Introduction – Brand Licensing Agreement
In today’s commercial environment, brand equity is often more valuable than tangible assets. Businesses invest heavily in branding, design, and consumer loyalty, and increasingly seek ways to monetise that goodwill without diluting ownership. One of the most commonly used legal tools for this purpose is a well-structured brand licensing agreement.
A brand licensing arrangement enables one party (the licensor) to permit another (the licensee) to use its brand, trademark, or related intellectual property under specific terms. While the brand owner retains title and proprietary rights, the licensee obtains limited, legally enforceable brand usage rights, whether for manufacturing, marketing, or distribution. It’s a controlled expansion strategy, often preferred where the brand owner wants to enter new territories or channels without setting up operations directly.
From a legal standpoint, this arrangement requires careful structuring. In India, the applicable legal framework includes the Trade Marks Act, 1999, the Indian Contract Act, and domain-specific laws where applicable (e.g., FSSAI or BIS in product sectors). Each intellectual property license contract must be tailored for the type of mark involved, logo, wordmark, stylised brand, and the scope of use. Unlike assignments, a licence does not transfer ownership; it merely permits defined usage within the terms set out in the agreement.
Some key reasons Indian businesses enter into such licensing deals include:
- Expansion into new geographic markets;
- Collaborations with manufacturers or distributors;
- Entry into co-branding or promotional partnerships;
- Use of trademarks in digital platforms or packaging;
- Strategic monetisation without divestment.
Whether drafted for domestic or international use, every enforceable brand licensing agreement must include clear boundaries, quality control mechanisms, and enforceable terms. In the Indian context, these documents are especially critical where rights stem from registered trademarks, making trademark licensing agreement India compliance vital for enforceability and protection.
What Is a Brand Licensing Agreement?
A brand licensing agreement is a contract under which the owner of a registered or unregistered trademark (the “licensor”) allows another party (the “licensee”) to use the brand for specific commercial purposes, for a defined term, and within a defined scope. This kind of intellectual property license contract has become increasingly common in India, particularly in FMCG, apparel, entertainment, and hospitality sectors, where brands have become core business assets.
The structure of a brand licensing agreement is governed by a combination of the Indian Contract Act, 1872, the Trade Marks Act, 1999, and, wherever applicable, relevant sectoral regulations. What differentiates a license from a full transfer of ownership (assignment) is that ownership of the intellectual property stays with the brand owner. What is granted is merely the “permission to use” under negotiated terms.
This kind of contract plays a vital role when the brand owner does not want to relinquish control or ownership but wants to monetise the mark, extend brand reach, or create strategic collaborations.
Legal Definition and Commercial Context
A brand licence is not explicitly defined under Indian statutes, but it’s recognised under Section 48 of the Trade Marks Act, 1999, which permits use of a registered trademark by a person other than the registered proprietor if such use is authorised. Though not mandatory, registration of the licence with the Registrar of Trademarks is advisable to establish legal enforceability.
From a commercial standpoint, this contract allows businesses to achieve:
- Market expansion without fixed capital investment;
- Leverage of brand equity in unrelated geographies or products;
- Temporary partnerships (e.g., promotional or seasonal campaigns);
- Licensing of character marks, stylised fonts, or logos without IP transfer;
Common Use-Cases in Indian Business Practice
In the Indian commercial context, such licences are particularly popular in:
- Food and beverage sector (e.g., local bottling or franchise bottling using licensed marks);
- Apparel and merchandise (licensed manufacture and sale of branded clothing);
- Media and entertainment (use of characters, logos in licensed merchandising);
- Hospitality (use of brand name by third-party hotel operators);
- Technology and consumer products (software interface marks, bundled branding).
These arrangements enable the licensor to retain legal control, protect reputation, and define exact brand usage terms through the brand licensing agreement.
Difference from Franchise or Assignment Models
A licensing agreement is distinctly different from a franchise or assignment:
| Legal Instrument | Ownership Transfer | Operational Control | IP Usage Scope | Revenue Link |
| Brand Licence | No | Low/Moderate | Specific use | Royalties |
| Franchise Agreement | No | High (via SOPs, controls) | Brand + Model | Fees & % |
| Assignment | Yes | Not applicable | Full IP rights | Lump sum |
While a franchise includes extensive operational control, brand licensing is primarily about regulated usage of a specific mark or identity. Similarly, an assignment permanently transfers all rights, unlike a trademark licensing agreement, which allows control over how and where the brand is used.
Essential Clauses in a Brand Licensing Agreement
An enforceable brand licensing agreement must go beyond boilerplate terms and outline detailed clauses that define scope, control, and accountability. These clauses must be aligned with the licensor’s brand protection needs, legal enforceability standards, and sectoral compliance norms. Below is a structured overview of the essential components most Indian contracts include.
Scope of License – Territory, Products, Exclusivity
This clause defines the boundaries within which the brand can be used:
- Geographic limits (e.g., India, South Asia, city-specific);
- Product lines covered (e.g., T-shirts, beverages, accessories);
- Nature of licence (exclusive, non-exclusive, or sole);
- Channels of distribution (retail, e-commerce, wholesale);
- Right to sub-license (allowed or prohibited).
Brand Usage and Quality Control Obligations
To protect the brand’s reputation, licensors must establish the right to monitor, approve, or reject how the mark is used. The clause may include:
- Approval rights over packaging, advertising, and marketing;
- Requirement to maintain quality consistent with the licensor’s brand;
- Periodic sample inspections;
- Prohibition on altering the mark, resizing, or combining with other logos;
- Requirement to use the trademark symbol (™ or ®).
Courts have held that failure to supervise brand usage can weaken the licensor’s claim in enforcement actions, especially in the context of trademark licensing agreement cases.
Consideration and Royalty Structure
The commercial component of a licensing agreement for brands in India usually includes:
- Upfront fees (sometimes refundable, sometimes not);
- Ongoing royalty, flat fee, or percentage of sales;
- Minimum guarantee amount payable annually;
- Manner and frequency of reporting sales (monthly, quarterly);
- Right to audit or review licensee’s books.
Licensees are typically required to furnish sales reports, and royalty obligations often survive the term in case of unpaid dues.
Term, Renewal, and Termination Rights
The term, renewal and termination clause defines:
- Initial duration of the licence;
- Auto-renewal terms (if any);
- Events that trigger termination (breach, insolvency, non-payment);
- Notice periods for ordinary termination (30–90 days typically);
- Consequences of termination (return of inventory, marketing recall, etc.).
These details ensure both parties know what happens when the relationship ends.
Representations, Warranties, and Indemnity
Licensors usually warrant that they own the trademark, that it does not infringe third-party rights, and that they have full authority to grant a licence. Licensees may be required to warrant that:
- They will not misuse the mark;
- They will not register similar names or marks;
- They will not make claims of ownership.
Indemnity is typically mutual but weighted towards protecting the licensor. For example, a misuse that causes consumer litigation will be indemnified by the licensee.
Trademark Registration and Validity Checks
Before entering into a licensing agreement, licensors must ensure that:
- The trademark is duly registered with the Indian Trademark Registry (or an application is pending with published status);
- There are no third-party objections or pending oppositions.
- The class of goods/services corresponds to what is being licensed.
- The registration is in the licensor’s correct legal name;
- Renewal timelines are actively tracked and not lapsed.
Licensees should also conduct independent trademark searches and obtain representations from the licensor on the mark’s ownership and validity. This avoids potential third-party infringement claims.
Trademark Misuse and Enforcement Obligations
Brand owners are legally obligated to supervise how the mark is used. Under Indian jurisprudence, failure to monitor use by a licensee can weaken a licensor’s rights, including claims of goodwill or distinctiveness.
Therefore, a legally compliant contract must include:
- Routine sample audits or periodic reporting;
- Restrictions on mark resizing, colour alteration, or placement;
- Timelines for pre-approval of packaging and marketing;
- Clear provisions prohibiting sub-brands or co-branding unless specifically authorised.
If the mark is found to be used deceptively or in violation of the agreement, the licensor must be contractually empowered to issue a cease-and-desist instruction or terminate the contract. Courts have repeatedly favoured brand owners in India who demonstrate active quality control.
Recordal of License with IP Authorities (Optional but Advisable)
Section 49 of the Trade Marks Act, 1999, allows, but does not mandate, recording a licence agreement with the Registrar. While many skip this step, it can be beneficial when:
- The licensee is using the mark in public-facing products or packaging;
- Enforcement action is expected in the near term.
- The mark is being used by the licensee without the licensor being involved operationally.
- Third-party infringement needs to be challenged jointly by both parties.
Though not compulsory, recordal provides a legal trail and may strengthen the licensor’s position during disputes. It also helps rebut unauthorised use allegations.
Post-Termination Obligations and Inventory Clearance
A common oversight in even the most detailed licensing agreement is failure to address what happens when the contract ends.
The following aspects should be explicitly covered:
- Inventory clearance rights (whether the licensee can sell off unsold branded stock, and in what time frame);
- Requirement to destroy or delabel packaging bearing the mark;
- Termination assistance clause (handover of pending orders, data, marketing assets);
- Restriction on future use or derivative marks;
- Return of confidential material, design files, and advertising templates.
Most importantly, clauses should state whether any post-termination royalties are payable (e.g., for sold-off inventory), and what audit/reporting rights the licensor retains during the winding-down period.
Sample Clause Structure (Illustrative Only)
Example: Grant of License
“The Licensor hereby grants to the Licensee a non-exclusive, non-transferable, and non-assignable licence to use the Trademarks listed in Annexure A solely for the purposes of manufacturing, distributing, and marketing the Licensed Products within the Territory, and during the Term, by the terms set forth herein.”
Example: Royalty and Reporting
“In consideration of the licence granted herein, the Licensee shall pay the Licensor a royalty of 6% (six percent) of Net Sales Revenue every quarter, along with a detailed statement of sales certified by a Chartered Accountant. The Licensor shall have the right to audit the Licensee’s relevant records upon 15 (fifteen) days’ prior written notice, not more than once per financial quarter.”
Example: Quality Assurance
“The Licensee shall ensure that the Licensed Products bearing the Trademarks shall be manufactured and marketed by the Quality Standards mutually agreed upon and appended as Annexure B. The Licensor shall be entitled to inspect the Licensed Products, packaging material, and advertisements at reasonable intervals to ensure compliance with the agreed standards.”
Example: Term and Termination
“This Agreement shall remain valid for three (3) years from the Effective Date, unless terminated earlier by the provisions herein. Either Party may terminate this Agreement upon sixty (60) days’ prior written notice for convenience. Immediate termination shall be available in the event of material breach, insolvency, or regulatory action affecting the Licensed Products.”
Legal Risks and Drafting Guidelines
Even the most detailed sample brand licensing agreement can expose parties to serious legal and financial risk if certain structural safeguards are not built into the contract. In India, where the jurisprudence on brand licensing continues to evolve, enforceability depends not only on the legal wording of the document but also on the business realities surrounding usage, control, and compliance.
Licensors often underestimate the scope of risk in commercial exploitation of their IP. Similarly, licensees, particularly smaller entities, may not fully grasp the obligations tied to usage rights. An effective license contract must not only provide clarity but also offer contingencies for breach, misuse, and structural failure.
Over-Licensing and Brand Dilution
One of the most common legal missteps in Indian brand contracts is over-licensing. When a brand is licensed too widely, across geographies, unrelated products, or overlapping licensees, it can result in:
- Loss of distinctiveness in the market;
- Trademark cancellation for non-use or misuse;
- Confusion among consumers, leading to reputational damage;
- Increased risk of counterfeit or unauthorised products;
- Internal conflicts between licensees (pricing, discounting, channel overlap).
This is especially risky in industries where brand equity is driven by perceived exclusivity, such as luxury products, food, and personal care. Any robust brand licensing agreement must include exclusivity boundaries, sectoral caps, and protections against dilution.
Lack of Audit and Reporting Clauses
In practice, disputes often arise not due to malicious intent but because of unclear financial tracking. A weak audit structure or vague reporting schedule can undermine royalty enforcement. To avoid this, your contract should specify:
- Minimum sales thresholds or guaranteed royalty slabs;
- Timeline and format of periodic reports (monthly/quarterly);
- Access rights to financial records and sales data;
- Obligation to maintain proper books for licensed SKUs;
- Process for reconciling under-reporting or excess claims.
SEBI-listed entities in particular should ensure that reporting under such licensing agreements aligns with their accounting disclosures.
Issues in Sublicensing and Assignment
A neglected clause in many drafts is the prohibition, or structured permission, of sublicensing. A licensee may sometimes want to delegate part of the brand’s usage to a contract manufacturer, distributor, or marketing agency. But if unchecked, this could cause:
- Uncontrolled third-party use of the brand;
- Weakening of the licensor’s legal position;
- Disputes about liability for sub-agent misconduct;
- Multiple usage chains without clear accountability.
It is advisable to state in clear terms whether sublicensing or subcontracting is allowed, and if so, under what conditions. Similarly, assignment or transfer of the licence itself, e.g., if the licensee is acquired, must be pre-approved in writing. In some cases, registration of license changes may be required under a trademark licensing agreement, especially if recordal has been completed.
Enforceability of Restrictions Under Indian Contract Law
A unique challenge in Indian law is the interplay between IP protection and the Indian Contract Act’s general bar on restraints of trade. While the Trade Marks Act permits certain controls on how a mark is used, any absolute restriction, such as a clause that prevents the licensee from operating in the same industry after expiry, may be struck down under Section 27 of the Contract Act.
This affects the enforceability of:
- Non-compete clauses post-termination;
- Indefinite gag orders on marketing material;
- Blanket clauses restricting price setting or distribution control;
- Clauses that penalise breach without actual loss assessment;
Therefore, when drafting an agreement, businesses must carefully structure restrictions, ensuring they are specific, time-bound, and proportionate to protectable interests.
Table: Common Drafting Errors and Their Legal Consequences
| Drafting Gap | Potential Consequence |
| No royalty audit mechanism | Under-reporting of usage or revenue |
| Overlapping license territories | Conflicting rights, market dilution |
| No control over marketing content | Misuse of brand image, consumer deception |
| Unclear termination protocol | Inability to block unauthorised continued usage |
| Leakage of brand strategy, designs, and pricing | Leakage of brand strategy, designs, pricing |
Conclusion
The increasing commercial value of trademarks and consumer-facing brands has made licensing agreements for brands in India a strategic business tool. Whether for growth, diversification, or co-branding partnerships, licensing allows brand owners to monetise goodwill while retaining ownership. But the legal exposure it creates, for both licensors and licensees, can only be mitigated through rigorous drafting and well-negotiated clauses.
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