensing a trademark, unlike selling it, allows you to retain ownership of this asset, generate recurring income, and maintain control over its market presence.
In the business world, trademarks often become one of a company’s most valuable assets. It is not just a distinctive sign registered with the National Institute of Industrial Property (INAPI), but also the symbol by which I distinguish a particular company or person, through the recognition and track record that it builds over time.
However, at some point, the dilemma may arise as to whether it is advisable to sell it or merely license it. In this regard, it is essential to understand the difference between the two concepts.
What does selling a brand entail?
As we know, selling refers to transferring a trademark, that is, transferring its ownership so that the buyer becomes the absolute owner and acquires all rights to exploit, register, and defend the trademark.
In the event of a total transfer, the former owner completely relinquishes that asset and cannot use it again, unless additional contractual limitations are agreed upon.
What does licensing a trademark involve?
Clearly, it is solely up to the owner to decide between these two options. The important thing is to have all the necessary information before making that decision, since the suitability of one or the other alternative will depend on the objectives pursued in the business.
That said, on this occasion we would like to highlight the importance of choosing licensing as a way of exploiting assets.
Why choose to license a brand?
Licensing offers strategic advantages that go far beyond mere transfer. First, it allows the asset to remain in the patrimony of the company or the owner. In this way, it continues to be an intangible asset that increases the value of the company or project, something especially relevant in today’s market. In addition, licensing generates recurring income through royalties or fixed payments, making the brand a source of sustained profitability without the need to divest it.
In licensing, the parties can agree on whatever they deem necessary. In this sense, the owner can determine whether the license will be exclusive or not.
If it is exclusive, only one licensee (third party) may exploit the brand under the agreed conditions, while if the license is non-exclusive, the owner has the possibility of signing several contracts with different third parties, which will clearly generate an increase in sales, leading to higher royalties.
Likewise, the decision to establish whether the license will cover only the national territory or expand to the international market may be added.
Another fundamental aspect is that through the license, the owner can require that the use of the trademark comply with certain parameters or fulfill certain obligations in order to enhance the image of the trademark. In addition, the owner can agree to obtain royalties as financial compensation for authorizing a third party to use their trademark, which obviously enhances the economic exploitation of the distinctive sign.
Another relevant feature is that the license is granted for a specific period of time, which allows the owner to periodically evaluate the advisability of maintaining, renewing, or terminating the contractual relationship. Most importantly, even when a license is granted, the trademark never ceases to belong to the original owner, who retains ownership of the registration at all times and therefore remains the owner of the distinctive sign.
However, for the license to function properly, it is essential to have a well-structured contract. This contract must clearly define the purpose of the agreement, the territory of application, the duration, any exclusivity and the obligations of the licensee, royalties, among many other things.
It is also advisable to add clauses that prevent the licensee from registering the trademark in their name or developing confusingly similar signs, as well as confidentiality and early termination clauses in the event of breach.
Therefore, unlike assignment, which allows you to sell it at a high price, this involves completely transferring ownership to a third party, while licensing offers a strategic option to remain linked to the business and take advantage of the value of the sign without parting with this fundamental asset for a company or individual.
This is how licensing a trademark can be an extremely useful strategy, especially when one does not want to part with that asset and, above all, considering that one can expand into new territories, obtain royalties, and form alliances with various third parties for the use of the trademark in question.
Obviously, each company or individual must evaluate which option best suits their own interests and objectives, always considering that we currently live in a world where brands are one of the most valuable assets, so it is essential to make an informed decision when faced with this scenario.
For more information on these topics, please contact our Intellectual and Industrial Property Group:
Eugenio Gormáz | Partner | egormaz@az.cl
Carlos Lazcano | Senior Associate | clazcano@az.cl
Fernanda Rodríguez | Associate | frodriguez@az.cl
Esteban Orhanovic | Associate | eorhanovic@az.cl
Matías Selamé | Asociado | matiasselame@az.cl
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