Issues to Consider in Apparel Licensing

by Eli W. Mansour

So, you’ve decided to launch your own retail apparel line or your private label has reached critical mass. You’ve created a cool design and are now ready to license it out to your favorite apparel houses and make lots of money. The following are just a few of the key issues you should look out for to cover yourself when heading down the road of licensing transactions.

Foremost, you need to have enforceable rights to the design and legal protection wherever you license it. It is a good idea to apply for a trademark registration for your design before you launch your licensing endeavor. Unless you have a registered United States trademark, you will have difficulty in enforcing your common law trademark rights outside of the limited general areas where you have been using your design in your trade. If you have not yet applied for a trademark, invest in a good trademark search to make sure that you will be able to get a registration.

Also, if you plan on licensing your design in other countries, keep in mind that a trademark registration in the United States will have little, if any protection, for an infringement in foreign countries. It is critical that you file for a registration in the applicable countries where your licensees will be using the trademark, otherwise you will have little rights to license your designs and little protection when someone decides to use a similar design to compete with you or your licensees and nothing’s worse than someone else cashing in on what you’ve poured yourself into.

It is also important to make sure the scope of the license itself makes sense. Apparel licensing transactions generally involve a right for a licensee to use your design to make and sell licensed products. Make sure you clearly spell out what specific products you want the licensee to make using your trademark. For example, you may only want your design to be used with t-shirts and not with polo shirts. This will need to be spelled out or the licensee can use your design on any apparel, or possibly other products, potentially affecting your brand.

In addition, ensure the license agreement gives you approval rights over all licensed products before the licensee can commercialize them. Unless you have a strict approval right over the licensed products, you could find that the licensed products will not meet your quality standards and may harm your brand. This is your baby and you need to protect it at every turn.

The license agreement should also spell out how you get paid and on what basis. The licensee should pay you each time it makes and sells a licensed product. The payment could be a flat rate or a royalty based on the sale amount and your license agreement should use clear examples to explain how the payment works, what it is calculated on, and when it needs to be paid, and, in international deals, in what currency. Ambiguous payment terms or definitions of key terms have been at the root of many costly disputes. Also, to easily terminate an underperforming licensee, your agreement should set clear minimum sales targets and minimum guarantied royalties for the licensee to meet or exceed.

Having an appropriate license agreement can be critical to your success, so please discuss these issues, as well as many others, with your legal counsel when embarking on a licensing deal.

Eli W. Mansour is a member of the Action Sports Group at Luce Forward Hamilton & Scripps LLP. For more information, please contact him directly at 858.720.6336 or visit www.luce.com/actionsports. Please note this article has been prepared for informational purposes only and is not to be considered legal advice. You are advised to speak directly with counsel regarding the matters discussed above.

Comments

One Response to “Issues to Consider in Apparel Licensing”

Maria Brophy says:

January 7, 2010 at 11:49 pm

This is an informative article, thank you. I handle the licensing for Drew Brophy, and though we have trademark protection in the U.S. and every art image copyrighted, it’s dealing with the global agreements that can get very costly.

What would you recommend as far as the most cost effective way to get trademark and (c) protection in Australia and New Zealand? We are increasingly doing business in that part of the world, and have built a strong presence. However, as we are a small brand, we have limited capital. I’ve been informed in the past that Australia has similar copyright laws to the U.S., which means that if it’s your mark, and in use, you have some built in protection. Could you speak to this issue?