Intellectual property rights confer exclusive rights on the owner of the intellectual property. Naturally these exclusive rights allow the intellectual property rights owner to prevent a third party from violating or infringing those rights. However, the intellectual property rights also provide some wonderful commercial opportunities in the form of licensing. In this post we focus on fashion brand licensing, but the principles may be equally applicable across different forms of intellectual property and industries.
Licensing gives the licensee the right to use, but not own, the intellectual property for a specified period of time in accordance with agreed conditions. The licensor essentially promises the licensee not to sue the licensee for use or exploitation of the intellectual property.
Intellectual property disputes attract a lot more popular press, but intellectual property licensing plays an enormous role in business, especially brand licensing in the fashion industry.
With brand licensing, a licensor may grant permission to a licensee to manufacture, sell, distribute or promote products under a TradeMark. Licensed brand rights may be divided up in numerous ways including product category, territory, channel or market.
Brand licensing allows a TradeMark owner to extend their brand into other aligned product categories. If managed properly through tight licensing, quality controls and experienced professional business partners, a TradeMark owner can retain / enhance brand value.
Brand licensing is particularly sophisticated in the fashion industry where licensors license their brand to a licensee who can produce goods that require specialist manufacturing or distribution. Logical product categories for a fashion brand beyond clothing are lingerie, eyewear, sunglasses, cosmetics, beauty products, perfume, watches and homewares.
These products are naturally within the rubric of a fashion brand yet may require much more specialist manufacturing and / or distribution than a fashion house can deliver.
The industry specialists are often powerful oligopolies. Luxottica, head quartered in Italy, produces the majority of the world’s eyewear. The premium fashion segment of the market is primarily dominated by five large players namely Luxottica, the Safilo Group, Marchon Eyewear, De Rigo and Marcolin.
The flavors and fragrances (F&F) market is primarily dominated by four large players Givaudan, Firmenich, IFF and Symrise.
This effectively means that most designer sunglasses and perfumes come from the same place. However, if well managed, the brand owner is the source of the products in the eyes of the consumer and the products have all the cachet of the brand rather than any association with the licensee.
Licensing introduces significant growth to the licensor, not just through new product categories but to a larger market. Not many can afford a designer garment but many can afford to wear the branded eyewear or fragrance. The product categories are big business.
Forbes reports the global eyewear market, which includes frames, contact lenses and sunglasses, is worth $90 billion, and will reach $140 billion by 2020 (refer Eyewear ).
The global F& F market is predicted to reach approximately $57.4 billion by 2025 (refer F&F ).
Any TradeMark licence should be governed by a comprehensive licence agreement. Given that brand is typically the licensor’s most valuable asset the TradeMark should be tightly controlled to prevent misuse and resultant damage.
Tight control is not just important to protect the integrity of the brand, it is also required to maintain the validity of the corresponding TradeMark. In Lodestar Anstalt v Campari America LLC  FCAFC 92 the Full Court of the Federal Court of Australia held that the licensor must actually exercise control over the licensee for a trade mark licence to be a valid licence. Theoretical contractual control derived from the provisions of a licence agreement may not be sufficient. The decision reinforces the dangers of naked licensing and that there must be more rigorous control to preserve TradeMark.
It is not clear what will amount to the exercise of actual control over a licensee’s use of a trade mark but the precise terms of the licence and the performance of the parties will be critical.
A licence should also address issues such as:
Rights of termination are also very important. After building growth through rampant licensing, major brands such as Yves Saint Laurent (as it was), Burberry, Giorgio Armani and Gucci have at various points wrestled back control of and repositioned their brands by terminating or buying back licences to consolidate licences to a much more limited number.
Brand licensing may not be suitable for all brands and business models.
Pierre Cardin is the text book example that too much brand licensing can be a very bad thing for a brand (refer Overstretched )
Chanel has a business model such that it is one of the only luxury brands that elects to manage its perfume in-house and not license it out. Instead it actually controls the source of its ingredients in Grasse France, protects local industry and the brand heritage of its famous Chanel No. 5 perfume (refer GRASSE Nevertheless, similar to other fashion brands, the enormous revenues (in the case of Chanel, about 55% of its revenues from perfume and cosmetics) fund the more creative but less profitable fashion endeavours.
Whatever the model, licensing has a very important role in business growth. Tight well drafted license agreements are critical in protecting both brand equity and TradeMark rights.