When Just the Licensor is Not Enough

magnifying glass with trademark icon

Companies often place their trademarks in a separate subsidiary or affiliated company. And then, sometimes, rather than being the direct “licensor” of the trademarks, the owner will enter into a master license with another subsidiary or affiliate. Use of a master licensor/licensee structure is appropriate from an operational perspective if the sole business of the trademark owner is to own the trademarks, since it therefore would be unable to provide the services normally required of the “licensor” under any of the various license agreements it hopes will be consummated.

Just as a licensor should require representations from a guarantor of its licensee’s obligations and should seek to bind the guarantor to many of the restrictions imposed on the licensee, sometimes parties receiving licenses (technically, sublicenses) from master licensees will think to ask for various representations from the master licensor/trademark owner, such as those relating to the rights and authority of the master licensee, to the absence of grants of conflicting rights to any third parties, etc., and some of these sublicensees will think to bind the trademark owner to some of the restrictions imposed on the master licensee under the sublicense agreement, particularly in regard to honoring whatever exclusivity rights may have been granted to the sublicensee. But most sublicensees will not think to protect themselves against the potentially adverse effects of changes in the master license agreement itself. For example, if for some reason the master license is terminated during the term of the sublicense agreement, the trademark owner should be bound to substitute itself or a successor master licensee as the (sub)licensor under the (sub)license agreement. And similarly, the customary “binding on successors and assigns” provision of the sublicense agreement should be expanded so that, if ownership of the trademarks is transferred during the term of the sublicense agreement, it is clear that the sublicense agreement is binding on the new trademark owner; and it would not hurt also to bind the trademark owner to be required to cause the new trademark owner to agree that it (or its master licensee) automatically will be substituted as the (sub)licensor under the (sub)license agreement upon the closing of the transfer of the trademarks.

Credit: Jonathan R. Tillem