More than $190 billion annually is made from licensed goods, and fashion accounts for 25% of that number. Licensing is very important in fashion. Today, 14 June, is the final day of the Licensing Expo in Las Vegas, USA. The expo sought to create a fertile atmosphere for brands to meet business partners and ultimately enter into licensing agreements.
To grow a brand, fashion licensing can be vital. No one expects a designer to know how to do everything or to have the funds, time and expertise to do everything. Licensing makes life a lot easier. For example, a well known designer might decide to expand his/her products to cosmetics, eyewear and watches, but lack the manufacturing expertise and initial financing to produce these goods. A specialised manufacturer (licensee), of eyewear for example, might step in and offer to produce the designer-name eyewear. The designer (licensor) will then license his/her intellectual property to the manufacturer for a fee of course (often a very, very, very big fee). These are just some of the reasons brands enter into licences.
As expected most licensing agreements are international. What this means is that the manufacturer for example, might be a company in China (licensee), while the designer is from NYC (licensor).
When considering an international licensing agreement a couple things you should pay attention to are:
1. Royalties/compensation. The bottom line always comes first.
2. Quality control. You definitely don’t want your reputation affected by badly made products.
3. The rights granted. Be very specific of the intellectual property that is licensed. This is very important if your brand has sub-levels. (For example Giorgio Armani S.P.A brand has several sub-labels, including Giorgio Armani, Armani Collezioni, Emporio Armani, AJ/Armani Jeans, AX/Armani Exhange, Armani Junior and Armai/Casa). You would need to be clear if all sub-levels are included, only some, or just one. Also, clearly state the rights granted, whether it is a trademark, patent, copyright, trade secret, or items not protected by IPR, such as designs and manufacturing or technical know-how.
4. Length of the license. When will the license end.
5. Geographic territory covered. I don’t think it is wise to grant a license for the whole world (so to speak).
6. Warranties you make. The licensee will want you to provide assurances, for example where ownership of the mark is not clear.
7. Marketing. The agreement should outline where and when the licensee can advertise. Everything should conform with the brand’s identity.
8. Sales requirements. What are the sales guidelines you want the licensee to adhere to?
9. Sub-licence. Consider whether it is ok for your licensee to enter into a sub-licence agreement. Should you approve this first?
10. Confidentiality. Ultimately you should only do business with people you trust or have done proper due diligence on.
11. Non-competition. You can request that competitive products under a competitive mark are not manufactured by your licensee.
12. Arbitration. So many reasons I could list why litigation should not be your first reaction if the business relationship goes bad. Ensure the agreement requires arbitration to settle issues.
Licensing can hurt your brand
Just as licensing can help your brand to expand, licensing can hurt your brand as well. Not having a proper licensing agreement can damage your brand, for example if quality issues are not addressed. You need one bad product or a recall to damage a brand in today’s society. Consumers are not as forgiving, especially because they have a lot of brands and products to choose from.
Over licensing is also a big problem. I know you want to be global and would like to have your logo on everything under the sun. Just know that this type of tactic can come back to bite you. It can ultimately dilute your brand. This is really just the weakening of the brand. Sadly, the Pierre Cardin brand is very diluted.
Pierre Cardin, whose licensing operations proliferated so much that by the 1980s he had lent his name up to 800 products, including toilet-seat covers. In the end, despite his talents as a couturier, he became too common for many high-fashion customers.
You can read all about brand dilution and its effects here.
Disclaimer: Nothing in this article should be construed as legal advice. Legal advice is not free, this article is free. Consult a lawyer for specific advice.