Exit Strategies for Trademark Licensing Agreements

In my white paper entitled Brian Casper on Trademark Licensing, I briefly discussed exit strategies for licensing agreements. In this post, I discuss what can go wrong if there is not an adequate exit strategy and explore some licensing end of term provisions for the benefit of licensors as well as licensees.  

Why Consider License Agreement Exit Strategies?

Early in my career I had the good fortune of representing a very popular professional golf star, John Daly. This golf pro had entered into a licensing agreement with a golf club company, Hippo Golf Co., to use his trademark.  When the license ended, the company continued to sell their remaining inventory and use the pro’s name and likeness.  I was able to secure a $1.5 M judgment against the company for this business indiscretion.  So why didn’t this agreement have a sell off provision?  I was not involved in the contract drafting or negotiation, but I can speculate that this was by design.  

When you are the licensor and you have the upper hand in the trademark licensing negotiation, you have a tremendous advantage if you can avoid a sell off provision—or even require the certified destruction of any remaining products. When it comes time to renew the agreement, the licensee will have the added pressure of losing the value of the remaining inventory. But for most trademark license agreements, the parties will be on more equal footing and there will be some exit strategy provision for selling off the remaining inventory.

Exit Strategies for Trademark Licensors and Licensees

Licensor Considerations

If you are the licensor, it’s important to set limits on the amounts that can be sold after the end of the trademark license term—you don’t want the licensee to make large wholesale purchases just before the end of the contract. You should also set limits on how much the remaining inventory can be discounted—otherwise the prior licensee will be undercutting any new licensees that have taken their plaice. Additionally, deeply discounted prices can damage the value of a brand. 

Licensee Considerations

If you are the licensee, make sure you can sell the goods after the end of the trademark license contract term. This could include insisting on a selloff provision, or if that is not adequate, make sure the licensed trademark can be removed from the goods and packaging. While that may increase the cost of the goods, it could save you from having to destroy your remaining inventory. At a minimum, you should control your purchasing so you don’t end up with a surplus if you can’t extend the term of the trademark license agreement.

Key Takeaways Regarding Exit Strategies For Trademark License Agreement

When entering into a trademark license agreement, the parties should take into consideration the events that will happen and/or be required at the end of the license term, most importantly:

• Selling trademarked products after the expiration of the trademark license is counterfeiting and can have serious consequences;

• If you are the licensee, you don’t want to be left holding on to products you can’t sell after the end of the license agreement term; and

• If you are the licensor, you should not agree to a prolonged sell-off period and should not permit deep discounting after the end of the license term.

For more insights on trademark licensing, see our Trademark Services Overview and Consumer Products Industry Legal Solutions pages.

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