Trademark Licensing and Quality Control

By Hank FasthoffJuly 6, 2026

A trademark license grants permission to use a mark with specified goods or services without transferring ownership. The owner, called the licensor, can expand into new markets, product categories, or territories through another business, called the licensee. In exchange, the licensee may pay royalties, a fixed fee, or other compensation.

The owner must maintain adequate control over the nature and quality of the goods or services offered under the mark. Licensing without adequate quality control is known as naked licensing and can lead to abandonment, meaning the loss of trademark rights. The risk concerns the owner's rights in the mark, beyond its contractual relationship with a particular licensee.

Types of Licenses

An exclusive license reserves specified rights to one licensee within an agreed territory, product category, or distribution channel. The agreement determines whether the owner also retains permission to use the mark within that scope. Exclusivity therefore requires more detail than a label on the first page.

A sole license commonly permits both the owner and one licensee to use the mark while excluding additional licensees within the agreed scope. A nonexclusive license permits the owner to authorize multiple licensees. Because parties sometimes use these labels differently, the agreement must state the rights each party retains and the competing uses it prohibits.

For example, a business might license its mark exclusively for footwear in Texas while reserving apparel sales and direct online sales. The parties would need to address whether the licensee could accept online orders from customers outside Texas. Without those details, both businesses might consider the same sale authorized under their respective rights.

An assignment transfers ownership and requires a separate analysis. Under 15 U.S.C. § 1060, an assignment of a registered mark or pending application generally must include the associated business goodwill, meaning the customer recognition and reputation represented by the mark, and must be in a duly executed writing. Applications based on an intention to use the mark also face restrictions on assignment before the required evidence of use is filed. Calling an agreement a license doesn't resolve whether its terms transfer ownership.

Who May Sue for Infringement

A licensee's ability to sue depends on the statutory claim, the rights granted under the agreement, and the injury alleged. Section 32 of the Lanham Act authorizes infringement claims by the registrant, a category that includes qualifying successors and assignees. An exclusive licensee's ability to pursue that claim requires examination of the rights transferred; exclusivity alone doesn't settle the question.

Section 43(a) permits certain claims by parties other than the registrant, including qualifying nonexclusive licensees. In D.H. Pace Co. v. OGD Equipment Co., 78 F.4th 1286 (11th Cir. 2023), the Eleventh Circuit held that a nonexclusive licensee could pursue its claim where it satisfied the statutory requirements and its agreement didn't restrict its ability to sue. The court distinguished that claim from one brought under Section 32.

The agreement can allocate responsibility for identifying infringement, sending demands, filing suit, selecting counsel, paying litigation expenses, and approving settlements. Whether the owner must participate in a particular lawsuit depends on the claim, the agreement, and the applicable procedural rules. A contractual enforcement provision also can't substitute for the legal requirements of the claim itself.

The Quality Control Requirement

Under 15 U.S.C. § 1055, legitimate use by a related company can benefit the trademark owner without impairing the mark or registration, provided the use doesn't deceive the public. A related company includes a licensee whose use the owner controls concerning the nature and quality of the goods or services, as defined in 15 U.S.C. § 1127. Corporate ownership or a shared parent company isn't necessary to meet that definition.

Quality control concerns the consistency customers associate with the brand. Depending on the licensed business, the owner may set product specifications, review samples, inspect operations, approve packaging, evaluate customer service, or require correction of identified defects. Records of those activities document what the owner supervised and how the licensee responded.

In FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509 (9th Cir. 2010), a nonprofit allowed a local recycling group to use its marks. The Ninth Circuit affirmed summary judgment based on naked licensing because the nonprofit retained no contractual quality control rights, exercised inadequate control in practice, and lacked a sufficient basis to rely on the local group's quality controls. General guidelines and shared nonprofit goals didn't establish the necessary supervision.

In Eva's Bridal Ltd. v. Halanick Enterprises, Inc., 639 F.3d 788 (7th Cir. 2011), bridal shop owners licensed their mark to a relative's business for $75,000 annually. Their agreement reserved no supervisory authority, and they exercised none. The Seventh Circuit affirmed the rejection of their infringement claim after the license expired, explaining that confidence in the licensee's high standards didn't replace control over the consistency of the branded business.

Courts apply the abandonment doctrine in light of the governing circuit's law and the evidence. In Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070 (5th Cir. 1997), the Fifth Circuit rejected a naked licensing defense based on agreements permitting other businesses to phase out disputed marks. The defendant failed to present evidence that Exxon's marks lost their significance as indicators of source. Missing quality control provisions therefore didn't establish abandonment by themselves in that case.

A licensing program can address these risks through written standards, inspection and approval rights, and documented supervision suited to the goods or services. The owner can also specify who reviews samples, how often reviews occur, and how the licensee must correct problems. A clause that no one administers may offer inadequate protection when the parties' conduct becomes the subject of litigation.

Defining the Licensed Use

The agreement can identify each licensed word mark, logo, and approved variation, together with any relevant registration numbers. If permission includes trade dress, meaning the source identifying appearance of a product or its packaging, the agreement can describe the covered features. Examples or attached artwork reduce uncertainty about which versions the licensee may use.

Licensed goods, services, territories, and sales channels require the same attention. Permission to use a mark on apparel might include shirts while excluding footwear, accessories, or children's products. The agreement can address online sales, marketplaces, advertising directed outside the territory, and any rights the owner reserves for other partners.

Sublicensing permits the licensee to authorize another party's use of the mark. The agreement can prohibit sublicensing or condition it on approval, written obligations, and continuing quality control. Where manufacturers or distributors participate, their authority and obligations need to match their role, including what happens when the primary license ends.

Royalties and Financial Records

The parties can agree to a fixed fee, a percentage of sales, minimum guaranteed payments, or a combination. A royalty based on net sales requires an agreed definition of the deductions allowed from gross sales. Returns, taxes, discounts, shipping charges, and transactions with affiliated businesses can each affect the calculation.

A minimum guarantee also requires a stated accounting period and treatment of payments already made. The agreement can specify whether the licensee pays the greater of the minimum or the calculated royalty, when any additional amount becomes due, and whether excess payments count toward another period. Both parties need enough detail to calculate the amount from the same sales records.

Audit provisions can require record retention, periodic reporting, and access to supporting financial information. The parties can negotiate audit frequency, notice, confidentiality, the period subject to review, and responsibility for audit costs. Any threshold that shifts costs to the licensee is a negotiated term, not a universal percentage imposed by trademark law.

Duration, Renewal, and Termination

A stated term identifies when permission begins and ends. Renewal provisions can depend on timely payments, minimum sales, compliance with quality standards, and notice within an agreed period. Whether either party may end the relationship early depends on the termination provisions and applicable law.

Termination provisions can address unpaid royalties, unauthorized use, prohibited sublicensing, and failure to satisfy quality requirements. The agreement can distinguish defaults that permit correction from circumstances requiring immediate suspension or termination, subject to applicable law. Notice requirements, delivery methods, and cure periods need to be practical enough for the parties to administer.

Bankruptcy can restrict the owner's ability to terminate an existing license. 11 U.S.C. § 365(e) generally limits termination of an executory contract, one with material obligations unperformed on both sides, solely because of insolvency or a bankruptcy filing, subject to statutory exceptions. The automatic stay under Section 362 can also restrict termination and collection efforts. Payment or quality defaults require separate analysis and may require court relief once a bankruptcy case begins.

The parties can negotiate a limited period to sell existing inventory after expiration or termination. Any permission can specify eligible inventory, the final sales date, continuing royalties and quality requirements, and whether new production is prohibited. The agreement can also address removal of branding from websites and advertising, return of confidential materials, and treatment of products that fail quality standards.

Administering the License

A written agreement records the scope of permission and the parties' obligations before the licensee begins using the mark. Courts may recognize oral or implied licenses in appropriate circumstances, but those arrangements can leave the parties disputing scope, payment, supervision, and termination. A signed document reduces that uncertainty without replacing the need for adequate quality control.

Administration continues throughout the license term. The owner can assign responsibility for product approvals, inspections, royalty reports, renewal dates, and enforcement decisions, while the licensee keeps records of its authorized uses and compliance. Those records help both parties identify departures from the agreement before a payment dispute or quality complaint becomes an infringement case.