Trademark License and Royalty Agreement Template

In plain language: Specifies exactly which trademark(s) are licensed, whether the grant is exclusive or non-exclusive, the permitted field of use, and the licensed territory.

Common mistake: Describing the field of use too broadly — authorizing the licensee to use the mark in any category rather than a defined product or service class, which makes quality control unmanageable and dilutes the brand.

In plain language: Lists every trademark, logo, trade name, and registration number covered by the agreement and attaches specimens as exhibits.

Common mistake: Referencing only the word mark while omitting logo versions or stylized forms — allowing the licensee to use design elements the licensor did not intend to license.

In plain language: States the royalty percentage or per-unit fee, defines the royalty base (net sales), and sets payment frequency and the method of remittance.

Common mistake: Failing to define 'Net Sales' — leaving room for the licensee to deduct shipping, co-op advertising, and overhead costs that inflate deductions and reduce the royalty base.

In plain language: Requires the licensee to pay a floor amount each period regardless of actual sales, giving the licensor a predictable income stream and an incentive for the licensee to actively promote the brand.

Common mistake: Setting no minimum royalty at all, allowing a licensee to sit on exclusive rights without actively using the mark — blocking the licensor from licensing to better-performing partners.

In plain language: Obligates the licensee to submit product samples, packaging, and marketing materials for licensor approval before use, and sets ongoing quality standards the licensee must maintain.

Common mistake: Including quality control language without actually exercising it — courts have held that a licensor who never reviews samples or enforces standards has created a naked license, risking cancellation of the trademark registration.

In plain language: Gives the licensor the right to inspect the licensee's books and sales records to verify royalty accuracy, and requires the licensee to retain records for a defined period.

Common mistake: Omitting an audit-cost-shifting provision — without it, a licensor bears audit costs even when the licensee has significantly under-reported royalties.

In plain language: Confirms that the licensor retains all ownership of the trademark and that any goodwill generated by the licensee's use accrues to the licensor, not the licensee.

Common mistake: Omitting the inurement clause, which can allow a licensee to claim a proprietary interest in goodwill they helped build — creating a basis for a trademark ownership dispute at the end of the relationship.

In plain language: Sets the initial license period, renewal conditions, and the grounds on which either party may terminate early — including material breach, insolvency, or failure to meet minimum royalties.

Common mistake: No cure period before termination for breach — triggering immediate termination for minor, fixable violations creates unnecessary litigation risk and may be unenforceable in some jurisdictions.

In plain language: Requires the licensee to indemnify the licensor against third-party claims arising from the licensee's use of the mark and to maintain adequate product liability insurance.

Common mistake: Setting an insurance floor without specifying that the licensor must be named as an additional insured — in a product liability claim, the licensor may otherwise receive no direct coverage.

In plain language: Specifies which jurisdiction's law governs the agreement and the mechanism for resolving disputes — arbitration, mediation, or litigation — and the venue.

Common mistake: Choosing a governing law with no connection to where either party operates — courts may refuse to enforce the choice if it has no reasonable relationship to the transaction.

A trademark license and royalty agreement is a binding contract in which a trademark owner (the licensor) authorizes another party (the licensee) to use a specific trademark on defined products or services, within a defined territory, in exchange for ongoing royalty payments. It sets out the scope of permitted use, the royalty rate and payment schedule, quality control obligations, audit rights, and what happens when the agreement ends.

A license grants permission to use the trademark while the licensor retains ownership — the rights revert to the licensor when the agreement ends. An assignment permanently transfers ownership of the trademark from the assignor to the assignee, like a sale of the mark itself. If you want ongoing royalty income while keeping the brand, you need a license, not an assignment.

A naked license is a trademark license that lacks adequate quality control — the licensor grants permission to use the mark but exercises no real oversight over how the mark is used or the quality of goods bearing it. US and Canadian courts treat a naked license as grounds to cancel the trademark registration entirely, on the theory that the mark no longer reliably indicates a single source of quality goods. Including and actually enforcing quality control provisions prevents this outcome.

Royalties are most commonly calculated as a percentage of the licensee's net sales of licensed products, with typical rates ranging from 3–8% for consumer goods and 8–15% for entertainment characters or premium brands. Some agreements use a flat per-unit fee instead of a percentage. The agreement should also specify a minimum annual royalty — a floor payment the licensee owes regardless of actual sales — to protect the licensor from a low-performing licensee holding exclusive rights.

In the US, trademark license agreements do not need to be recorded with the USPTO to be enforceable between the parties. However, recording a license with the relevant trademark office in some jurisdictions (notably China and several EU member states) may be required to enforce it against third parties or to maintain the registration. Always check the rules in each country within the licensed territory.

Yes. An exclusive license grants the licensee the sole right to use the mark within the defined field of use and territory — even excluding the licensor itself. A non-exclusive license permits the licensor to grant the same rights to multiple licensees simultaneously. Exclusivity typically commands a higher royalty rate or a higher minimum royalty, and should always be paired with performance benchmarks that allow the licensor to convert to non-exclusive or terminate if the licensee underperforms.

At minimum: a requirement that the licensee submit product samples, packaging, and marketing materials for licensor approval before first use; a defined approval timeline (typically 10–15 business days); the right for the licensor to inspect facilities on reasonable notice; standards for trademark display (size, color, placement); and the licensor's right to require the licensee to correct non-conforming uses within a set period. The licensor must actually exercise these rights — contractual language alone does not satisfy the quality control requirement.

Upon termination, all rights to use the licensed trademark revert to the licensor immediately, subject to any negotiated sell-off period (typically 60–90 days) for existing inventory. The licensee must destroy or return all materials bearing the mark, provide a final royalty statement, and pay any outstanding royalties. The licensor should confirm in writing that the license has ended and monitor the market to ensure the former licensee has ceased use.

For a straightforward domestic non-exclusive license with a single licensee, a high-quality template reviewed by the parties is often sufficient. Engage a trademark attorney when the license is exclusive, covers multiple jurisdictions, involves a high-value brand, or includes complex royalty structures such as sublicenses or milestone-based rates. The cost of a 2–3 hour attorney review ($600–$1,500) is typically far less than the cost of a royalty dispute or trademark cancellation proceeding triggered by a poorly drafted agreement.