Brand & Trade Mark Licensing

By: Stuart Whitwell
Intangible Business

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We can define licensing as a commercial activity that involves the temporary transfer to a third party of the right to use a name, image, brand or logo which has been officially registered and which is protected by law. Upon compensation payment of a royalty, this right can be ceded to product manufacturers, service companies or firms wishing to use it for advertising or promotional activity.

The earliest examples of licensing date back to the beginning of the 1900’s and involved cartoon characters such as Buster Brown. Walt Disney characters (Mickey Mouse above all) along with Charlie Brown and Snoopy from "Peanuts". However, the real licensing explosion took place in the 70’s and 80’s both in terms of growth and in terms of its professional, conceptual and geographic evolution.

Licensing is an extensive topic which we are unable to cover in detail in this short overview. However we have provided some case studies on the following pages which demonstrate how successful companies have used licensing within their strategic brand management programs.

Corporate & Character Licensing 

Licensing actually refers to two distinct branches which are difficult to group under the same umbrella. Corporate licensing occurs when a corporation decides to grant a license to use a brand for completely different product categories to those associated with the brand. Such licensing takes place when the corporation’s own brand has achieved a certain level of recognition over a period of time and product awareness is high. Some well-known examples might include Ferrari lighters with the small yellow horse on a red background, and Coca-Cola beach towels.

On the other hand, we refer to character licensing when a person has become well-known or when someone has created a well-known character. They grant a license which allows their image or name to be associated with a certain product/service.

As can be seen from the success and proliferation of such activity, licensing is becoming a fundamental strategic marketing tool, not only to defend and strengthen Brand Equity but also to expand commercially. From a communications point of view, the advantages for the company granting the license, in addition to the obvious financial ones, are:

• Increased product awareness and financial profit at no extra cost. It is the licensee’s job to invest the resources necessary to gain positive results from the activity.
  

• The opportunity to reach a broader target insofar as the name is used in different sectors to the original positioning.
  

• The opportunity to reach an international target when the name is used in countries where the licensor was not previously represented.

Internal Licensing 

As well as playing a role in commercial relations between companies and third parties, the importance of internal licensing cannot be ignored.

An internal license – where a licensee is a subsidiary or associate company – arises because the user of the trade mark or license will not necessarily be the owner. One of the key drivers for the growing trend of internal licensing is the desire to understand and measure profit contributions from different geographical and business divisions.

A few leading edge companies are now taking the issue of internal licensing so seriously that they are creating central trade mark holding companies. The most famous example of this is Nestle who own much of their intellectual property centrally in Switzerland. The intellectual property is then licensed to the subsidiaries around the world who are charged for the use of the trade marks, patents and licenses.

Conclusion 

Licensing is here to stay. Intellectual and intangible assets, such as brands, trademarks, patents, and know-how, represent the industrialized world’s most under-valued group of assets.

Beyond the obvious trends such as expanded global marketing; an increasingly competitive environment; and a growing awareness that protection of these valuable assets is critically important, there are other corporate reasons that explain why there is increasing emphasis on intellectual and intangible assets. These include pressures to maximize financial returns within companies and within business units, along with the realization that there is an under-utilization of corporate assets (tangible and intangible).

As a whole, the US is approaching half a trillion dollars in licensing sales revenue annually. In the area of trademark licensing alone, growth has been explosive in the US, Europe and Asia. In 1968 retail sales of products using a trademark license amounted to approximately $8 billion; in 1998 that figure was estimated to be between $130 billion and $150 billion for the global market.

Today there are literally thousands of different properties available as licensing opportunities. Manufacturers of every consumer product category imaginable are producing licensed product lines, and there is virtually no retail establishment foolish enough to turn its back on these opportunities: Licensing indeed has become big business.

Proctor & Gamble Step Up Licensing for Brands & Technology 

Most people traditionally think of P&G as a marketing company when in fact they could be equally considered a technology company as they own over 27,000 patents, in addition to their many world-famous brands.

And after shunning licensing for decades, P&G has recently decided its package-goods brands are flexible enough for such categories as children’s clothes and hair dryers. It has also implemented a policy whereby its patents should be either actively developed or sold.

P&G leads other package-goods companies with its active patents and ranks in the top 25 of all companies in patents received. But it uses fewer than 10% of those patents in its products and spends more than $50 million a year just to maintain them, an expense expected to increase to $200 million by 2005.

P&G’s licensing efforts are part of a long-term plan to make better use of the company’s intellectual property. And, in the case of brand licensing, the goal is more to build brand equity than pick up spare change. In 2000, the P&G licensing department licensed the Physique haircare brand for hair accessories and appliances; Pampers for children’s clothes; Cover Girl for eyewear; and Mr Clean for household gloves.

Besides getting more return out of its unused patents and brand extensions, another motive behind P&G’s technology licensing push is to spur faster product development.

Under a “use it or lose it” policy adopted in 2000, P&G patents became fair game for the licensing department within five years of invention or three years of use in a P&G product. Many of those patents are now posted on Yet2.com, a technology transfer site launched in 1999 with P&G as a charter member. No longer do they simply compete with competitors on the outside, they are now competing with their own technology, as it causes them to ‘run faster to stay ahead’.

“Use it or lose it” has another connotation for P&G trademarks. When P&G discontinued its White Cloud bath tissue brand in 1993, another company, Paper Partners, staked claim and ultimately licensed the brand to Wal-Mart Stores as a premium private-label for bath tissue and diapers, competing against such P&G brands as Charmin and Pampers.

The risk isn’t just for discontinued brands. Existing brands that don’t license trademarks into new categories can also risk opening the door for other companies to do so. That was one factor that drove Coca-Cola into licensing in 1980 as a defensive maneuver. Lawyers advised Coke that if it did not go into the T-shirt market itself, someone else legally could. Coke responded by setting up a licensing program, and it now licenses its flagship brand to more than 320 companies for more than 10,000 non-beverage items.

In the future, when P&G plans to sell or discontinue a brand, it will also consider licensing it for private label, though the main thrust of trademark licensing will always be to build brands which P&G plans to keep. Their mantra is that there are no sacred cows, and that they will consider anything that builds their value and value for their retailers.

IBM Trademark & Patent Licensing 

Many companies have numerous patents. In most cases, they are not treated as carefully as capital equipment or inventory. Additionally, most companies are developing only a small percentage of the patents they do have. But good management means estimating and maximizing the value of patents, and doing something with the ones you decide not to develop.

IBM is the world's largest information technology company, as well as the world's largest business and technology services consultancy (2001 sales of $35 billion); the world's largest hardware company (2001 sales of $33 billion) and I/T rental and financing company (2001 sales of $3.4 billion).

In 2001, Business Week ranked IBM the third most valuable brand worldwide, after Coca-Cola and Microsoft.

In 2001, for the ninth consecutive year, IBM received the most U.S. patents over any other company -- 3,411 U.S. patents -- nearly a 20 percent increase over 2000. IBM owns nearly 37,000 patents worldwide, including 20,000 in the U.S. When Lou Gerstner came to IBM in 1993, he saw that thousands of patents weren't being developed, and only $30 million per annum was being collected in licensing revenue.

He declared that they should either be sold or licensed!

At first, that pronouncement caused antagonism. But the proof has been in the pudding, and the critics have been silenced. IBM's licensing of patents, trademarks and technologies generated more than $1.5 billion in royalty income in 2001 – this represents close to 15% of IBM's pretax income.

Automakers Finding New Cash In Brand Licensing 

There isn’t a back-street boutique worth its weight in knockoffs that isn’t selling sweatshirts, t-shirts, or other items, featuring bootleg automotive logos.

Ever aware that such imitation is the foulest form of merchandising, automobile manufacturers have started publishing their own glossy catalogues, opening their own expensive boutiques and licensing their own sacred emblems to some of the world’s most respected producers of memorabilia and collectibles.

Ferrari, for example, gives Asprey of Bond Street, the right to make hallmarked and hand-beaten silver models of its race cars, for about $75,000 a piece. The company also allows Girard-Perregaux to make its chronograph watches, and Schedoni of Italy is licensed to make fitted, matching pigskin luggage for the trunk of the Ferrari 550 Maranello.

In fact, Ferrari acknowledge about 50% of its $28 million profit in 1998 came from licensing its name, badge, and prancing Italian stallion logo. At Ferrari, they call it “solde trovati” – “found money”.

Land Rover is another company that has taken its name into a range of product categories, including outdoor clothing, an ‘adventure kit’ for children, and a range of watches. Most striking of all is an ‘all-terrain pushchair’, retailing at $750 in the US, and designed, as are the Land Rover vehicles, for off-road use as well as high streets.

American companies like General Motors (GM) began to realize in the 1980s that many of their own brands had additional value. At this time, only one company in 10 bothered with brand-extension licensing. Now, 65% of FORTUNE 500 companies have licensing agreements.

However in the 1980s, GM was spending $2 million to $3 million a year fighting trademark infringement cases, trying to rid the market of unauthorized Chevy baseball caps and Corvette T-shirts. That's when it hit the company that it would be easier - and more profitable - for the automaker to meet the obvious market demand for those goods itself by licensing its brands to handpicked manufacturers. Today, GM has more than 1,200 licensing agreements generating annual revenues of $1.1 billion.

   DOWNLOAD PDF: Brand & Trade Mark Licensing

About Stuart Whitwell:
Brand strategy valuation projects

• Logistics, Electronics, Pharmaceuticals – US Internal Revenue Service

• Retail and furniture brands – MFI

• Utilities – Norweb and npower

• Postal Services – Royal Mail, Post Office

• Media – Guardian

• Telecoms – BT, Bell Canada and Infostrada

• Banking – Network Banking and SEB

• Building and construction – Blue Circle

AbsoluteBRAND's European Partner
About Intangible Business

Intangible Business is a London-based consultancy, with extensive experience in valuing and managing brands, businesses, patents and other intellectual property. 

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http://www.intangiblebusiness.com