Most Common Pitfalls Licensees Watch Out For Part 3 | Brand Licensing | Brand
As a licensee, you may be making the common pitfall of not making the proper investment. Why should you invest fully and what other pitfalls should you be prepared to avoid?
Not prepared to invest in the license
A licensee may not invest fully in their newly acquired brand licensing rights. Without proper investment, the licensee will not achieve the results they or the licensor anticipated when the agreement was made.
The licensor who has granted the license expects growth in the licensed category from a sales, marketing and financial perspective throughout the term of the agreement.
Moreover, the licensor expects the licensee to pursue every channel and every category designated, not just the low hanging fruit. Despite this obligation, the licensee may not make the proper investment.
There can be many reasons for this, including a misunderstanding of the commitment needed, a loss of focus or interest after an expected sale falls through or change in management leading to a new strategic direction for the licensee. Irrespective of these reasons, the licensee will still be obligated to meet the royalty and other financial commitments written in the contract.
Selling in unauthorized channels
Sometime the licensee may be tempted to sell licensed product outside of their authorized channels or territory to meet contractual sales minimums or guaranteed royalty commitments.
The licensee may consummate the sale thinking they won’t get caught. When this occurs, the licensee may put the licensor at risk if the licensor has no trademark rights in the region or if another licensee is authorized to sell in the channel or territory.
For this reason, licensing contracts come with stiff penalties, up to and including termination, if products are sold into an unauthorized channel or territory.
Trusting the other party has your best interests in mind
Licensees can get into trouble when they trust that the licensor has their best interest in mind.
- A licensor may license a category they are vacating because they have strained a relationship with a retailer or failed the consumer in a category.
- Licensees often may share ideas with the licensor only to have them “taken” by the licensor. This can result in a lot of animosity by the licensee, which can have a long-term negative effect.
- Licensees are usually granted a non-exclusive license. In some instances the licensor may choose to compete directly with the licensee or pitch one licensee against another.
- If the licensee is unaware of the licensor’s intentions, the licensee may be unable to meet its contractual obligations or suffer costs greater than expected in order to meet them.
Not following the written contract
Licensees can get into trouble when they follow verbal directions that are in direct conflict with the contract. This is a difficult predicament because the licensee may feel pressure to comply with the verbal direction. If they don’t get their direction in writing, they can later be held liable for breaching the contract.
I hope you will keep these pitfalls handy and learn from them so that you do not suffer as a result of not knowing. In addition, I hope you will share your story of how you fell into a pitfall and what the impact was to your business and your licensing partner’s. If we pay if forward everyone can benefit.
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