Trademark Licensing: A Brand Owner's Guide for August 2026

Trademark licensing is an option for businesses to grow their revenue, expand their brands, and reach new markets while avoiding many common costs and risks. If well executed, trademark licensing can lay the groundwork for international expansion without needing to immediately scale in-house operations.

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Also known as brand licensing, trademark licensing is a legal agreement that allows trademark owners to allow third parties to use their trademark as licensees in exchange for a fee. The trademark owner retains ownership of the trademark, while effectively “renting” it out to the licensee. 

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In this article, we will cover the basics of trademark licensing, its different types and terms of licenses, main benefits for both parties, and how brands can mitigate the associated risks.

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TL;DR

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• The global brand licensing market reached over $300 billion in retail sales in 2025, with royalty rates typically running 5 to 15% of wholesale sales.
• Licensing lets you enter new markets and diversify your customer base without scaling in-house operations or absorbing expansion risk directly.
• Choose between exclusive, non-exclusive, and restricted licenses based on how much IP control you need versus how much revenue you want to generate.
• Naked licensing is the highest-stakes risk: failing to actively monitor how your licensee uses your mark can result in courts deeming your trademark abandoned.
• Build every agreement around five non-negotiables: a precise grant clause, locked payment terms, quality control provisions, performance benchmarks, and clear breach remedies.

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Benefits of Brand Licensing

Licensing presents a potentially huge win-win for trademark owners and licensees alike. The global brand licensing market generated over $300 billion in licensed product retail sales in 2025, making it one of the most powerful vehicles for brand-driven revenue. Royalty rates in licensing agreements typically range from 5% to 15% of wholesale sales. The exact figure varies by industry: consumer goods tend toward the lower end, while entertainment and character licensing can command higher rates. For the trademark owner, there are a number of key benefits to building the partnership that range from providing direct and immediate benefits to contributing to long-term business development.‍

Revenue

Generating revenue is one of the most direct benefits for the licensing brand. It provides a relatively passive additional income stream for them, while usually incurring zero additional costs, as the partnering business handles most of the new operations.

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Income from licensing agreements can come in a few different models for the brand, such as: 

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Upfront payments: In this model, the licensee pays the brand an upfront payment in exchange for the right to use the trademark, usually made in annual or monthly installments.

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Royalty fees: Here, the licensee pays the brand a royalty fee from a percentage of the sales made from the goods or services sold under the trademark. Royalty fees are widely used in trademark licensing, making them a common starting point for revenue discussions.

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Minimum guaranteed payments: The licensee may also agree to make minimum guaranteed payments to the trademark-owning brand, regardless of the sales of the goods or services that are sold under the trademark. This can help to protect the brand from losing money if the licensee is not successful.

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Expanding into New Territories

Growing the business into new regions offers long-term benefits for the licensor, beyond immediate revenue generation. 

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By choosing the right foreign licensee, a brand can use this partnership to sell in new geographic markets while minimizing the risks usually associated with geographic expansion. 

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Taking a brand that's well-known in one country and expanding into another doesn't automatically guarantee success. There are a lot of factors that can differ from the original market, like differences in culture, audience, and laws.

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Working with a licensee in the new target market allows the brand to test the waters without major investment. This can also set the groundwork for a full brand-led expansion in the future, as the business will have a better understanding of the local market and its customers by that point, and may benefit from having digital brand protection strategies in place before scaling further.

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Case Study: McDonald's vs Domino's in Italy

Italy is a country with an incredibly rich culinary heritage, and it's developed a track record for resisting foreign fast food businesses developing within its borders. In the 2000s, McDonald's and Domino's Pizza set out to win over Italian taste buds, resulting in vastly different outcomes.

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To ingratiate themselves with particular Italian palates, McDonald's introduced a lineup of healthier options, including fresh salads and pasta bars. This adaptation to their menu was the biggest factor to McDonald's growing popularity among Italians, instantly raising the brand's status. 

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McDonald's also acquired the Italian chain Burghy, and developed a strategic partnership with Italian oil giant Agip, which paved the way for McDonald's to set up shop at gas stations across the country. 

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While it hasn't eclipsed traditional Italian eateries, McDonald's has firmly planted its golden arches in Italy, thriving on its reputation for offering fast food that actually meets the demands of the local consumers. 

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In stark contrast, Domino's Pizza found itself retreating from the very heartland of its flagship product. Domino's had initially set its sights high, with ambitious plans to open nearly 900 outlets across Italy by 2030. 

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While McDonald's savvily adapted their products, at Domino's, pineapple-topped pizzas were on the menu. The topping's popularity is somewhat controversial in most countries, but downright blasphemous in Italy. 

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Domino's only managed to open 29 branches in the country, all of which were eventually shuttered. The franchise holder, ePizza, filed for bankruptcy in April 2023, signaling the end of its Italian expansion. 

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These cases reveal the distinct paths of two global giants and the importance of local understanding when expanding a business internationally. While McDonald's succeeded in adapting its menu and strategy to become a favorite spot, Domino's couldn't crack the secret sauce. 

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The McDonald's journey showcases that even in a land renowned for its culinary prowess, a well-crafted strategy rooted in local sensibilities can lead to triumph. Meanwhile, Domino's exit confirms that merely expanding into a region where your product is already popular doesn't guarantee success in any way.

Diversifying by Product and Customer

Trademark licensing can also allow the brand to diversify their business in other ways beyond expanding geographically.

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Partnering with the right licensor can lead to diversifying the product, by applying the trademark and other branding to a whole new set of products. There’s also the option of vertical integration, wherein the brand expands into the upstream or downstream parts of the supply chain.

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Licensing can also connect the brand with a whole new customer base by adapting the product or service to a new audience. 

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In the fashion industry, collabs are likely the most successful incarnation of this type of licensing agreement right now. Older, long-standing brands may struggle to catch the attention of younger audiences, particularly with fashion-conscious Gen Z. 

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A collab in the form of a trademark licensing agreement with an in-vogue fashion label can help bring the attention and approval of a new generation of customers.

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Case Study: Minecraft x Burberry

Take a look at the Minecraft x Burberry partnership as an example of how completely unrelated brands can find value in each other.

Through the in-game adventure, "Burberry: Freedom to Go Beyond," Minecraft developed a pixelated rendition of London adorned with Burberry motifs, bringing together the worlds of high fashion and videogames. The designs were also brought to life as part of a limited edition collection, with physical and digital creations made to mirror each other.

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This strategic partnership connected Burberry with existing Minecraft players and introduced the brand to a new digital audience. The collab was so successful that it won the 2023 Licensing International award for Best Collaboration: Fashion, Accessories & Footwear

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There's immense value in developing creative and unexpected brand collaborations. Brands should take inspiration from this partnership to consider their options of crossing traditional boundaries for their brand licensing agreements.‍

Benefits for the Licensee

There are a number of benefits for the licensee that make this partnership mutually beneficial. 

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Licensees can benefit from the awareness and reputation associated with the trademark owner's brand. This allows smaller retailers to set up shop more quickly than otherwise possible, drawing on an existing brand to accelerate directly to making sales. 

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Franchising is a very common method of licensing available to smaller entrepreneurs. After the initial investment, there's a much lower risk compared to starting an entirely new business from the ground up, as the brand is already recognized and known in the market.

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The explosion of fast food restaurant franchises over the past few decades is clear proof of the success of this method.

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For larger companies operating as the licensees, paying to use a trademark can help expand product portfolios and reach new audiences of customers. Using the licensor’s trademark can often provide the spark needed to start accelerating growth, or to tread new waters.

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Types of Brand Licensing Agreements

Let's now look at the different types of brand licensing agreements available to businesses. Every license agreement involves many elements, but two decisions stand above the rest. 

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These primary options license agreement types relate to exclusivity and restriction, determining who has access to the IP and how the licensor can use the IP, respectively. ‍

Exclusive and Non-exclusive Licenses

The difference between exclusive and non-exclusive licenses refers to which third parties have access to the licensor's IP.

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In an exclusive license, the licensee is the only party that can use the trademark for those goods or services. No other party, often including the licensor, can use the trademark for those goods or services without the licensee's permission. 

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In a non-exclusive license, the licensor can also grant licenses to other parties. The licensee is not the only party that can use the trademark for those goods or services, but they may be the only party that can use it in the way that is specified in the license agreement. ‍

Restricted and Unrestricted Licenses

The licensor can also restrict the licensee's use of the trademark in some way by using a restricted license. This allows the licensor to retain a lot more control over their IP, while still bringing in some revenue from it.

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To give some examples of restrictions, the licensor may authorize the licensee:

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• to only use the trademark in a specific geographic area. 
• to only use the trademark for a specific product. 
• to meet mandatory quality standards. 
• to avoid using the trademark in connection with other marks
• to only engage in marketing and advertising in approved ways

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In an unrestricted license, the licensee has the right to use the trademark in any way that they see fit - or, at least, within a much greater scope. The licensor can still impose certain restrictions on the licensee's use of the trademark, such as requiring the licensee to use the trademark in a way that is consistent with the licensor's brand standards.

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Note that sole licenses, where both the licensor and a single licensee share rights, represent a middle ground between exclusive and non-exclusive arrangements that is often overlooked but can suit long-term strategic partnerships.

How to Decide Your License

There are countless factors that come into play when deciding what type of license to use. Particularly for newer businesses, this decision may not be an easy one. 

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If you are looking to protect your brand from unauthorized use, then a restricted license may be a good option. This will give you the most control over how the trademark is used and limit the number of parties using it. This will also help to avoid trademark infringement and naked licensing, which we’ll cover in the next section.

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The downside of this is that it's likely to limit the amount of revenue the partnership will bring in, compared to the alternative options. Licensees always prefer greater freedom, so they pay more for unrestricted licenses. So it's up to the licensor to consider the balance between control and revenue.

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The best way to decide which type of license to start with is to consider your specific goals and objectives. If you are not sure which type of license is right for you, we suggest you consult an attorney or trademark licensing expert for bespoke advice.

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Key Elements of a Trademark Licensing Agreement

Every trademark licensing agreement is different, but the most effective ones share a common set of core provisions. Understanding each element (and what happens when one is missing) helps both parties negotiate with confidence and avoid costly disputes down the line. For a broader overview of how trademark licenses fit within IP assignment frameworks, WIPO's IP licensing guidance is a useful authoritative reference.

Grant Clause

The grant clause defines exactly what rights the licensee receives: which trademarks are covered, for which goods or services, and in which territories. Getting this right upfront prevents scope creep and unauthorized use. A vague grant clause is one of the most common sources of infringement disputes, so specificity here is non-negotiable.

Payment Structure

Payment terms typically combine upfront fees, ongoing royalty payments, and minimum guaranteed amounts. Royalty rates generally range from 5 to 15% of wholesale sales, though the exact figure depends on the industry, the strength of the trademark, and the exclusivity granted. Minimum guarantees protect the licensor from earning nothing if the licensee underperforms.

Duration and Renewal

The agreement should state how long the license runs and under what conditions it can be renewed or terminated early. Most agreements include performance benchmarks: if the licensee fails to hit agreed sales targets, the licensor retains the right to exit the deal. Clear termination conditions protect both parties from being locked into an unproductive arrangement.

Quality Control Provisions

The licensor must maintain active oversight of how the trademark is used, both as a business preference and as a firm legal requirement. Without it, the agreement risks crossing into naked licensing, which can result in the licensor forfeiting their trademark rights entirely. Quality control clauses typically require the licensee to submit product samples, sales reports, and marketing materials for approval on a regular basis.

Breach and Termination Remedies

The agreement must specify what happens if either party violates its terms. For the licensor, remedies typically include the right to terminate immediately, seek injunctive relief, and claim damages for unauthorized use. For the licensee, protections might include cure periods (a defined window to correct a breach before termination takes effect), preventing the licensor from pulling the agreement without fair warning.

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How to Set Up a Trademark Licensing Agreement

Getting the setup right from the start is what separates a profitable licensing partnership from a costly legal dispute. Follow these five steps to build a solid foundation.

Step 1: Identify and Vet Potential Licensees

Before signing anything, conduct thorough due diligence on any prospective licensee. Review their financial stability, business track record, and reputation in the market to confirm they're a reliable partner. Equally important is market fit: a licensee with a strong presence in your target territory or product category will accelerate growth far more effectively than one who's starting from scratch.

Step 2: Define the Scope of the License

Clearly specify which territories, product categories, and distribution channels the license covers. You'll also need to decide on exclusivity: whether you're granting an exclusive, non-exclusive, or restricted license, each of which carries different implications (see the Types of Brand Licensing Agreements section above). A precise scope clause prevents unauthorized use and removes ambiguity before it becomes a dispute.

Step 3: Negotiate Commercial Terms

Agree on the full payment structure upfront: royalty rates, minimum guaranteed payments, and the payment schedule. Royalty rates typically range from 5 to 15% of wholesale sales depending on the strength of your trademark and the exclusivity granted. Locking in minimums protects you from earning nothing if the licensee underperforms.

Step 4: Draft the Agreement with Legal Counsel

Always engage an intellectual property attorney to draft or review the final agreement. Pay particular attention to quality control clauses: without active oversight of how your trademark is used, you risk crossing into naked licensing, which can result in forfeiting your trademark rights entirely (covered in detail in the Risks section below). Clear breach and termination provisions protect both parties if the relationship breaks down.

Step 5: Monitor and Enforce Compliance

Signing the agreement is the beginning of the obligation, not the end of it. Require regular product samples, sales reports, and marketing materials from the licensee to verify they're meeting your brand standards and staying within the agreed scope. If you identify a breach, act promptly, whether that means issuing a cure notice, escalating to formal enforcement, or terminating the agreement.

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Licensing Risks to be Aware of

As with everything in business, trademark licensing brings risks along with its opportunities. There are general risks that you'll find with any agreement with another business, like finding the right partners, deciding on price, making sure the written agreements are clear, and so on.

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Licensing agreements have two major risks that stand out, and they both involve the licensor's intellectual property. Being an agreement that grants a third party access to a brand's IP, it's critical that control over that IP is never lost.

Trademark infringement

Brand licensing agreements can also lead to trademark infringement if the licensee uses the trademark in a way that is not authorized by the agreement.

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There are a number of ways a brand licensing agreement could cause trademark infringement. Namely, if the licensee uses the trademark:

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• on goods or services that are not authorized by the agreement.
• in a geographic area that is not authorized by the agreement.
• in a way that is not consistent with the licensor's brand standards.
• in a way that is likely to confuse consumers.

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To avoid trademark infringement in a brand licensing agreement, it's important to carefully review the agreement before signing it, ideally with the support of an intellectual property attorney. Make sure that the agreement clearly defines the ways in which the licensee is authorized to use the trademark, and frequently check in with the licensor to confirm the agreement is being adhered to.

Naked Licensing & Quality Control

One of the most important elements of a successful licensing agreement is quality control. As a business gives some of its IP rights to a third party, it needs to be sure their IP won't be mishandled. It still functions as the mark of their brand, so improper use can lead to major problems.

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Naked licensing is quality control mismanagement taken to the extreme. So much so that it can lead to the business forfeiting their trademark rights entirely. 

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Failing to monitor the use of your trademark can be costly. If you don't keep tabs on how your trademark is being used, it could fall to trademark dilution or even to trademark abandonment. 

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To avoid this, trademark owners often include a clause in their licensing agreements that requires the licensee to periodically send samples of products marketed under the trademark to the licensor, along with reports detailing the types of products being used with the mark. Teams managing multiple licensees often turn to brand protection software to systematize this monitoring at scale. 

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Frequently Asked Questions About Trademark Licensing

What is the difference between trademark licensing and franchising?

Franchising is a specialized form of trademark licensing where the licensee also adopts the franchisor's entire business model, including operations, branding, and support systems. Standard trademark licensing only grants rights to use the mark itself.

How much does a trademark license typically cost?

Royalty rates typically range from 5% to 15% of wholesale sales, depending on the industry and brand strength. Some agreements also include upfront fees or minimum guaranteed payments.

Can a trademark owner lose their trademark through licensing?

Yes, through a concept called naked licensing. If a licensor fails to maintain quality control over how a licensee uses the mark, courts may deem the trademark abandoned, causing the owner to forfeit their rights.

Do trademark licensing agreements need to be in writing?

While oral agreements can be legally binding in some jurisdictions, written agreements are strongly recommended because they clearly define the rights and obligations of each party and are far easier to enforce.

What industries use trademark licensing most commonly?

Brand licensing is especially common in fashion, entertainment, consumer goods, sports, and food and beverage. Franchising within fast food is one of the most visible examples globally.

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Conclusion

Trademark licensing can be a great way for businesses to grow their revenue, expand their brands, and reach new markets. 

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However, it's not something brands can sign and forget about. It's important to be aware of the risks involved, such as trademark infringement and naked licensing, and to take steps to mitigate them. 

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• Do your due diligence on the licensee. Before you enter into a licensing agreement, make sure to do your research on the licensee. This includes checking their financial stability, their track record of success, and their reputation.
• Consider starting with a restricted license. Brands engaging in licensing for the first time would be wise not to hand over too much control. Retaining this control is worth a lower return for inexperienced businesses.
• Get everything in writing. A well-drafted licensing agreement will help to protect both parties in the event of a dispute. Make sure to have the agreement reviewed by an attorney before you sign it.
• Monitor the licensee's use of the trademark. Once the agreement is in place, you should monitor the licensee's use of the trademark to make sure that they are complying with the terms of the agreement. Monthly updates at the very least are a good starting point.
• Take action if the licensee breaches the agreement. If the licensee breaches the agreement, you should take action to enforce your rights. This may involve terminating the agreement, suing the licensee for damages, or both.

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By following these tips, you can help to mitigate the risks of trademark licensing and make sure your experience is a positive one, while laying the groundwork for larger and more creative licensing agreements in the future.

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