Brand Licensing and its Implications
Have you ever compared two nearly identical products but end up spending more money for the pricier version based on the brand’s reputation? What if you were told the two products were actually identical and was manufactured in the same facility by the same company? Would that change your perception and buying habits? Not all brands we see in the marketplace are as they appear to be. Companies spend millions of dollars in order to build brand recognition and loyalty amongst their customers. The strength of a brand’s name allows companies to license their trademarked brand names for use by third party companies. For the everyday savvy consumer, knowing which brands are licensed to which companies could help you from falling into the trap of making purchase decisions based on brand names when in fact the brand has nothing to do with the design or manufacturing of such products.
From a compliance perspective, what is the impact of brand licensing for technology or patent licensors in pursuing compliance with a major brand name? In this article we cover the basics of brand licensing, the implications it has for corporations that license out their intellectual property, and how it impacts technology and patent licensors in its compliance efforts.
What is brand licensing?
To better understand this term, we break it down into its two main components – brand and licensing.
Brand – a brand is a name, term, design, symbol, or other feature that distinguishes an organization or product from its rivals in the eyes of the customer. Brands are used in business, marketing, and advertising.
License – a license is an official permission or permit to do, use, or own something. A license may be granted by a party (“licensor”) to another party (“licensee”) as an element of an agreement between those parties. A shorthand definition of a license is “an authorization (by the licensor) to use the licensed material (by the licensee)”.
Thus, brand licensing is the process of creating and managing contracts between the owner of a brand and a company or individual who wants to use the brand in association with a product, for an agreed period of time, within an agreed territory. Brand license agreements typically have a 5-year term with option to renew or terminate depending on a number of factors.
What We See in the Market Place and What the Reality Is
Often times brands we see in the marketplace are no longer designed, manufactured, or sold by the companies that own the brands. Take for example familiar television brands such as Japan-based Sharp or Netherlands-based Philips. These major TV brands have exited the North America market due to the competitive landscape. The rights to Sharp TVs sold in the U.S. are licensed to China’s Hisense in 2015, while Philips’ U.S. televisions have been manufactured and sold by Japan-based Funai since 2008. Take a step outside of the US market and the scenery remains the same. Starting from 2015, Sharp’s televisions sold in Europe are manufactured and sold by Slovakia-based Universal Media Corporation under a brand licensing agreement. In 2014, Philips transferred its remaining shares in joint venture TP Vision to China-based TPV, which effectively ended Philips’ control of any TV business and giving TPV the rights to sell Philips branded TV in several regions around the globe.
The situation for Sharp is further complicated as Taiwan-based Foxconn acquires Sharp in 2016, while Hisense defends its right to the Sharp brand in the U.S., which is valid until 2020. Meanwhile Sharp is suing Hisense in 2016 over allegations of Hisense devaluing the brand by selling subpar televisions. Furthermore, Sharp acquired majority stake in Skytec UMC (formerly Universal Media Corporation) in 2017 in efforts to strengthen its TV business by re-entering the European market. As the above examples demonstrate, the brand landscape can be very different in reality and can change any time due to various changing business transactions. It is not only deceiving to an everyday consumer, but it also brings challenges to brand owners.
How Does This Impact Our Client’s Business?
As the brand licensing landscape continues to change over time, it poses challenges within the intellectual property industry. From a license compliance perspective, when targeting major brands as a potential audit target, it’s important to fully understand if there are any brand licensing arrangements in place. The perceived risk exposure for a particular brand would be over-estimated if licensors are not aware that the brand owner has major brand license arrangements. For example, an audit of Sharp 10 years ago versus an audit of Sharp today would present very different risk profiles as Sharp has licensed out their brand to multiple brand licensees in multiple major regions and is no longer responsible for royalties of sales in these regions. An audit of Philips is also very different now compared to the past as Philips is no longer responsible for any of its TV business and has divested their remaining consumer electronics business in recent years.
Furthermore, without the understanding of who the brand licensees are of these major brands, licensors may be missing out on companies which are potential audit candidates that may not have been on their radar otherwise. For example, Universal Media Corporation only came into many licensor’s radar when they acquired the Sharp brand license arrangement in Europe. Lastly, from a reinforcement perspective, many brand licensees may not even be a licensee of major technology and patent portfolios, creating a blind spot in the supply chain visibility for licensors. As such, it is important for technology and patent licensors to stay current with technology news and stay informed for any potential brand licensing deals.
From a 3rd party audit partner perspective, it is important that the auditors are bringing back valuable insights from audits of known brand license arrangements to further supplement and support the licensor’s knowledge of the ever-changing brand licensing landscape. It is true that with brand licensing deals, the royalty responsibility often shifts to the brand licensee; however, in certain unique circumstances, there may still be visibility from the brand owners on sales distributed by the brand licensees. For example, sometimes the brand owners will continue to be involved in the R&D and design of the products to maintain the integrity and value of its brand. In other cases, the brand owner may still be involved in certain aspects of sourcing and distribution of products sold by the brand licensee. The insights from these unique circumstances can provide valuable information to licensors when assessing potential exposure and setting expectations of royalties collected from licensees.
Licensors can also detect potential brand license arrangements in royalty trend analysis by detecting sudden sharp drop of royalties in a particular product category, specific region or country. These are possible indications that the brand owner may have licensed out the rights of their brand to a licensee for use of certain product types in certain regions.
Connor Consulting Corp. (“Connor”) is a leading independent audit firm that specializes in contract compliance. Connor is a strategic advisor to industry leaders such as ARM, HDMI, Dolby and many others. Contact us today to explore the benefits of a contract compliance program for your organization: +1 (415) 578 5002 or fill out an inquiry at http://www.connor-consulting.com/work
About the Authors
Sharon Cheng is a Director at Connor Consulting Corp. Sharon has over 15 years of experience in the technology, semiconductor, and consumer electronics industries.
Stephen Lee is a Senior Associate at Connor Consulting Corp. Stephen has over 7 years of experience in technology and real estate industries.
Connor Consulting has managed hundreds of IP-related audits and have helped numerous companies collect lost revenue and improve their control environment and licensee base relationships. Connor has global teams with an average experience of 10+ years that specialize in IP royalty audits, third party review, contract compliance, and software asset management and license compliance.
1 Taken from Wikipedia https://en.wikipedia.org/wiki/Brand American Marketing Association Dictionary. Retrieved 2011-06-29. The Marketing Accountability Standards Board (MASB) endorses this definition as part of its ongoing Common Language in Marketing Project., Foundations of Marketing. fahy& jobber. 2015.
2 Taken from Wikipedia https://en.wikipedia.org/wiki/License Cambridge Advanced Learner’s Dictionary
3 Taken from Wikipedia https://en.wikipedia.org/wiki/Brand_licensing#cite_ref-1 Manton, Steve (2005). Integrated Intellectual Asset Management. Gower Publishing, Ltd. ISBN 0-566-08721-9.