Restriction on territory is a limitation common to the vast majority of licensing agreements. This clause controls where you can sell a licensed product – it could be as broad as the entire world or as narrow as a single country or state – and is therefore an important consideration in brand licensing negotiations.
Of course, this goes hand in hand with an understanding of how the commercial and marketing environments differ in each country. But first the legal stuff.
What you need to know:
Local intellectual property (IP) law
Different countries have different legal requirements associated with the registration and management of IP and its licensing. Let’s look at some examples.
China is one of the countries with very strict rules. A licensor must submit the brand licensing agreement to the China Trademark Office. Because Chinese trademark law requires a licensor to supervise the quality of the goods, they have to include the supervision and inspection methods they plan to use in the license agreement.
In the US, however, there is no legal requirement for recording a trademark licence, though it may be registered at state level.
While the UK does not have a specific licensing law, there are separate pieces of legislation covering the registration and management of patents, copyright, design rights and trademarks.
It is therefore important to consult local legal experts to understand what rights you have and how best to protect and use them.
The agreement
An important step in setting up a licensing agreement is to decide which country’s laws will govern the contract. In other words, the legal system that will be used to enforce the agreement. This is essential for all parties, particularly in the event of any disputes.
Royalties
Royalty rates and minimum guarantees that the licensee must pay are among the key terms of a licensing agreement. Parties will need to agree in advance in which currency the royalty payments will be made.
Any fluctuation in exchange rates can impact the perceived performance of the partnership, especially if you are measuring this performance in a different currency to that in which you have reported sales.
Marketing
Before getting down to international licence negotiations, you will need to consider any marketing and commercial issues.
Retailers and retail channels can vary from country to country. For example, how a retailer is perceived in your home market may not be the same as how it is viewed in the international market. Also shopping practices may be different and consumer preferences in international markets may influence your partners’ design choices.
Importantly, your trademark or slogan can have an unintended meaning in a local language. Apparently, the face cream brand Oil of Ulay had to be called Oil of Ulan when it went on sale in Hong Kong because Ulay is similar to a Cantonese expletive. Another well-known example is the Vauxhall Corsa. It was originally called the Nova which didn’t go down too well with Spanish drivers as ‘no va’ means ‘no go’.
How a brand is perceived can limit extensions into other categories, while brand positioning in international markets may not allow you to command the same premium price or royalty rate as in your home market.
Last but not least major events, such as natural disasters and political upheaval, can have a negative impact on sales.
A lot to consider, which is why it’s important to do the homework first and it is worthwhile talking to independent local advisors who can offer valuable insight.
How Dependable Solutions can help:
Dependable Solutions offer a one-stop licensing management platform designed to enhance your licensing operations. Our system is built to empower licensing teams. Whether you’re looking to identify white space, track international performance, or efficiently management workflows with your partners around the world, Dependable Solutions are here to help with offices around the world providing vital local insight as well as global reach – contact us today