The decision of whether or not and when it would be desirable to enter into a licensing agreement is always based on a commercial evaluation. So it is not always easy to be clear about when would be the best time to enter into a licensing agreement.

It is however advisable that both parties, prior to commencing negotiations, draw up an agreement comprising an non-circumvention agreement, a declaration of intent and a confidentiality agreement, so that both parties are clear about what happens should the negotiations fail to reach signature of a licensing agreement.

There are certain situations where it would be particularly relevant to enter into a licensing agreement:

Licensor:
If you are a licensor it could be a good idea to out license your trademark if, for example, you have registered your trademark in the EU or through OHIM. If you haven't used your trademark in the EU for the last five years it could be a good idea to set up a licensing agreement for the use of your trademark to protect your trademark from potential termination through lack of use.

Several trademarks are often registered in line with the development of new products, but usually only one of these will be put into use and the rest remain idle. Instead of leaving these marks unused and risk that they are challenged through not being put to use, you could build up a business in licensing out these trademarks.

Lastly, a licensing agreement is a good idea if you want to operate in markets in a new geographical area and lack the necessary resources or competencies to set up a business from scratch. A possible partner could then be a company that has good production facilities, a well-developed distribution network, or good access to retail.

Licensee:
If you have some free production capacity or greater capacity in your distribution network for example, then a licensing agreement for a trademark can be a good way to see orders increase.

It can also be good business to take out licences for well-known trademarks or trademarks on the way up. By licensing these kinds of trademarks you will be getting a share in the value already established by the brand.

Perhaps you have a product and a particular brand which it would be profitable to co-brand with a particular trademark - e.g. an item of clothing with a well-known figure on it. In this case it could be good business to go into an agreement with the owner of the trademark so that you can reap the benefits of the popularity of the brand in its particular area of the market.

Finally, it may be that you have discovered that your product resembles a product from another company. Here a licensing agreement could make it possible for you to continue making your product without the risk of legal action from the company in question.

A purchase or sales agreement is an agreement between the owner of a trademark and an interested buyer on transfer of ownership of a whole trademark or of a section of a trademark covering certain classes or countries.

A transfer of ownership for a section of a trademark requires a so-called division. This must be applied for at the appropriate Trademark Office.

It is rare that trademarks are purchased alone. They are more likely to change ownership in whole or part company purchases.This is because a trademark is intrinsic to the product or service for which it is registered and thereby to the owner's company on the whole.

Therefore, when you are buying a company, it is important that you also remember that trademarks belonging to a given product are included and written into the company transfer agreement.

If you are in a situation where you have developed a product and have already thought of a name for it, it could be worth finding out if you can register your trademark – before you buy an existing registered trademark.

You can use the following strategy:
1. Do a preliminary search in the publicly available trademark registers – e.g. Madrid Express, CTMonline, or national databases like PVSonline.
2. Have a Trademark Scanning done. This will give you a professional assessment of whether the trademark you have in mind is too similar to any existing marks.
3. Apply for registration of your trademark.
4. If the mark you want to use is already registered and in use, you can contact the trademark owner in question and suggest that you enter into an agreement whereby you obtain the right to use the trademark.

It is rare to see trademarks sold alone. They generally change ownership in whole or part company sales. This is because a trademark is intrinsic to the product or service for which it is registered and thereby to the owner's company on the whole.

When you are selling a part or the whole of a company and drawing up the agreement, it is very important that you remember to valuate the trademarks that are included in the sale. Today it is estimated that up to 70% of a company’s assets can be ascribed to its intangible assets, such as trademarks.

But if you have an unused trademark in your portfolio you could consider selling it to an interested buyer – either in its entirety or for certain countries or classes. In this way you capitalize on the value inherent in having it registered.

Lastly you could sell a trademark if you have out licensed it and now want to transfer ownership of the trademark to the licensee. Perhaps the licensing agreement for some reason or other doesn’t fit in with the current portfolio or with your company’s strategy.

Valuing a trademark is a complicated discipline. Therefore we recommend that you obtain professional advice, for instance from solicitors specialized in the area, accountants and other advisors. Below is some information on the things you should consider.

There are two aspects to assessing the value of a trademark: the validity and market potential of the trademark.

Validity and requirements for use
When you are valuing a trademark that you want to license you should start by making sure that the trademark is valid. If you are a potential licensee, it must be certain that the trademark is registered in the classes and for those goods and services you want you want to take out a licence for. It is also important to know which countries the trademark is valid in and whether there are any infringement cases pending. If the trademark is European (a national or EU mark) it must also be ascertained that the trademark has been in use for the last five years.

In Europe there is ‘requirements for use’ on trademarks. Other parties can request that a right be invalidated if the trademark has failed to be in use for an uninterrupted period of five years. When a trademark is used with the owner’s consent, e.g. by a licensee, the trademark owner thereby meets the requirement for use.

By out licensing your trademark you can protect it from a potential annulment through lack of use.

Market potential
Trademarks are rarely bought or sold alone. They generally change ownership in whole or part company sales. For this reason it can be difficult to place a value on a trademark in isolation. It is important however to think in terms of the trademark’s achievements to date and its estimated future earnings when entering into an agreement on purchase, sale or license a of trademark. You can get help with valuing a trademark’s market potential – see the list of professional advisors.