Checklist · Intellectual Property

Drafting a Trademark License Agreement: A Practical Checklist

15 U.S.C. § 1055

Type
Checklist
Jurisdiction
National
Date
2024-06-11
Topic
Intellectual Property

A trademark license is the only IP license that can destroy the asset it licenses. License a copyright badly and you have a bad deal; license a trademark badly — without meaningful quality control — and you can forfeit the mark itself through naked licensing. This checklist walks the drafting task phase by phase: defining the grant (marks, goods and services, territory, term, exclusivity), building quality-control provisions that are real rather than decorative, and then actually exercising them. It covers licensee acknowledgments and licensee estoppel, goodwill accrual, brand guidelines and the ® symbol, royalties and audit rights, sublicensing, who enforces against infringers, representations and indemnity, termination with a phase-out and sell-off period, and the bankruptcy problem that Mission Product Holdings v. Tempnology left in place because Section 365(n) does not define trademarks as intellectual property. Includes worked examples, common mistakes, and a consolidated one-glance checklist.

Drafting a Trademark License Agreement: A Practical Checklist

Intellectual Property > IP Licensing | Published 11 June 2024 - Updated 14 October 2025 | UpLaw - uplaw.us

Every other intellectual property license is a deal. A trademark license is a deal that can also be a suicide pact. Draft it without real quality control, and the mark you licensed may cease to exist.

Keywords: trademark license, quality control, naked licensing, abandonment, related company use, licensee estoppel, goodwill, brand guidelines, royalty audit, sublicensing, enforcement, phase-out and sell-off, Mission Product Holdings, Section 365(n), Lanham Act

Why a trademark license is different

A trademark is not a thing you own in the way you own a patent or a copyright. It is a source signal. Its entire legal existence depends on its continuing to tell consumers something true: that goods bearing this mark come from, or are vouched for by, a single controlling source. Strip out the control and the signal degrades into noise — and the law stops protecting noise.

That is why the Lanham Act permits licensing only through the doorway of "related company" use. Section 5 (15 U.S.C. § 1055) provides that use of a mark by a related company inures to the benefit of the owner, provided the mark is not used in a manner that deceives the public. Section 45 (15 U.S.C. § 1127) then defines a "related company" as one "whose use of a mark is controlled by the owner of the mark ... with respect to the nature and quality of the goods or services." Control is not a nicety bolted onto the license. Control is the condition of the license being lawful at all.

Fail that condition and you have a naked license. The consequence, under the second paragraph of the § 1127 abandonment definition, is that the owner's own "course of conduct" has caused the mark "to lose its significance as a mark" — abandonment, forfeiture, and a registration vulnerable to cancellation under 15 U.S.C. § 1064. Courts describe naked licensing forfeiture bluntly. In Barcamerica International USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002), the owner of the DA VINCI wine mark licensed it, never inspected, never tested, and relied on a vague sense that the winemaker was good at his job. The Ninth Circuit held the mark abandoned. In Eva's Bridal Ltd. v. Halanick Enterprises, Inc., 639 F.3d 788 (7th Cir. 2011), Judge Easterbrook put the point in one sentence: a licensor that exercises no control has "abandoned the mark," and "the sort of supervision required" is the sort that keeps the mark meaningful to consumers.

This checklist assumes you are drafting the agreement — for either side. Work the phases in order. For the doctrinal background on how licenses fit into the broader IP transaction landscape, read Intellectual Property Licensing: A Comprehensive Guide to Structuring and Negotiating License Agreements alongside this document, and see Acquiring, Licensing, and Exploiting Trademark Rights for the transactional overview.

Our running example. Cardinal & Vale, Inc. owns the registered mark CARDINAL & VALE for handbags and small leather goods. It wants to extend into apparel without building a factory, so it licenses the mark to Northgate Apparel Group, LLC for shirts and outerwear. Watch what nearly kills the brand.

Phase 1 — The grant: which marks, which goods/services, which territory, which term

  • [ ] Identify each licensed mark by registration number, application serial number, or common-law status — never by loose description ("our brand and logos").
  • [ ] Attach a schedule of marks; state whether the schedule can be amended and by whom.
  • [ ] Say whether the grant covers word marks only, or also logos, trade dress, taglines, and domain names.
  • [ ] Define the Licensed Products/Services with the same precision you would use in a USPTO identification of goods.
  • [ ] Define the Territory — countries, not vague regions; address online sales expressly.
  • [ ] Define the Channels of trade (department stores, off-price, e-commerce, marketplaces, wholesale, licensor's own stores).
  • [ ] State the Term and any renewal mechanics (automatic, mutual, performance-conditioned).
  • [ ] State expressly that the grant is a license, not an assignment, and that all rights not expressly granted are reserved.

Why it matters, and the traps. A trademark grant is defined by scope, and every dimension of scope you leave fuzzy will be resolved against the drafter in a dispute — and worse, will make quality control unadministrable. If you do not know exactly which products the licensee may sell, you cannot know which products you must inspect.

The classic trap is the mismatch between the licensed goods and the registered goods. If Cardinal & Vale's registration covers only Class 18 leather goods and the license grants apparel rights in Class 25, the licensee's use does not shore up any registration Cardinal & Vale owns — it creates a use footprint the licensor may not have registered at all. Fix it by filing for the new classes (see Classifying Goods and Services for a Trademark Filing: A Practical Checklist and The 45 Nice Classes: How Trademark Classification Shapes Cost, Scope, and Conflict), and recite in the license that licensee's use inures to licensor under 15 U.S.C. § 1055.

The second trap is the e-commerce leak. A "United States only" territory means nothing if the licensee's website ships worldwide. Say what the licensee must do: geo-restrict, block certain marketplaces, or decline non-Territory orders.

Phase 2 — Exclusive, sole, or non-exclusive — and the consequences of each

  • [ ] Choose one and name it: exclusive (licensor excluded too), sole (licensor may also use), or non-exclusive.
  • [ ] If exclusive, carve out the licensor's own retained uses expressly (house brand, corporate identity, existing licensees).
  • [ ] Condition exclusivity on minimum performance — minimum royalties, minimum net sales, or minimum distribution — with a downgrade-to-non-exclusive remedy.
  • [ ] Address standing to sue: whether the exclusive licensee may sue infringers in its own name, and whether the licensor will join.
  • [ ] Address most-favored-licensee terms if the licensee demands them (and think hard before agreeing).

Why it matters, and the traps. "Exclusive" is one of the most over-used and under-defined words in licensing. In trademark practice it does not automatically mean the licensor is excluded; it means whatever the contract says. Draft the exclusion, do not assume it.

Exclusivity also affects enforcement standing. An exclusive licensee often has a strong argument for standing under 15 U.S.C. § 1125(a), whose zone-of-interests and proximate-cause test the Supreme Court laid down in Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014). Standing to sue as a "registrant" under 15 U.S.C. § 1114, by contrast, is narrower and courts diverge on whether an exclusive licensee qualifies. The cheap fix is contractual: say who sues, and grant a right of joinder.

The exclusivity trap that bites hardest is granting exclusivity with no floor. Cardinal & Vale grants Northgate exclusive worldwide apparel rights for five years. Northgate's business turns, apparel becomes an afterthought, and for four years the mark simply does not appear on a shirt anywhere. Cardinal & Vale cannot license anyone else, cannot use the mark itself in apparel, and is now accumulating nonuse. Three consecutive years of nonuse is prima facie abandonment under 15 U.S.C. § 1127. Minimum-performance thresholds are not a commercial nicety; they are a defensive trademark provision.

Phase 3 — QUALITY CONTROL: the provision that keeps you from losing the mark

  • [ ] Include an express covenant that licensee will maintain the quality standards set by licensor.
  • [ ] State that the licensed goods/services will be "of a quality at least equal to the goods previously sold under the mark by licensor" — a benchmark, not an adjective.
  • [ ] Attach or incorporate written quality standards (materials, construction, testing, safety, packaging, service protocols).
  • [ ] Grant licensor an unconditional right to approve samples before first commercial use of any new product, packaging, label, or advertisement.
  • [ ] Grant licensor inspection rights — facilities, records, and production runs — on reasonable notice.
  • [ ] Make failure to meet quality standards a material breach with a short cure period and termination.
  • [ ] State the purpose clause: quality control exists "to preserve the validity of the Licensed Marks and to ensure use inures to Licensor under 15 U.S.C. § 1055."

Why it matters, and the traps. This is the phase where trademark licenses are won and lost. Dawn Donut Co. v. Hart's Food Stores, Inc., 267 F.2d 358 (2d Cir. 1959) — better known for its geographic-remoteness holding — is also the case that established the modern rule that a licensor who fails to supervise licensee use risks losing the mark, because the public is entitled to assume that goods bearing the mark come from a controlled source. Sixty-plus years of case law has hardened that into black letter. McCarthy on Trademarks and Unfair Competition collects the authority in its chapters on licensing, quality control, and naked licensing; it is the canonical treatment and the first place to look.

Three traps recur:

Trap 1 — the adjective clause. "Licensee shall maintain high quality" is not a standard. It is an aspiration. A court asked whether control existed will look for something measurable: specs, testing protocols, an approval workflow. Write standards a stranger could apply.

Trap 2 — the "licensee is good at this" defense. Courts do recognize that reliance on a licensee's own quality-control efforts can satisfy the control requirement — but only where there is a genuine, demonstrated relationship of trust and a history that justifies the reliance. Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368 (5th Cir. 1977), is the leading example. Barcamerica is the counterexample: the licensor's claimed reliance on the winemaker's reputation was, in the court's view, unsupported by any actual relationship of oversight. Reliance is a fallback, not a plan.

Trap 3 — controlling the wrong thing. In Eva's Bridal, the licensor collected royalties and controlled nothing about the merchandise or the customer experience. Controlling the logo artwork is not quality control. Controlling the nature and quality of the goods and services is.

Phase 4 — Make quality control real: standards, approvals, samples, and inspection

  • [ ] Specify who at licensor approves, and by what deadline (e.g., 15 business days).
  • [ ] Decide whether silence is deemed approval or deemed rejection — and understand the consequence.
  • [ ] Require pre-production samples and production samples per season or per SKU.
  • [ ] Require submission of all packaging, hangtags, labels, and advertising bearing the mark.
  • [ ] Set a sampling cadence (e.g., licensee ships X units per quarter to licensor at licensee's cost).
  • [ ] Reserve the right to inspect facilities, including subcontractor and third-party manufacturing sites.
  • [ ] Require licensee to bind its subcontractors to the same quality and inspection terms.
  • [ ] Require compliance with product-safety law (CPSC, textile labeling, applicable state law) and with a supplier code of conduct.
  • [ ] Require licensee to recall or withdraw non-conforming goods on licensor's demand, and to stop shipping.

Why it matters, and the traps. The single most dangerous drafting move in the whole agreement is deemed approval on licensor silence. It is licensee-friendly and superficially reasonable — nobody wants to be held up by an unresponsive brand team. But it converts your quality-control clause into an automatic waiver machine. If licensor is busy for three seasons, the entire line becomes "approved" without any human ever looking at it, and licensee's counsel will hand a court a stack of deemed approvals as Exhibit A in the naked-licensing defense.

If the commercial pressure to include deemed approval is irresistible, ring-fence it: deemed approval applies only to incremental colorways or minor variants of previously approved products; never to a new product category, new material, or new advertising. And keep a paper trail showing that approvals were actually being reviewed.

Worked example. Northgate's first season ships fine. In season two, Northgate quietly moves production to a cheaper mill and swaps a wool blend for a synthetic. Cardinal & Vale's licensing manager, buried, approves the line sheets without requesting samples. Returns spike; the mark starts appearing in "cheap knockoff-feeling" reviews. Two years later, when Cardinal & Vale sues a genuine counterfeiter, the counterfeiter's answer pleads naked licensing and abandonment as a defense and serves discovery on the Northgate file. What is in that file — samples, test reports, rejection letters — is now the difference between an injunction and a forfeited mark.

Phase 5 — Actually exercise the control (a paper right you never use is still naked licensing)

  • [ ] Calendar the approval and sampling obligations as licensor's internal obligations, not just licensee's.
  • [ ] Assign a named brand compliance owner at licensor.
  • [ ] Keep a file of every approval, rejection, sample, test result, and inspection report — dated.
  • [ ] Send written corrective-action notices when standards slip, and follow up.
  • [ ] Conduct at least one documented audit or site visit per year (or state why one was not needed).
  • [ ] Treat repeated non-conformance as breach; do not let a cure period run silently.
  • [ ] Preserve these records for the life of the mark, not the life of the license.

Why it matters, and the traps. Naked licensing is not a drafting failure. It is an operational failure that a drafting failure makes possible. You can have a magnificent quality-control article and still lose the mark if the article was never used. The party asserting naked licensing bears a high burden — the Ninth Circuit has called it "stringent" — but that burden is met with exactly the evidence a lazy licensor generates: no samples, no inspections, no correspondence, a licensing manager who cannot name a single product she reviewed.

So the practical instruction is unglamorous: build the file. The record you create in the ordinary course is the record that defeats the defense years later. And note the asymmetry — the licensee, having built a business on the mark, usually has every incentive to help you build that file. Say so in the negotiation.

For the maintenance obligations that run in parallel with all of this, see Keeping a Trademark Alive: Post-Registration Maintenance, Renewal, and Incontestability and the companion Keeping a Registration Alive: A Trademark Maintenance and Renewal Checklist. A license does not suspend the § 8 and § 9 clock; it just changes who is generating the specimens.

Phase 6 — Licensee acknowledgments: validity, ownership, and no challenge

  • [ ] Licensee acknowledges licensor's exclusive ownership of the licensed marks.
  • [ ] Licensee acknowledges the validity of the marks and registrations.
  • [ ] Licensee will not challenge ownership or validity, or assist any third party in doing so, during the term (and consider a post-term tail).
  • [ ] Licensee will not register the licensed marks, confusingly similar marks, or corresponding domain names, in any jurisdiction.
  • [ ] Licensee will not adopt a trade name, corporate name, or social handle incorporating the marks without consent.
  • [ ] If licensee has already registered anything, require assignment back at licensor's cost.

Why it matters, and the traps. Courts generally apply licensee estoppel in trademark law: having taken the benefit of a license, the licensee is ordinarily barred from turning around and attacking the very mark it paid to use. That is not the same as patent law, where Lear, Inc. v. Adkins, 395 U.S. 653 (1969), curtailed licensee estoppel on public-policy grounds; the Lear rationale has not been carried wholesale into trademark, and the TTAB and district courts routinely hold trademark licensees estopped, at least as to conduct during the license term. Still, courts vary on scope and on post-termination challenges — so write the covenant expressly rather than relying on the doctrine.

The trap that costs the most money is foreign registration by the licensee. In first-to-file jurisdictions, a distributor or licensee who registers "your" mark locally becomes the owner there. You will spend years and six figures clawing it back. The prohibition-plus-assignment-back clause costs one paragraph.

Phase 7 — Goodwill accrues to the licensor; no rights beyond the license

  • [ ] State that all use of the marks by licensee inures solely to the benefit of licensor, citing 15 U.S.C. § 1055.
  • [ ] State that licensee acquires no ownership interest and no goodwill.
  • [ ] Include a present assignment of any rights or goodwill that nonetheless vest in licensee, plus a further-assurances covenant and a power of attorney to execute.
  • [ ] Confirm licensee has no right of compensation for goodwill on termination (subject to any applicable foreign distributor/agent indemnity laws — check locally).
  • [ ] Address ownership of derivative brand assets: licensee-designed logos, collection names, and marketing content.

Why it matters, and the traps. The inurement clause is the mirror image of quality control: control is what makes the licensee a "related company," and the related-company statute is what makes its use yours. Reciting the statutory purpose in the contract is not decorative — it is evidence of the parties' intent to satisfy § 1055 and § 1127.

Two traps. First, derivative marks: Northgate's design team invents the sub-brand CARDINAL & VALE FIELDLINE. Absent a clause, the licensee may claim the sub-brand. Say that any mark incorporating or derived from the licensed marks is owned by licensor, and that licensee assigns it. Second, foreign goodwill/termination indemnities: several civil-law jurisdictions grant terminated distributors or agents statutory compensation for goodwill built up. A U.S. contractual disclaimer does not always override foreign mandatory law — get local advice for each territory.

Phase 8 — Brand use guidelines, marking, and the ® symbol

  • [ ] Attach brand/style guidelines: permitted logo lock-ups, clear space, color values, typography, prohibited alterations.
  • [ ] Prohibit use of the marks as a verb, noun, or plural, and require use as an adjective modifying the generic term.
  • [ ] Require the ® symbol where the mark is registered in that jurisdiction, and ™ where it is not.
  • [ ] Require the standard attribution legend (e.g., "CARDINAL & VALE is a registered trademark of Cardinal & Vale, Inc., used under license").
  • [ ] Prohibit co-branding or combining the mark with licensee's or third-party marks without consent.
  • [ ] Require compliance with the guidelines as a condition, and allow licensor to update guidelines on reasonable notice with a transition period.
  • [ ] Require licensee not to use the marks in a way that disparages the brand or associates it with prohibited categories.

Why it matters, and the traps. Marking is not merely cosmetic. Under 15 U.S.C. § 1111, a registrant who does not display the registration notice cannot recover profits or damages in an infringement suit unless the defendant had actual notice of the registration. If your licensee is the one putting goods in the market, your marking compliance is its marking compliance.

And genericide begins in the marketing department. The § 1127 abandonment definition includes conduct causing a mark to "become the generic name for the goods or services." Sloppy licensee copy — "grab a cardinal&vale for the weekend" — is exactly the course of conduct the statute contemplates. Guidelines with teeth are cheap insurance. For the underlying doctrine on mark strength and how it erodes, see The Life Cycle of a Trademark: How Brand Rights Arise, Strengthen, and Disappear and Choosing a Strong Trademark: The Distinctiveness Spectrum.

Phase 9 — Royalties, minimums, reporting, and audit rights

  • [ ] Define the royalty base precisely: "Net Sales" with an exhaustive list of permitted deductions (returns, trade discounts, freight, sales tax) — and a cap on total deductions.
  • [ ] Address affiliate and intercompany sales — royalty computed on arm's-length equivalent, not transfer price.
  • [ ] Set the rate, any tiering, and any category-specific rates.
  • [ ] Set guaranteed minimum royalties (GMRs) and whether they are creditable against earned royalties, and whether they roll forward.
  • [ ] Set minimum net sales / minimum performance thresholds tied to remedies.
  • [ ] Specify advances, whether recoupable, and payment timing.
  • [ ] Require quarterly royalty statements in a defined format, with SKU-level detail.
  • [ ] Grant an audit right: annual, on notice, at licensor's expense — flipping to licensee's expense if the audit finds an underpayment above a threshold (commonly 5%), plus interest.
  • [ ] Address withholding taxes on cross-border royalties (U.S. source royalties paid to a foreign person are generally subject to withholding under 26 U.S.C. §§ 1441–1442 at a statutory 30% rate unless a treaty reduces it — confirm the treaty and the documentation) and allocate gross-up.
  • [ ] Preserve records for a defined period (3–5 years) and survive termination.

Why it matters, and the traps. The audit clause is where money is actually recovered, and it is routinely drafted so weakly it is unusable: "Licensor may audit once per year during business hours." That gives you no access to the underlying ERP data, no right to use an outside accountant, no cost-shifting, and no interest. Fix all four.

The subtler trap is the deduction stack. Give licensee uncapped deductions for "customary trade allowances, markdown support, co-op advertising, and chargebacks," and net sales can be engineered down toward zero while gross sales boom. Cap the aggregate deductions as a percentage of gross, and enumerate.

For the negotiation framework across IP types — including how trademark royalty structures differ from patent running royalties — see Building a Patent License Term Sheet: A Practical Checklist and the sibling Drafting a Copyright License Agreement: A Practical Checklist.

Phase 10 — Sublicensing and affiliates

  • [ ] State the default: no sublicensing, no assignment, no delegation without licensor's prior written consent.
  • [ ] If sublicensing is permitted, require sublicenses to be written, to flow down all quality-control and audit terms, and to be delivered to licensor.
  • [ ] Make licensee jointly liable for its sublicensees' acts.
  • [ ] Distinguish sublicensees from contract manufacturers and distributors — and permit the latter under a narrower "authorized manufacturer" clause with the same quality flow-downs.
  • [ ] State whether Affiliates of licensee are covered, and define Affiliate (and what happens when an entity ceases to be one).
  • [ ] Provide that sublicenses terminate automatically on termination of the head license — or, alternatively, that qualifying sublicenses survive on direct terms with licensor.

Why it matters, and the traps. The background rule helps the licensor: trademark licenses are presumptively personal and not assignable without consent. The Seventh Circuit's decision in In re XMH Corp., 647 F.3d 690 (7th Cir. 2011), explains why — because the licensor's control over quality is inseparable from the identity of the licensee. But do not rely on the default. Write it.

The trap is the unpapered contract manufacturer. Northgate does not "sublicense" — it just sends the artwork to three factories in two countries. Those factories are applying your mark to goods, and no agreement binds them to your standards. The fix is a flow-down obligation and a right to demand the list of manufacturing sites.

Phase 11 — Enforcement: who polices, who sues, who pays, who collects

  • [ ] Require licensee to notify licensor promptly of any suspected infringement, counterfeiting, or challenge.
  • [ ] Give licensor the first right (not the duty) to enforce, at its discretion and expense.
  • [ ] Specify whether licensee has a step-in right if licensor declines, and on what terms.
  • [ ] Require cooperation and joinder by the non-enforcing party, with costs borne by the enforcing party.
  • [ ] Allocate recoveries (typically: costs off the top, then the enforcing party, then a split).
  • [ ] State that licensee has no right to settle or to grant covenants not to sue on licensor's marks.
  • [ ] Require licensee's participation in customs recordation, marketplace brand registries, and takedowns.
  • [ ] Address defense of third-party infringement claims brought against licensee arising from the mark.

Why it matters, and the traps. The licensor must retain control of enforcement because enforcement decisions are trademark decisions: a bad settlement, a coexistence agreement, or a covenant not to sue granted by a licensee can permanently narrow the scope of your rights. Never let a licensee compromise the mark.

Conversely, an exclusive licensee that is bearing the commercial harm of infringement and cannot force the licensor to act has a real grievance — hence the step-in right. Negotiate the trigger (e.g., licensor has 60 days to act after notice) and the recovery split.

For the enforcement playbook itself, see The Trademark Enforcement and Litigation Lifecycle: A Toolkit from Watching to Appeal, Trademark Infringement and Related Rights: The Enforcement Landscape, and Trademark Cease-and-Desist Letters: A Drafting Checklist.

Phase 12 — Representations, indemnity, and insurance

  • [ ] Licensor reps: ownership; authority; that to its knowledge use as permitted will not infringe third-party rights (resist an unqualified non-infringement rep).
  • [ ] Licensee reps: authority; compliance with law; product safety; no use outside the grant.
  • [ ] Licensee indemnity to licensor for product liability, product defect, recall, advertising claims, employment/labor practices at its factories, and breach.
  • [ ] Licensor indemnity to licensee for third-party claims that the licensed marks themselves infringe — usually the only indemnity a licensor should give, and cap it.
  • [ ] Insurance: commercial general liability including products/completed operations and contractual liability, at a stated limit; licensor named as additional insured; certificates delivered annually; notice of cancellation. (Insurance is state-regulated; confirm what the policy form in your jurisdiction actually covers.)
  • [ ] Carve product liability and IP indemnity out of the liability cap (or set a separate super-cap).
  • [ ] Address recall cost allocation expressly.

Why it matters, and the traps. A trademark licensor is not merely a bystander to its licensee's products. Under the "apparent manufacturer" line of authority — reflected in the Restatement (Third) of Torts: Products Liability § 14 — one who puts its trademark on another's product and holds itself out as the manufacturer can be liable as if it were. The very control you must exercise to avoid naked licensing is the control a plaintiff will cite to argue you are responsible for the defect. That is not a reason to skip quality control; it is a reason to pair it with a robust indemnity, an additional-insured endorsement, and a real insurance limit.

Phase 13 — Term, termination, cure, and the phase-out/sell-off period

  • [ ] Define the initial term and renewal conditions (often tied to minimum performance).
  • [ ] Termination for cause with a cure period (30 days for payment; 30–60 for other breaches).
  • [ ] Immediate termination without cure for: unauthorized use outside the grant, quality breaches creating safety risk, counterfeiting, challenge to the marks, insolvency events (subject to Phase 14), and change of control.
  • [ ] Termination for convenience, if any, and the notice period.
  • [ ] On termination: immediate cessation of use, destruction or delivery-up of materials, removal of the mark from names, sites, and handles, transfer of domains and social accounts.
  • [ ] A defined sell-off period (commonly 90–180 days) for finished, conforming inventory only — non-exclusive, on-royalty, with a pre-approved inventory statement, and prohibited in off-price/liquidation channels unless agreed.
  • [ ] Prohibit inventory loading in the run-up to expiration (e.g., no sell-off rights for goods manufactured in the last 60 days of the term).
  • [ ] Survival clause listing the provisions that live on (indemnity, confidentiality, audit, acknowledgments, goodwill assignment).

Why it matters, and the traps. The phase-out period is where licensors get robbed. Grant a broad sell-off right and a terminated licensee will manufacture aggressively in the final quarter, then dump branded goods into discount channels for six months while your new licensee is trying to launch at full price. The three defenses are: (1) a pre-approved, certified inventory list as of the termination date; (2) an anti-loading rule; and (3) channel restrictions. A licensor buy-back option at cost is the cleanest solution of all.

Worked example, concluded. Cardinal & Vale terminates Northgate for repeated quality failures. Because the agreement required a certified inventory statement within 10 days, capped sell-off at 120 days, barred off-price channels, and gave Cardinal & Vale a right to purchase remaining inventory at landed cost, the wind-down took a quarter rather than two years — and the mark survived. Because Cardinal & Vale had also kept the quality file (Phase 5), the naked-licensing defense that surfaced in its next enforcement action collapsed on summary judgment.

Phase 14 — Assignment, change of control, and bankruptcy (Mission Product and Section 365(n)'s trademark gap)

  • [ ] Prohibit assignment by licensee, including by operation of law.
  • [ ] Add a separate, expressly defined change-of-control trigger — do not assume "by operation of law" captures a merger or a stock sale. Check the licensee's state of organization (entity law is state law; Delaware is the customary reference point).
  • [ ] Permit assignment by licensor (a licensor sale should not be blocked) — but require the assignee to assume the license.
  • [ ] Include insolvency-related termination triggers, while understanding they are of limited enforceability in bankruptcy (11 U.S.C. § 365(e)(1) invalidates most ipso facto clauses).
  • [ ] Licensor side: understand that if the licensee files, the license is an executory contract the licensee may seek to assume and assign; 11 U.S.C. § 365(c) may allow you to block assignment where applicable non-bankruptcy law excuses you from accepting performance from another party.
  • [ ] Licensee side: recognize that if the licensor files and rejects the license, Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. 370 (2019), lets you keep using the mark — but does not compel the debtor-licensor to keep performing.
  • [ ] Consider mitigations: a security interest in the marks, an escrow or assignment-in-trust, a change-of-control put, or a licensor covenant that any sale of the marks is subject to the license.

Why it matters, and the traps. Two different bodies of law collide in this phase, and they do not work the same way.

Change of control is a question of state entity law, not federal law. Whether a reverse triangular merger, a stock sale, or a conversion actually transfers the license — as opposed to leaving it in the hands of the same legal entity under new ownership — turns on the corporate statute of the licensee's state of organization and on how your anti-assignment clause is written. There is no national rule here; Delaware is the customary reference point for U.S. corporate practice (Delaware General Corporation Law) and is where most licensee entities you meet will be incorporated, but a Nevada, Texas, or California entity may be treated differently, and LLC statutes vary again. Delaware case law has held that a reverse triangular merger is generally not an assignment by operation of law — which means a boilerplate "no assignment, including by operation of law" clause may not stop a change of control at all. The drafting answer is not to argue about doctrine but to write a separate, express change-of-control trigger that defines the event (a specified percentage of equity or voting power, a sale of substantially all assets, a merger regardless of surviving entity, a change in the persons who control the board) and states the consequence (consent right, termination right, or a put). Then check the licensee's actual state of organization and confirm the clause does what you think.

Bankruptcy, by contrast, is federal law (Title 11), and it overrides contract. Two points matter here.

First, rejection is breach, not rescission. Before 2019 there was a real circuit split — Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), held rejection terminated the licensee's rights; Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, 686 F.3d 372 (7th Cir. 2012), held it did not. The Supreme Court settled it in Mission Product Holdings v. Tempnology: rejection under 11 U.S.C. § 365(g) is a breach, which does not rescind rights already granted. A trademark licensee whose licensor rejects may continue using the mark on the license's terms.

Second — and this is the gap — 11 U.S.C. § 365(n), the provision Congress enacted in 1988 to protect IP licensees, does not cover trademarks at all. The definition of "intellectual property" in 11 U.S.C. § 101(35A) lists trade secrets, patents, patent applications, plant varieties, copyrighted works, and mask works. Trademarks are conspicuously absent. So a trademark licensee does not get § 365(n)'s statutory election; it gets Mission Product's common-law-of-contracts answer. That answer is good but incomplete: the licensee keeps the license, but a rejecting debtor-licensor is not required to affirmatively perform — no more quality-control oversight, no more brand support, no more enforcement. Which raises the mirror-image problem for the estate: a mark being used by a licensee whom nobody is supervising is, over time, a mark heading toward naked licensing.

Draft accordingly. The licensee should bargain for a security interest or an assignment-in-trust and should insist that any transfer of the marks be expressly subject to the license. The licensor should recognize that its own bankruptcy will not cleanly rid it of licensees.

For the bankruptcy machinery itself, see The Bankruptcy and Restructuring Toolkit and Chapter 11 Reorganization: A Comprehensive Guide for Debtors and Creditors.

Phase 15 — Recordation and the chain of title

  • [ ] Confirm the licensor actually owns the marks of record — check the USPTO chain of title before signing.
  • [ ] If prior assignments were never recorded, fix the chain first (an unrecorded assignment is void against a later bona fide purchaser under 15 U.S.C. § 1060(a)(4) if not recorded within the statutory window).
  • [ ] Confirm any prior assignment was made with the goodwill of the business — an assignment in gross is void (15 U.S.C. § 1060(a)(1)).
  • [ ] Decide whether to record the license with the USPTO Assignment Recordation Branch (permitted, but not required, and it does not create priority).
  • [ ] Record any security interest in the marks (UCC-1 in the appropriate state, plus a USPTO filing for notice).
  • [ ] Update the USPTO correspondence and owner information and confirm who will file § 8 and § 9 filings.
  • [ ] Confirm the license does not inadvertently create a franchise (see Common Mistakes).

Why it matters, and the traps. Diligence before signature is cheaper than litigation after. If the licensor's chain of title is broken — a merger never recorded, an assignment executed without goodwill — the licensee is paying royalties to someone who may not own the mark, and the licensor may not be able to enforce it. Work through Recording a Trademark Assignment with the USPTO: A Practical Checklist and The IP Transactions Toolkit: A Roadmap for Licensing, Assignments, and Diligence before you paper the deal.

Two adjacent diligence points. If the license is going to extend the mark into a new product category — as Cardinal & Vale's apparel license does — run a clearance search on the mark in that category before signing, not after the licensee has tooled a factory; the workflow is in Clearing a New Trademark: A Practical Checklist. And if the new-category rights have to be prosecuted from scratch, From Brand Idea to Registered Mark: A Trademark Registration Toolkit maps the filing path. Finally, the general contract architecture around the trademark-specific articles — notices, governing law and forum, limitation of liability, force majeure, integration — is ordinary commercial-contract work; see The Commercial Contracts Toolkit: Drafting, Reviewing, and Enforcing Business Agreements.

Common mistakes to avoid

  1. Treating quality control as boilerplate. It is the operative provision. Everything else is commerce; this is survival.
  2. Writing a quality clause you never use. Naked licensing is proven with the licensor's own empty file.
  3. Deemed approval on silence, with no carve-outs. An automatic waiver of the very control the Lanham Act requires.
  4. "High quality" as the standard. Benchmark to prior goods and to written specifications instead.
  5. Exclusivity with no minimum performance. You have handed away the field and cannot use it yourself. Nonuse for three consecutive years is prima facie abandonment under 15 U.S.C. § 1127.
  6. Omitting the inurement and goodwill-assignment clauses. Say the licensee's use inures to licensor under 15 U.S.C. § 1055, and assign back anything that vests anyway.
  7. Letting the licensee register the mark abroad. In first-to-file countries this can cost years to unwind.
  8. Uncapped deductions from Net Sales. Gross sales soar; royalties do not.
  9. An audit clause with no cost-shifting and no data access. It will never be used.
  10. Ignoring contract manufacturers. Flow down the standards or you are not controlling anything.
  11. Letting the licensee settle infringement claims. A licensee's coexistence agreement can permanently narrow your mark.
  12. A broad, unpoliced sell-off period. Anti-loading rules, certified inventory lists, and channel restrictions, or budget for two years of discounted branded goods.
  13. Assuming § 365(n) protects a trademark licensee. It does not — 11 U.S.C. § 101(35A) omits trademarks. Mission Product is the authority, and it does not require the debtor to perform.
  14. Accidentally creating a franchise. Under the FTC Franchise Rule (16 C.F.R. Part 436), a relationship involving (a) the right to use a trademark, (b) significant control over or assistance with the licensee's method of operation, and (c) a required payment can be a franchise — triggering pre-sale disclosure obligations regardless of what you call it. Several states (California, New York, Illinois, and others) add registration and relationship statutes with their own definitions and termination protections. Franchise law is a mix of federal disclosure rules and state registration/relationship statutes; verify the specific states in play. If the license is really a franchise, comply — or restructure so it is not.
  15. Never checking the chain of title. Confirm ownership before the first royalty check.

The consolidated trademark license checklist

  • [ ] Marks identified by registration/serial number, on a schedule
  • [ ] Licensed goods/services defined with USPTO-grade precision
  • [ ] Territory and channels defined; e-commerce addressed
  • [ ] Term and renewal mechanics
  • [ ] Exclusive / sole / non-exclusive stated, with licensor carve-outs
  • [ ] Minimum performance thresholds tied to exclusivity and renewal
  • [ ] Quality standards, written and objective, incorporated by exhibit
  • [ ] Pre-production and production sample approval, with named approver and deadline
  • [ ] Deemed-approval rule, if any, narrowly carved
  • [ ] Inspection and audit of facilities, including subcontractors
  • [ ] Corrective action, recall, and quality-breach termination rights
  • [ ] Internal calendar and file for actually exercising control
  • [ ] Licensee acknowledgments: ownership, validity, no challenge, no registration
  • [ ] Inurement to licensor under § 1055; present assignment of goodwill; further assurances
  • [ ] Brand guidelines, ® / ™ marking, attribution legend, anti-genericide rules
  • [ ] Royalty base with capped deductions; rate; GMR; advances
  • [ ] Quarterly reporting; audit right with cost-shifting and interest; record retention
  • [ ] Withholding tax and gross-up (cross-border)
  • [ ] No sublicense/assignment without consent; flow-downs to manufacturers; joint liability
  • [ ] Enforcement: notice, licensor's first right, step-in, joinder, recoveries, no licensee settlements
  • [ ] Reps; product-liability and IP indemnities; carve-outs from the cap
  • [ ] Insurance with additional-insured endorsement and certificates
  • [ ] Termination triggers, cure periods, immediate-termination events
  • [ ] Post-termination cessation, delivery-up, domain/handle transfer
  • [ ] Sell-off period: duration, certified inventory, anti-loading, channel limits, buy-back option
  • [ ] Change-of-control trigger defined separately from anti-assignment; licensee's state of organization checked
  • [ ] Bankruptcy: ipso facto limits, § 365 analysis, Mission Product, § 365(n)'s trademark gap, security interest / assignment-in-trust
  • [ ] Chain of title verified; assignments recorded; § 8 / § 9 responsibility assigned
  • [ ] Franchise-law screen completed (FTC Rule + applicable state statutes)
  • [ ] Governing law, forum, notices, survival

Primary Authority

Statutes

  • 15 U.S.C. § 1055 (Lanham Act § 5) — use by related companies inures to the benefit of the owner
  • 15 U.S.C. § 1127 (Lanham Act § 45) — definitions of "related company" (control over nature and quality) and "abandonment" (nonuse for three consecutive years is prima facie abandonment; a course of conduct causing the mark to lose its significance)
  • 15 U.S.C. § 1064 — cancellation, including for abandonment and for use permitted by the registrant so as to misrepresent source
  • 15 U.S.C. § 1060 — assignment with the goodwill of the business; recordation and the bona fide purchaser rule
  • 15 U.S.C. § 1111 — notice of registration (®) as a precondition to recovering profits and damages absent actual notice
  • 15 U.S.C. §§ 1114, 1125(a) — infringement and false designation of origin
  • 15 U.S.C. §§ 1058, 1059, 1065 — maintenance, renewal, and incontestability
  • 11 U.S.C. § 365 — executory contracts; § 365(e) (ipso facto clauses); § 365(g) (rejection as breach); § 365(n) (IP licensee protections)
  • 11 U.S.C. § 101(35A) — definition of "intellectual property" for bankruptcy purposes, which does not include trademarks
  • 16 C.F.R. Part 436 — FTC Franchise Rule (federal disclosure; state registration and relationship statutes are separate)
  • 26 U.S.C. §§ 1441–1442 — withholding on U.S. source royalties paid to foreign persons (statutory 30% rate, subject to treaty reduction)

State law (note the limits)

  • Entity and change-of-control questions are state law. Delaware (the Delaware General Corporation Law and the Delaware LLC Act) is the customary U.S. reference point and is named here as such — it is not a national rule. Confirm the licensee's actual state of organization.
  • Insurance is state-regulated. Policy forms, mandatory endorsements, and what an "additional insured" endorsement actually buys vary by state; confirm locally rather than assuming a uniform result.
  • Franchise law is federal disclosure plus state registration/relationship statutes. California, New York, Illinois, and other states have their own definitions and termination protections. There is no single national franchise standard beyond the FTC Rule's disclosure obligation.

Cases

Secondary Sources

  • McCarthy on Trademarks and Unfair Competition (quality control, naked licensing, and related-company use)
  • Restatement (Third) of Torts: Products Liability § 14 (apparent-manufacturer liability of a trademark licensor)
  • Restatement (Third) of Unfair Competition §§ 33–34 (licensing and the control requirement)

Related UpLaw Resources

Related Guides & Articles

Related Checklists

Related Toolkits

This checklist is general legal information from UpLaw (uplaw.us), not legal advice, and does not create an attorney-client relationship. Laws vary by state and change over time; verify current requirements and consult qualified counsel before acting.