Brand licensing explainer
- Licensing agreements let companies use brands while owners retain control
- Licensees often manage operations and marketing within agreed boundaries
- Brand owners maintain quality control to protect trademark rights
- Split ownership gives multiple companies greater influence over brand direction
- Licensing reduces risks of brand divergence across different geographies
A brand may seem like a single, cohesive whole globally, but this does not mean that a single company is responsible for that brand.
In some instances, such responsibility can be split over multiple companies; invisible to the consumer, maybe, but impacting how a brand is run.
In such an agreement, some decisions are delegated to the licensee. But which ones?
One brand, two companies
One way of dividing responsibility for a brand is a licensing agreement.
A licensing agreement allows a company to use and earn revenue from a property of another, according to Investopedia. This allows businesses to expand to new markets and generate additional revenue without creating more products.
For example, while internationally, Cadbury is owned by Mondelēz International, in the US it is licenced to The Hershey Company.
In this case, the licensor still owns the brand, while the licensee only oversees elements of it as per the parameters of the agreement.
Another way of distributing brand decisions by geography is split ownership, explains Richard Assmus, partner at law firm Mayer Brown. Unlike with licensor and licensee, in this case the actual ownership of the brand is split up. This impacts the level of control that each company has over brand direction.
How much control does a licensee have over a brand?
In the case of a licensing agreement, the licensor (in the example given above, Mondelēz International), still has significant control over the brand, explains Assmus, especially in matters relating to its presentation.
A licensee is more likely to oversee operational decisions and marketing choices, such as where to advertise.
In the relationship between licensor and licensee, the licensor must oversee quality control of the brand to maintain their rights, explains Mark McKenna, professor of law at the University of California.
Beyond this, how much control the licensee has over the brand is a business decision, and may vary from case to case.
Is there a risk of a brand diverging between geographies?
Just because a brand may have the same trademark across borders, does not mean that all elements of said brand will remain the same.
Trademark rights are territorial, explains McKenna. This means that brands in different geographies may often diverge to some extent.
Yet this risk, says Assmus, is one of the reasons why licensing agreements, such as that between Mondelēz International and Hershey, are more common than split ownership.
In a licensing agreement, a single owner exercises control over brand identity and quality control. In a split ownership, this isn’t always the case.
“Brands are supposed to identify a sole source and level of quality to consumers, and when ownership is split, that’s harder to maintain”, says Assmus.
Overall, in the case where a brand is licenced, control is largely maintained by the brand owner. However, in co-ownership control is split more evenly.
