License to Kill (Your Business)

Licensing represents an opportunity for a fashion brand founded on one or a small number of product lines to stretch into almost any clothing, jewelry, beauty or accessories category—and beyond.  Moving into a broad range of products and services has been an especially successful strategy for luxury brands.  Consider that Ralph Lauren started as a maker of men’s neckties and that Hermès began as a maker of harnesses for carriage horses.  Although you sometimes hear the saying that, “No one ever got rich licensing a brand,” licensing can be a useful, even necessary tool to build brand awareness among both old and new classes of customers.  When you leap into categories that have specialized production requirements, unique distribution methods or simply just high barriers to entry—consider timepieces, fragrances and eyewear—licensing is about the only sensible way to make it happen.

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But what is a legal article without a warning about pitfalls?  (Just as designers are paid to create and merchants are paid to awaken and satisfy customer desire, lawyers are paid to worry.)

  • For the licensor, a key concern is that its licensing agent or licensees themselves may prove unmotivated or unable to bring the brand’s image to new product lines.  A licensor can find itself devoting an inordinate amount of time to servicing the product development needs of its licensees—to the point that, in extreme cases, the licensor can start to feel as if it is working for its agent or licensees.  On the other hand, licensees’ successes may kindle the temptation to over-license, risking dilution of the brand.
  • For the licensee, pitfalls can include disapprovals of products by the licensor that result in missed shipping dates, lost markets or revenue, confusing or incomplete branding direction or support (especially after a change of control at the licensor), and all the potential dangers that come from devoting your business to enhancing the goodwill of someone else’s brand.

Any one of those concerns can cause serious—and in extreme cases terminal—problems for participants in the licensing game.

In subsequent posts, we will review the ins and outs of licensing in more detail.  As with a good story, where the art is in the telling, with a good license, the art is in the drafting.

Credit:  Alan Behr