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Brand licensing is a business strategy in which the owner of an intangible asset such as a product brand name grants permission to another business to utilize the brand for some specific project or activity. Typically, this type of arrangement requires the creation of what is known as a licensing agreement or contract. The terms and conditions found within the text of the agreement helps to define the scope of how long the brand name may be used, and also in what settings the right to use the name is being granted. Setting specific limitations on the use of the brand allows the owner to protect his or her interests in the event that the brand is used in some manner that is not in harmony with the original agreement and could result in some damage to the reputation or marketability of that brand.
With brand licensing, one party is granted the right to lease or rent the brand for a specified period of time. In some cases, the owner of the brand chooses to enter into partnerships with other companies that will produce and market products that support the brand owner’s product line in some manner. This approach often makes it possible for the brand owner to receive a portion of the revenue generated by these ancillary products, without having to incur the expense necessary to actually manufacture those goods or services. Assuming that the products manufactured and sold by the entity leasing the brand name are of high quality, both parties benefit from this arrangement in terms of increased sales and the resulting higher revenue figures.
The idea of brand licensing has been around for years. In the early days of television, products associated with hit TV shows were often produced and marketed using either the names of these shows or the names of the popular lead characters. Products marketed using brand licensing ranged from clothing and jewelry to toys, games, and even limited edition products like paperback novels and musical instruments. The process is still prevalent today, with many creators of the latest technological gadgets using branch licensing to allow other companies to manufacture ancillary products that can be used with the brand name product, implying that those ancillary products meet the standards set by the brand owner.
As part of the brand licensing process, limitations are normally established on how partners can make use of the brand name, and for how long they retain the right of usage. This protects the brand owner in a couple of ways. The time limit allows the owner to consider terminating the agreement and going with a different partner if the relationship does not prove to be as beneficial as originally anticipated. In addition, placing limits on how the brand name can be used in labeling and marketing products helps to prevent the brand from being identified with products that are unrelated to the main brand or are perhaps of lower quality. Most brand licensing agreements do include provisions for both parties to terminate the arrangement if the other party fails to observe the terms of usage outlined in other sections of the document.