A trademark license is a contract in which the mark’s owner lets someone else use it while keeping ownership and controlling the quality of what gets sold under it. That second half is not optional boilerplate. A trademark exists to tell consumers that goods carrying it come from a consistent source, and the law only tolerates licensing because the owner stands behind the licensee’s output.
The statutory hook is 15 U.S.C. § 1055, which says use by a “related company” inures to the benefit of the owner and does not affect the mark’s validity, so long as the mark is not used so as to deceive the public. The control requirement rides in through the definition of “related company” in 15 U.S.C. § 1127: a company whose use the owner controls with respect to the nature and quality of the goods or services. Get that right and the licensee’s sales build your mark. Get it wrong and the licensee’s sales destroy it.
Licensing looks like a revenue arrangement and behaves like a liability. When an owner licenses a mark and then does nothing to police what the licensee produces, the mark stops signifying anything reliable. Courts call this naked licensing, and the remedy is severe: the owner is deemed to have abandoned the mark entirely under the abandonment definition in 15 U.S.C. § 1127, which includes acts of omission that cause a mark to lose its significance as an indication of origin.
Barcamerica International USA Trust v. Tyfield Importers, 289 F.3d 589 (9th Cir. 2002), is the case everyone cites. Barcamerica licensed the DA VINCI wine mark and offered essentially two defenses: it trusted the licensee’s winemaker, and someone occasionally tasted the wine. The Ninth Circuit found no meaningful control at all, no inspection regime, no specifications, no records, and held the mark abandoned. The owner did not lose a lawsuit. It lost the asset.
The lesson is that the license agreement’s quality-control clause is necessary but not sufficient. Courts look for actual exercise: written specifications, approval rights over samples and advertising, inspection or audit rights that get used, and a paper trail proving they were used. Reliance on a licensee’s own quality efforts can sometimes suffice where the parties have a long, close relationship, but that is a narrow fallback, not a plan.
A non-exclusive license lets the owner license the same mark to others in the same territory and field. It is the default posture for merchandising and co-branding, where the owner wants many licensees and no scarcity.
An exclusive license promises the licensee that nobody else, sometimes including the owner, will use the mark within a defined scope. Exclusivity is almost always bounded by three variables worth negotiating separately: territory, field of use (the specific goods or services), and term. A license that is exclusive for footwear in Canada for five years is a very different instrument from one that is exclusive worldwide across all classes forever, and only the latter starts to resemble a sale.
Practical terms that carry most of the money: royalty base and rate, minimum guaranteed royalties, audit rights, approval turnaround times, what happens to inventory when the term ends (a sell-off period), and who controls enforcement against infringers.
Trademarks are not freestanding property. Section 10 of the Lanham Act, 15 U.S.C. § 1060, permits assignment of a registered mark only with the goodwill of the business in which the mark is used. Transferring the bare mark without that goodwill is an assignment in gross, and courts generally treat it as void, which can wipe out the assignee’s priority or invalidate the registration.
This is why licensing exists as a category. If you want another company selling under your brand but you are not selling them the business, a license is the instrument. The rule also has a trap for intent-to-use applications: § 1060(a)(1) bars assigning an ITU application before an amendment to allege use or a statement of use is filed, except to a successor to the ongoing business.
Franchising is licensing plus two more things, and the regulatory consequences are large. Under the FTC Franchise Rule, 16 C.F.R. Part 436, a relationship is a franchise when three elements are all present:
Hit all three and you are a franchisor whether or not the word appears in your contract. The Rule then requires you to furnish a Franchise Disclosure Document (FDD) with 23 prescribed items at least 14 calendar days before the prospect signs anything or pays anything. There is no federal registration, but several states, including California, New York, and Illinois, run their own registration regimes, and a separate set of state relationship laws restrict termination and non-renewal without good cause.
Companies back into franchising accidentally. A licensing deal that starts as “use our name on your shop” and grows to include a required playbook, mandated suppliers, and an upfront fee has quietly become a franchise, and the disclosure failure is the franchisor’s problem, not the licensee’s.
For decades this was genuinely unsettled. Section 365 of the Bankruptcy Code lets a debtor reject executory contracts, and § 365(n) protects licensees of “intellectual property” when a licensor rejects, but the definition in 11 U.S.C. § 101(35A) conspicuously omits trademarks. Some courts read that omission to mean a rejected trademark license simply evaporated.
The Supreme Court closed the question in Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. 370 (2019). Rejection is a breach, not a rescission. A breach outside bankruptcy would not terminate the licensee’s right to use the mark, so rejection inside bankruptcy does not either. The licensee may keep using the mark on the license’s terms, though it must keep paying royalties and the debtor is relieved of affirmative obligations like quality supervision going forward. Licensees still negotiate for escrowed rights and source materials, but the baseline is now licensee-favorable.
What is trademark licensing? Trademark licensing is a contract in which the owner of a mark permits another party to use it on goods or services while the owner retains ownership and controls the quality of what is sold under it. The Lanham Act calls the licensee a related company, and under 15 U.S.C. § 1055 the licensee’s use counts as the owner’s use only if the owner controls the nature and quality of the goods. Control is not a formality; it is the thing that makes the license lawful.
What is naked licensing? Naked licensing is licensing a mark without exercising meaningful quality control over the licensee. Because a mark signifies a consistent source, an uncontrolled license lets the mark mislead consumers, and courts treat it as abandonment under 15 U.S.C. § 1127. In Barcamerica International USA Trust v. Tyfield Importers (9th Cir. 2002), an owner who relied on vague trust in the licensee’s winemaker lost all rights in the mark.
What is the difference between a trademark license and a franchise? Every franchise contains a trademark license, but not every trademark license is a franchise. Under the FTC Franchise Rule, 16 C.F.R. Part 436, a relationship is a franchise when three elements are present: the right to operate under the franchisor’s mark, significant control over or assistance with the operating method, and a required payment to the franchisor or an affiliate. The definition sets no dollar floor, but an exemption lifts the Rule when total required payments stay under $735 from before signing through six months after opening, a figure adjusted for inflation every four years. Hit all three and you must deliver a Franchise Disclosure Document, 23 prescribed items, at least 14 calendar days before signing.
Can a trademark be sold separately from the business? No. Section 10 of the Lanham Act, 15 U.S.C. § 1060, allows assignment only with the goodwill of the business connected to the mark. A transfer of the bare mark, called an assignment in gross, is generally void and can restart the assignee’s priority date or destroy the registration. Licensing is the ordinary way to let someone else use a mark without transferring the underlying business.
Going further: How to Trademark Your Business, step by step .
This page is general legal information, not legal advice, and it does not create an attorney-client relationship.
The Ninth Circuit held a nonprofit abandoned its FREECYCLE marks through naked licensing, having kept no contractual or actual control over its member groups.
The Fifth Circuit held a franchisor's approved-source rule was not a tie because franchisees never had to buy from KFC, and found infringement where mark use was part of a scheme to mislead franchisees.
The Supreme Court held that a debtor-licensor's rejection of a trademark license in bankruptcy breaches the contract but does not strip the licensee of its right to keep using the mark.
The Ninth Circuit held that forcing franchisees to buy supplies as the price of a trademark license was an unlawful tie, reshaping how franchisors police quality.
The Fifth Circuit held that the SUGARBUSTERS service mark, bought from a diabetic-supply store and used for a diet book, was assigned in gross and invalid because the goodwill did not transfer with it.
The Seventh Circuit held that owners who licensed the EVA'S BRIDAL name to a relative without retaining any authority over how the store was run abandoned the mark through naked licensing.
The Ninth Circuit held that a trademark owner who licensed its Leonardo Da Vinci wine mark without meaningful quality control abandoned the mark, even though the licensee made well-regarded wine.
