In a "pure" trademark license, a licensor grants a single license to one licensee to enable the licensee to manufacture a product according to the licensor’s specifications, and to sell such product under the licensor’s trademark. Another form of trademark license is a "collateral product" license, where a licensee is granted the right to use a trademark that is well known in one context in an entirely different context. This is also known as "merchandising".

 

The primary advantages to the licensor of these "pure" licenses include:

(a) the opportunity for the licensor to receive income without significant investment or financial risk; and

(b) the creation of substantial goodwill in the trademark.

 

The disadvantages include loss of control, including the risk that the licensee’s poor quality or sales performance may tarnish the reputation of the licensor.

 

While a pure trademark license is not usually covered by franchise and business opportunity laws, since every franchise relationship includes a trademark license, it would be prudent to consider the elements of franchise and business opportunity laws when structuring or terminating any trademark license relationship.