Yes. A registered trademark can be licensed to other businesses under a written license agreement, generating royalty revenue without giving up ownership. Under 15 U.S.C. §1055, the owner must exercise quality control over the licensee's use of the mark — failing to do so is called 'naked licensing' and can be treated as abandonment of the mark.
Structure the license agreement with quality-control provisions, specific territories and classes, and clear royalty terms before signing anything.
Licensing converts trademark rights into recurring revenue without diluting ownership; quality control preserves the mark's integrity and legal validity.
Outline your licensing criteria (acceptable licensees, territories, royalty rates, quality standards) before approaching potential licensees.
Trademark licenses come in several structural categories, each appropriate for different business goals. The right structure depends on how much control the owner wants to retain, how broadly the mark should be licensed, and how much value the licensee brings to the arrangement.
Most small-business licensing arrangements use field-of-use or territorial structures to retain flexibility. Exclusive licenses command higher royalties but reduce the owner’s future optionality. Structure the license to match the business’s broader brand strategy, not just the single-deal economics.
Naked licensing is a trademark license granted without meaningful quality control over the licensee’s use of the mark. Under 15 U.S.C. §1055, licensees’ use only benefits the licensor when the licensor exercises control; uncontrolled licenses can result in the mark being deemed abandoned, stripping the owner’s federal rights.[1]
Naked licensing risk is highest when the licensor is passive — signing the license, collecting royalties, and ignoring how the licensee uses the mark. Courts have stripped trademark registrations from owners who failed to exercise meaningful quality control, even when the license agreement contained quality-control language on paper. Active oversight is required, not theoretical oversight.
Royalty rates depend on industry norms, mark strength, territory, exclusivity, and the licensee’s expected revenue. Most trademark licenses use percentage-of-revenue royalties in the 3–10% range, though rates can go higher for famous marks and lower for crowded categories. Structuring the royalty correctly is as important as the rate itself.
| Structure | Typical use case | Common rate range |
|---|---|---|
| Percentage of net sales | Consumer products, apparel, food and beverage | 3–10% |
| Fixed flat fee per year | Small-scale licensing, established predictable volume | $5,000–$100,000+ |
| Minimum guarantee + percentage | Exclusive licenses requiring committed licensee effort | Minimum $50,000+ plus 3–8% |
| Per-unit royalty | Manufactured goods with clear unit volume | $0.50–$5.00 per unit |
| Tiered royalty | Scale-based arrangements with volume breaks | Starts 8%, drops to 4% at high volume |
Most first-time licensing arrangements benefit from minimum-guarantee structures that ensure meaningful revenue even if the licensee underperforms. Percentage-only deals are more common in mature licensing programs with proven demand.
A licensing agreement is a detailed contract that defines every material aspect of the licensed relationship. Short or informal licenses routinely generate disputes; comprehensive licenses resolve most issues in the contract rather than in court. Working with counsel experienced in trademark licensing prevents the most common agreement problems.
The cost of a well-drafted license agreement is $3,000–$10,000 depending on complexity. That investment pays back through clarity of obligations, protection against disputes, and stronger legal position if problems arise.
Licensing revenue varies dramatically by mark strength, industry, and licensing program design. Small-business licensing typically produces $10,000–$500,000 per year per license, while famous-mark licensing programs can produce tens of millions annually. The key variables are the mark’s commercial strength and the diligence of the licensing program.
Building a meaningful licensing program typically takes 2–5 years of sustained effort — identifying target categories, screening licensees, drafting agreements, managing relationships. Licensors who treat licensing as a serious business line generate substantially more revenue than those who pursue it opportunistically.
Most small-business trademark owners never consider licensing. The mark protects their brand, and they use it themselves — that’s the extent of the thinking. But for brands with genuine category strength, licensing unlocks a second revenue stream that doesn’t require operating additional business lines, carrying inventory, or scaling internal capacity.
The economics can be meaningful. A consumer brand generating $3M in direct revenue might generate another $500,000 in licensing royalties across three or four category licensees — often with lower effective margins than direct sales but without the operational cost. Over a decade of a licensing program, the cumulative royalty revenue can rival the direct business on a cash-flow basis, and the licensees often build the brand’s presence in categories the owner couldn’t profitably enter alone.
This is IP-to-Equity Strategy at its most literal: converting the registered mark from a defensive legal asset into an offensive revenue-generating asset. An educated consumer of trademark rights evaluates licensing opportunities deliberately, structures them with quality-control discipline, and treats the program as a line of business rather than an occasional deal. The right licensing program multiplies the value of the underlying registration without diluting the owner’s core operations.
No, licenses don't need to be recorded with the USPTO to be effective. Unlike assignments (transfers of ownership), licenses are contractual arrangements between parties. Some licensors record licenses voluntarily for public notice, but it's not required. Keep fully-executed copies of license agreements in your trademark file for due diligence purposes.
Yes, but with limitations. Common-law marks can be licensed under state contract law, but the licensee's rights are limited to the geographic market where common-law rights exist. Federal registration dramatically expands licensing potential because the nationwide rights let licensees operate across the entire United States. Most serious licensing programs are built on federally-registered marks.
The license may be assumed, rejected, or assigned by the bankruptcy estate under Section 365 of the Bankruptcy Code. Trademark licenses are often treated as executory contracts subject to specific rules. Well-drafted agreements include provisions addressing bankruptcy, but courts can override some contract terms. Consulting bankruptcy counsel is essential if a licensee files for bankruptcy protection.
Only if the license agreement includes minimum performance provisions. Without explicit minimum-guarantee terms or performance targets, underperformance alone doesn't create a termination right. Well-drafted licenses include annual minimums, performance benchmarks, or revenue triggers that allow the licensor to terminate non-performing licensees. Negotiate these terms into the initial agreement.
Trade shows in the target category, industry associations, licensing agents, and direct outreach to known brand-building companies are common channels. For consumer products, licensing agencies (LIMA members, brand licensing specialists) help match trademark owners with licensee candidates. The best licensees combine operational capability with brand fit — both matter, and careful selection pays back through the life of the relationship.
Understand your brand, see what's worth protecting, and walk into any attorney conversation prepared. Enter your name and email once to unlock all three.