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Red Tape, Royalties, and Risk

The first part of this article was published in the July issue of Insights. It defined copyright, trademark, and licensing; explained why you have to get permission to use someone else’s trademark; which companies should seek licensing agreements; who oversees licensing; and how you apply to become a licensee.

Red Tape, Royalties, and Risk

Trademark Licensing Is Worth the Paperwork Because It Puts You on the Right Side of the Law

This is the second half of a piece on logo licensing.

The first part of this article was published in the July issue of Insights. It defined copyright, trademark, and licensing; explained why you have to get permission to use someone else’s trademark; which companies should seek licensing agreements; who oversees licensing; and how you apply to become a licensee.

This month, Sam Varn, CRM, explains what to expect as a licensee.

These articles are based on “Logo Licensing for the Personalization Industry,” presented by Varn at the 2017 International Awards & Personalization Expo in Las Vegas, NV. Members can read the first article in the July 2018 Insights at awardspersonalization.org/InsightsMagazine/Issues. The complete recording of Varn’s session is available for purchase at www.AwardsPersonalization.org/store.

By Sam Varn, Awards4U

You’ve gone through the arduous process of applying to become a licensee. If you’re approved, you aren’t free and clear to use their trademark as you see fit, and that application isn’t the last paperwork you’ll be filling out for the trademark’s owner.

Design Approvals

When you’re a licensee, the trademark owner has to approve your designs. The level of ongoing oversight may depend on the length and quality of your relationship with the organization you’re a licensee of. For a short time, Florida State University told me that my store, Awards4U, needed to have every single plaque OK’d by their on-campus licensing person. There were literally hundreds of plaques. We complied.

After a few weeks of getting exactly what they’d asked for, the woman told us to please stop sending the plaques for approval; it was too much for her to get through! Instead, she said she’d spot check them once in a while. We earned some leeway from the official rule. Why? We were producing with consistency and quality, and we were complying with all requirements.

Design approval takes time. Licensing may take a week to approve a design, but the person who ordered it may need the finished product in a week.

Sometimes we take a big risk by producing the product while the design is being approved. That’s a risk because any pieces decorated with that design will have to be thrown away if the design is rejected; they can’t be sold to the client or even given away.

You have to judge whether the risk is worth it. I wouldn’t start production on an order for 100 crystal bowls until I get final approval, because that’s too big of a financial hit if the design is rejected.

Royalty Payments

As a licensee, you’ll pay royalty payments or royalty fees to the license holder. This requires detailed paperwork from you.

You can’t just say, “I sold 100 products with your logo, so that’s $120 for you.”

You have to document everything, including:

  • customers’ names
  • items sold
  • the breakdown of fees including setup, design, etc.
  • how the logo was used (embroidered, engraved, etc.).

You usually pay royalties on all fees except for shipping and sales tax. New requirements can pop up, running afoul of your store’s normal procedures. One licensing group has a new system that mandates we use a unique identifying number for each design we submit and to include those numbers with each report. This makes cross-reference easy for them, but required us to overhaul our system to add their numbers for everything.

You also may be required to use certain labeling to identify your licensed products as being licensed and therefore legal. Examples include the hologram stickers used on collegiate items or hang tags for apparel.

Repercussions

If you cross that line and decide to produce unlicensed products that violate trademark, what happens? First, you get a cease-and-desist letter. It might be firm but polite; it might be nasty. Stop using the trademark or apply to be a licensee.

If you decide to continue violating the law, they can file a legal injunction to make you stop. You’ll face a civil lawsuit and stop order. You can have your products seized and destroyed and have to pay damages and legal fees. Licensing is very serious. Don’t wait for a cease-and-desist letter to show up.

What You Can Do

If a customer comes to you with a logo or other trademark, even the logo of the company they work for, ask them “Are you licensed for this?” or “Can you grant me permission to use this?”

Your customer will say yes, of course.

Ask them, “Can you provide me with proof to protect me legally? Because I’m not licensed with this organization, and I’d like to be able to produce this for you.” (Don’t provide a form. Ask them to supply documentation.)

You could offer to investigate who can give permission and to seek permission for one-time use, but your customer may be frustrated about the delay and take the order to a store that doesn’t care if it’s legal or not.

That’s frustrating, but I promise you it isn’t as frustrating as watching your products, profits, time, and money destroyed by a trademark-infringement lawsuit.

Sam Varn, CRM, has been in the awards industry since 1975, working first for a large retailer in Tampa, FL, before buying what was then Tallahassee Engraving and Awards in 1987. His rebranded Awards4U now is among the largest in the United States. Varn is active in his community in many ways and deeply immersed in the recognition industry. In the Awards and Personalization Association, he has lent his expertise to many committees, multiple terms of service as a board member, and a term as president. Twice named Speaker of the Year by the Awards and Personalization Association, Varn was inducted into the association’s Hall of Fame. He educates other industry members and anyone who will listen about the value of recognition in our society. A progressive business owner who doesn’t know the meaning of status quo, Varn pushes his company to be the best it can. Through his expertise and drive, Varn has grown his business from a two-employee shop to a multimillion-dollar operation that sells around the world.

Awards and Personalization Association

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