Brand licensing is an exciting way for companies to bolster their core business, generate new revenue streams and reach otherwise untapped markets. Brand licensing is not without its own risks and without the right protections in place, your brand and intellectual property could be misused, diluted, or even outright stolen.

As a 20-year business advisory professional in contract compliance and royalty assurance, I’ve seen firsthand how weak license agreements and poor oversight can lead to financial losses and brand damaging events. Protecting your brand in licensing agreements isn’t just about legal safeguards, it’s about setting up a holistic system that ensures your partners succeed while maintaining the integrity of your brand. Here’s some helpful tips on how you can achieve a best-in-class brand licensing program with some real-world examples:

1. Start with an Optimus Prime Licensing Agreement

A strong licensing agreement is your primary form of protection and first line of defense. A comprehensive license agreement is a roadmap that clearly explains expectations, rights, and responsibilities for both parties. Your license agreement should cover:

• Scope of Use: Clearly define where, how, and for how long the licensee can use your brand. Clearly defined what is a licensed product and the form it needs to adhere to.
• Territory and Channel: Specify whether the license is exclusive or shared and outline geographic limitations. Specific where a licensee can and cannot sell (e.g., online retailers, resellers, deep discounters).
• Audit Clauses: Include a clause that grants you the right to conduct periodic compliance audits. This ensures transparency, protects the bottom line, and helps detect any unauthorized use of your brand.
• Brand Protection: Set clear guidelines to maintain brand consistency across all products and marketing materials.

When expectations are clear from the start, you minimize the risk of misunderstandings and compliance issues later on. The importance of this was highlighted in the case of Hasbro and its My Little Pony brand. Hasbro faced challenges when fans began creating their own pony characters and fan fiction. Instead of aggressive enforcement, Hasbro adapted its strategy by entering into licensing agreements with fan creators, turning potential infringers into partners.

2. Ensure your Licensees are Frozen in Long-Term Success

A great licensing deal isn’t just about getting a signature or entering a new market, it’s about setting your partners up for long-term success. Beyond conducting due diligence before signing, make sure you provide the tools to your licensees that they need to represent your brand properly. This can include:

• Training Sessions: Walk them through brand guidelines, reporting expectations, and compliance best practices. This is particularly important in the transition of the license agreement from legal to the business.
• Regular Check-Ins: Touch base periodically to offer support, address challenges, and ensure they’re on track.
• Performance Metrics: Set clear goals for sales, co-marketing efforts, and compliance adherence.
• Open Communication: Be accessible and proactive in addressing any concerns.

By fostering strong open communication, you create an environment where compliance is a natural part of the process rather than an afterthought. The Walt Disney Company licensing strategy exemplifies this approach. The company licenses its characters and franchises across various product categories while maintaining strong quality control standards and working closely with its licensees to grow their sales. This has enabled Disney to generate billions in revenue while expanding its global brand presence.

3. Under the Trenchcoat of Licensee Performance

Once the agreement is in place, don’t just assume everything is running smoothly. Always keep a watchful eye on your licensees. Monitoring their activities ensures they stay aligned with your brand values and contractual obligations. Some effective ways to do this include:

• Site Visits & Inspections: See firsthand how your brand is being represented. Visit the licensee offices and manufacturing facilities to see the operations first-hand.
• Regular Reporting: As part of the license agreement reporting requirements, collect periodic sales and marketing spend reports to track compliance and performance.
• Enforcement Measures: Whether it’s a financial penalty or termination, be clear about the consequences of unauthorized use or non-compliance.

By staying involved, you can catch potential issues early and address them before they become bigger problems. Burberry faced brand dilution issues in the early 2000s due to overexposure through extensive licensing. The company successfully rebranded by reducing licenses and tightening control, demonstrating the importance of strategic licensing decisions. Today Burberry is back on top of the high-end fashion market.

4.  Trust but Verify: That's Kenough

Even with strong monitoring, regular compliance audits provide an extra layer of security. These non-adversarial audits help promote transparency and ensure that licensees are accurately reporting royalties, understanding the license agreement requirements, and adhering to its terms. A good audit should:

• Verify Sales and Royalties: Ensure reported sales match actual sales transactions. This type of insight is typically only available through an audit.
• Check for Unauthorized Activity: Identify any unauthorized products, sales channel or territories. Uncovering these violations could actually open the door to new licensing opportunities and license fees.
• Marketing Spend Checks: Assess whether the licensee’s marketing expenditures align with agreed-upon budgets and brand strategy.

Routine compliance audits reinforce accountability and keep the partnership healthy and trustworthy. Companies like Mattel, Inc. and DreamWorks Animation have grown their global compliance programs to such a mature state that they have become the gold standard for contract compliance in the brand licensing industry. These compliance audits are often welcomed by licensees to make sure they are doing things by the book.

5. Three Stripes and you’re Out

Not all licensing deals last forever, and that’s okay. But when a deal comes to an end, whether due to contract expiration, a breach, or shifting business priorities, companies need a clear plan for wrapping things up. Your agreement should outline:

• Breach of Contract Remedies: Steps to take if the licensee fails to meet obligations or material breach of contract.
• Renewal Terms: How and when the agreement can be extended as well as clear termination survival rights for certain terms and clauses.
• Exit Strategy: Clearly define what happens to unsold inventory and marketing materials once the license ends.

A well-planned exit strategy ensures a smooth transition while preventing unauthorized use of your brand after the contract ends. In 2019, one particular case involving adidas and FIFA resulted in Adidas ending its long-standing sponsorship agreement with FIFA early, citing corruption scandals within the organization. These types of bombshells often seem to come out of nowhere, but the resulting action is where companies can hang their cleats. Adidas proved to the public that it would act responsibly even if such action resulted in a short-term financial loss.

The Final Thought

Brand licensing can be a game-changer for businesses, but only if done right. By drafting a solid agreement, supporting your licensees, actively monitoring compliance, conducting audits, and having a clear exit strategy, you can protect your IP while fostering successful partnerships.

If you’re navigating brand licensing and need a compliance helping hand without the headaches, working with a firm with the right experience can provide valuable insights. At Connor our team of professionals specialize in license compliance and royalty audits. Let’s connect and discuss how to safeguard your brand while maximizing the success of your licensing program.

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