From PLI’s Course Handbook Advanced Licensing Agreements 2005#5923

14

TRADEMARK LICENSINGCONSIDERATION CHECKLIST

Timothy J. KellyFitzpatrick, Cella, Harper & Scinto

© 2004 Simon M. LorneAll Rights Reserved

Trademark Licensing Consideration Checklistby Timothy J. Kelly1

Trademark licensing can of course be valuable in many ways -- both to the trademark owner and the licensee. For example,from the trademark owner’s perspective, licensing can provide away to increase revenue and brand presence without the need toincrease capital. From a licensee’s perspective, it can be a way toteam existing assets with the hot properties consumers are look-ing for, thereby creating markets that previously did not exist.Teaming Mars with Dreamworks’ Shrek character, or Jelly Bellywith Warner Brothers’ Harry Potter characters and themesbrought us SHREK M&M’s® and BERNIE BOTTS Every FlavorJelly Beans. Examples of such teamwork abound.

However, any situation that provides the potential for two par-ties with competing interests to benefit, always comes with atleast the potential for conflict. In negotiating a license agreementboth sides need to look at all aspects of the deal critically, notonly to ensure that they are getting what they are expecting out ofthe relationship, but also to ensure that are not getting unexpectedliabilities, or that they are not burdening themselves with unfore-seen obligations. Of course, the ideal way to prevent such unin-tended consequences would be to plan for every contingency.Unfortunately, the exigencies of the day-to-day world make thatunrealistic. Indeed, even if a license draftsman could think ofevery contingency while crafting an agreement, addressing eachissue in clear and concise language would be prohibitively timeconsuming and expensive, if not impossible. The result – perhapsnot unexpectedly – is that both sides will have to compromise.

The inherent difficulty in crafting an agreement that gives bothsides what they want, is clear enough to provide useful guidanceas to the parties’ obligations during (and beyond) the licenseterm, and that provides both sides with the protection they need,means that in most cases no two license agreements will be thesame. And, while prior agreements can provide good guidancefor where to go in the future, there will always be a certain degree

1. *Timothy J. Kelly is a partner at Fitzpatrick, Cella, Harper & Scinto inNew York, and specializes in trademark litigation, licensing and port-folio management.

475

of molding and shaping that goes into preparing license agree-ments.

In order to assist with the molding and shaping, and to providepractitioners with guidance in negotiating license agreements, thefollowing checklist outlines key areas that ought to be consideredand addressed in reducing license agreements to writing.2 It maybe that it is not practical to include language relating to each ofthese issues in every license agreement. While it essential toaddress some issues (e.g., quality control), it may be enough tosimply raise other issues with the client thereby providing anopportunity for consideration. In the end, however, all involvedin the license negotiation and drafting process should rememberthat the language of the agreement is unlikely to see the light ofday while the parties are proceeding happily under the license. Itis not until something goes awry that the parties will go back andstudy the language. At that point, of course, it is generally toolate to make any changes in the document, and the parties will beforced to live with what they reduced to writing.

The attached Appendix includes sample provisions coveringvarious aspects of the a typical license agreement. As noted, thefacts in each case will vary, but the sample language can serve asa starting point in the drafting process.

1. Background -- Who are the Parties and what brings themtogether?

1. Generally encompassed in separate “Preamble” or“Recitals” section.

2. Provides general recitation of who that parties are, andwhat brings them to the licensing transaction.

1. Is licensor properly identified?

2. Is licensee properly identified?

2. The following checklist covers the basic areas that should to be con-sidered in preparing a trademark license. It also provides suggestionswith respect to areas that may need to be considered in certain situa-tions, but that would be unnecessary in others. Because facts and theneeds and interests of the parties will vary from one situation to thenext, there may be issues beyond those referenced in this checklistthat should be addressed in a particular licensing scenario.

476

3. Provides antecedent basis for the license grant –should explain what the parties have and what they aretrying to get out of the licensing arrangement.

4. Licensed Marks -- should be identified in agreement orlisted in attached schedule.

2. Definitions -- Are the terms clearly defined?

1. Terms must be defined within four corners of agree-ment.

2. Will either be in a separate section, or will be definedin text of agreement as they occur.

3. A separate “Definition” section can be helpful in navi-gating agreement, although it is certainly not required.

3. Grant -- Is the license grant precisely spelled out?

1. Statement explaining what one party is allowing theother to do.

2. Exclusivity:

1. Is license grant to be exclusive?

2. Is license grant to be non-exclusive?

1. will licensor be able to grant other licenses?

If so, for the same goods?Different goods?

3. will the licensor have the right to use the mark onproducts in the territory?

1. what rights will licensor retain?

2. will licensor have the right to compete directlywith licensee?

Same products?Same channels of trade?

3. will licensor retain different rights?

Internet or on-line marketing and sales?“Factory” or “outlet” stores?

477

3. Products: the specific products for which the licenseeis granted rights should be clearly spelled out in theagreement, either in an agreement section or in anattached schedule.

4. Reservation of rights -- specify what rights licensorwill retain.

5. Sub-licensing -- will licensee have right to grant sub-licenses?

1. if so, what approval rights will licensor have?

2. what control will licensor have?

3. what inspection rights will licensor have?

1. books and record?

2. facilities?

6. See sample “Grant” clauses in the Appendix

4. Term/Renewal -- is the time frame clearly defined?

1. How long will the license period be?

2. Will the licensee have the option to renew?

1. As of right?

2. Based on performance during the initial term?

1. sales minimums?

2. other performance criteria?

3. Notice re renewal?

1. Adequate notice is important for licensor in order toensure that it has the time to get another licensee ifpresent licensee does not intend to renew.

2. Similarly, will there be a time by which the partieshave to come to agreement on renewal terms andlanguage?

1. may be important for licensor to know by datecertain that it has reached a deal vis-a-vis

478

renewal, in order to give it time to find a new lic-ensee if it can’t come to terms with current lic-ensee.

2. will be important to ensure uninterrupted flow oflicensed product to consumers.

5. Territory -- Is the geographic area covered by the licenseclearly identified?

1. Where will licensee have the right to sell the productunder the license?

1. Limited areas within the territory?

2. Limited trade channels?

2. Language should be coordinated with “Grant” clause.

3. Are there other licensees with rights to sell in the terri-tory?

1. Should be acknowledged.

2. Rights may need to be coordinated.

6. Product Design -- Is the procedure for designing and obtain-ing approval for product clearly set forth?

1. How will responsibility be divided?

2. Will licensee have the right or obligation to designproduct?

1. How will product be designed?

1. dedicated designers?

2. licensee’s in-house staff?

2. Will licensor be required to provide design input?

3. Will licensee be required to consider design sugges-tions by licensor?

1. to incorporate suggestions?

4. Should a schedule be set up in agreement to ensurethat designs are created and approved in a manner

479

that will allow adequate time to manufacture prod-uct and get it to market, or should licensor rely onexperience of licensee to ensure adequate timing?

3. Will licensor have right or obligation to design product?

1. If so, what obligations will licensor have?

1. for seasonal items, a requirement to producedesigns by certain date?

2. for standard items, a requirement to review andupdate annually?

2. Licensee input?

1. required?

2. can often be helpful where license is for foreignterritory and where licensee has special knowl-edge of local tastes and trends.

3. Does licensee have right to modify designs?

1. under what conditions?

2. to what degree?

4. Packaging/Labeling

1. Who designs?

2. What approval rights does each party have?

3. Should licensor be responsible for obtaining label-ing and packaging?

1. can help with preventing counterfeits andinfringements.

5. Costs

1. Is it necessary to address who will pay for design-ing?

1. is it part of licensee’s operating budget?

480

2. is it a cost to be deducted by licensee in calculat-ing royalties?

2. Are costs incurred by licensee to be credited againstroyalty payments?

6. See sample Design clauses in Appendix.

7. Manufacturing -- Has production been adequatelyaddressed?

1. Does licensee manufacture?

2. Does licensee have right to sub-contract manufactur-ers?

3. How are manufacturers chosen?

1. Does licensor have right of approval?

2. Does licensor have right to inspect?

3. Can licensor require licensee to terminate relation-ship with manufacturer for cause?

1. what is appropriate “cause”?

Human rights violations?Dumping licensed product?Manufacturing licensor’s designs, but sellingwithout labels?

4. Mechanism for licensor approval of manufacturedsamples or prototypes.

5. See sample Manufacturing clause in Appendix.

8. Royalty -- Are the monetary terms clear?

1. How is licensor to be paid under the license agree-ment?

2. Guaranteed minimum royalty.

1. Pre-determined figures.

2. Generally specified for each year of license period.

3. Percentage royalty.

481

1. Based on sales.

1. Straight percentage of sales (e.g., 5% of sales)?

2. Different percentages for different sales.

Venues (e.g. 5% on sales to department stores;3% on sale to discount stores).Products (e.g., 8% for clothing; 5% for toys).

4. Combination of percentage royalty and guaranteedminimums.

1. See sample Royalty clauses in Appendix.

5. Should specify payment dates.

1. Annually?

2. Quarterly?

6. Royalty statements.

1. Licensee should be required to provide auditedstatements explaining how royalties have been cal-culated.

2. See sample Royalty statement clauses in Appendix.

7. Licensor’s right to audit books and records of licensee.

9. Advertising and Promotion -- Is advertising and promotionof licensed products adequately addressed?

1. Expenditures.

2. Accounting.

3. Approval.

10. Quality Control -- Does licensor retain sufficient qualitycontrol?

1. Products

1. Agreement should specify means by which qualityof products produced by licensee is consistent withimage of the licensed trademark and other productssold under trademark.

482

2. Can be accomplished in various ways, but it isimperative that it occurs.

2. Advertising and promotion

1. Licensee should provide means by which licensorcan ensure that advertising and promotion are con-sistent with image of licensed trademark.

3. See sample Quality Control clauses in Appendix.

11. Ownership of rights -- Are ownership issues addressed?

1. License should specify that licensor is the owner of thetrademark, and that all activities of the licensee in fur-therance of the license inure to the benefit of licensor.

2. License should specify who owns what with respect toproduct designs – will licensee be able to producesame products under different trademark after licenseends?

3. License should specify ownership of copyrights inpackaging, advertising and promotional materials.

4. What about new marks or slogans?

1. who owns?

2. who pays for filing?

5. See sample Ownership clauses in Appendix.

12. Infringement & Counterfeits -- Are potential third partyproblems provided for?

1. License should provide a means for identifying andaddressing infringements and counterfeit products.

1. Does licensor reserve right to take action?

2. Can licensee take action?

1. on its own?

2. with approval of licensor?

3. only when licensor elects not to take action?

483

4. right may vary by country.

2. How are costs allocated?

3. How will damage awards be allocated?

4. Will licensee have any obligations to prevent infringe-ment?

1. Controls on labels?

2. Controls on packaging?

5. See sample Infringement Clauses in Appendix.

13. Termination -- How will license end and what will happenwhen it does?

1. Licensor’s right to automatically terminate upon theoccurrence of certain events. For example:

1. Unauthorized use of the licensed mark.

2. Failure to pay royalties.

3. Failure to maintain business.

2. Right to cure under certain situations?

1. Failure to perform certain obligations under license.

1. e.g., submission of advertising to licensor forreview.

2. e.g., failure to report infringement.

2. Set out timetable and steps to be followed for cure.

3. See sample Termination clauses in Appendix.

3. Rights upon termination.

1. Licensee’s right to sell off inventory.

1. certain period of time.

2 destruction of remaining inventory, packaging,labels?

2. Licensor’s right to obtain new licensee.

484

3. The parties’ rights with respect to the productdesigns, copyrights, patents.

4. See sample Rights on Termination clauses in Appen-dix.

14. Bankruptcy -- Are contingencies in place?

1. Licensor’s rights?

2. Licensee’s rights?

3. Creditor’s rights?

4. Trustee’s rights?

5. See sample Bankruptcy clause in Appendix

15. Insurance and Indemnification -- Are both parties pro-tected?

1. Licensee

1. Insurance

1. product liability?

2. personal injury?

3. advertising liability?

2. Indemnification

1. claims based on defects in licensed products

2. claims based on other activities of licensee underagreement such as advertising, infringement, orfailure to comply with federal and local laws.

2. Licensor

1. Indemnification from third party accusations ofinfringement by licensed mark.

3. See sample Insurance and Indemnification clauses inAppendix.

16. Miscellaneous provisions

1. Compliance with laws.

485

2. Amendments to agreement.

1. In writing.

2. Signed by both parties.

3. see sample Amendment clauses in Appendix.

3. Entire agreement.

4. Waiver -- see sample Waiver clauses in Appendix.

5. Severability -- see sample Severability clauses inAppendix.

6. Governing law/dispute resolution.

1. Jurisdiction.

2. Venue.

3. Arbitration/mediation.

4. see sample Governing Law clauses in Appendix.

7. Confidentiality.

8. Notices under agreement.

9. Assignment of obligations.

1. Licensee.

2. Licensor.

3. See sample Assignment clauses in Appendix.

10. Agency -- see sample Agency clause in Appendix.

11. Non-solicitation.

486

APPENDIX

Sample Grant Clauses

1. Licensor hereby grants to Licensee, and Lic-ensee accepts a royalty free, non-assignable and nontransfer-able and non-exclusive right and license to use _________ inthe Territory solely in connection with _____________. Thelicense granted herein does not include any right for Licenseeto grant sublicenses.

2. Subject to the terms and conditions of thisLicense, LICENSOR hereby grants to LICENSEE, and LIC-ENSEE hereby accepts, a non-exclusive license to use the_______ trademark in connection with ___________, undertrademark application Serial No. 76/______, and any UnitedStates registration resulting therefrom.

3. LICENSOR hereby grants LICENSEE the non-exclusive, non-assignable, non-sublicensable, non-indemnifiedright to use the LICENSED MARKS solely in connectionwith themanufacture, sale and distribution of the LICENSED PROD-UCTS throughout the LICENSED TERRITORY through estab-lished retail channels. No License is granted hereunder toLICENSEE (or any affiliated business ), for mail order sales, pre-mium or promotional sales, or any direct sales other than throughnormal retail channels. LICENSEE may not, either directly orindirectly, distribute or sell the LICENSED PRODUCTS to anyflea market vendors or to any person who intends to or is likely toresell them to flea market vendors. Nor right, express or implied,is granted to LICENSEE to allow anyone other than LICENSEEto manufacture or otherwise produce LICENSED PRODUCTS,or subcontract the manufacture or printing of the LICENSEDPRODUCTS to third parties without the prior express writtenapproval of LICENSOR.

4. Subject to the terms of this AGREEMENT,LICENSOR hereby grants LICENSEE a non-exclusive license to

487

use the LICENSED TRADEMARKS on the LICENSED PROD-UCTS in the TERRITORY. No license, express or implied, isgranted to LICENSEE to export LICENSED PRODUCTS or tootherwise use the LICENSED TRADEMARKS outside the TER-RITORY, and any such right its expressly withheld from thisAGREEMENT. No right, express or implied, is granted to LIC-ENSEE to sub-license or otherwise transfer the right to use theLICENSED TRADEMARKS to third parties, and any such rightis expressly withheld from this AGREEMENT. No license,express or implied, is granted to LICENSEE to allow anyoneother than LICENSEE to manufacture or otherwise produceLICENSED PRODUCTS. All LICENSED PRODUCTS must bemanufactured or otherwise produced directly by LICENSEE.LICENSOR retains all rights to LICENSED TRADEMARKSexcept as otherwise granted herein.

5. Licensor hereby grants to Licensee an exclusive(except as to Licensor) license, with the right to sublicense, sub-ject to the reservations contained in Section ___, and all of theterms contained in this Agreement, to use the LICENSEDMARKS listed in Schedule __ hereto, during the License Period,in the Territory as defined in Section ___, in connection with themanufacture, sale, distribution, advertising, and promotion ofLICENSED PRODUCTS in the manner provided by this Agree-ment. The License excludes the right to sell, distribute, advertiseand promote LICENSED PRODUCTS outside the Territory viaE-commerce. Licensee shall have the right to import into theTerritory LICENSED PRODUCTS manufactured outside the Ter-ritory, provided, however, that Licensee takes reasonable precau-tions to prevent all labels, tags, packaging material, businesssupplies and advertising and promotional materials and all otherforms of identification bearing one or more of the LICENSEDMARKS from being used otherwise than in connection with thedistribution and sale of LICENSED PRODUCTS within the Ter-ritory. Licensee shall neither export LICENSED PRODUCTSfrom the Territory, nor sell LICENSED PRODUCTS to any entity

488

which it knows or has any reason to believe intends to exportLICENSED PRODUCTS from the Territory.

Sample Design Clauses

1. Licensee reserves the right, in its sole andabsolute discretion, to design the Licensed Products, as wellas all labels, hang-tags, and packaging associated therewith.In furtherance of this right, Licensee reserves the right to,from time to time, modify and/or add styles to the LicensedProducts upon reasonable advance notice.

2. Licensee acknowledges that Licensor shall havethe right of approval of the appearance, quality, design of allmaterials which Licensee applies the Licensed Trademarks. TheLicensee further agrees and undertakes that as soon as reasonablypossible, following the signing of this Agreement the Licenseeshall forward to Licensor for approval rough visual designs of allpackaging, advertising, publicity material or the like of whatso-ever kind on which Licensee intends to use the Licensed Trade-marks.

Sample Manufacturing Clause

1. All manufacturers, wherever located, that Lic-ensee desires to use in connection with the manufacture of prod-ucts under this Agreement, are subject to the prior writtenapproval of Licensor. In order to maintain Licensor's high stan-dard of quality control and to insure that appropriate measures aretaken against counterfeiting, Licensee shall provide Licensor withthe following information: (i) name and address of each proposedmanufacturer; (ii) type of Products to be manufactured; (iii) quan-tity of Products to be manufactured; and (iv) any other relevantinformation so requested by Licensor. Licensee shall obtain thesignature of an authorized representative from each approvedmanufacturer used by Licensee on an agreement, as agreed to byLicensor and Licensee. Licensee shall not knowingly engage any

489

manufacturer that has breached a similar agreement with Licen-sor or, to Licensee’s knowledge, any third party. Licenseeacknowledges that it shall remain primarily liable and completelyobligated under all of the provisions of this Agreement withrespect to such manufacturing arrangements. Licensee willrequire all of its manufacturers (by means of agreements there-with) to comply with all of the provisions of this Agreement relat-ing to quality standards, confidentiality and trademark protection,and with all customs, quota or other laws, rules and regulations,and with all workers’ rights (including child labor), environmen-tal safety, and similar or related laws, rules and regulations. Nomanufacturer will have any right to sell Licensed Products to anyperson, firm, corporation or entity other than Licensee or to shipLicensed Products to any location other than to Licensee’s facili-ties or Licensee’s customers within the Territory. Licensee willuse commercially reasonable efforts to ensure that such manufac-turers observe such laws and standards and that no manufacturersells Licensed Products except as permitted. Licensee will moni-tor all manufacturers hereunder to ensure compliance herewith.Licensee will be fully responsible and liable to Licensor for theactions of its manufacturers, and any violation by any manufac-turer of the terms of this Agreement will be deemed a default byLicensee hereunder, and further, in the event of any breach ordefault by a manufacturer, Licensee will promptly take all steps tocease operations with any such manufacturer, and all reasonablecommercial steps to ameliorate and mitigate the effect of anybreach (including repurchase of unlawfully shipped goods, forexample).

Sample Royalty Clauses

1. Licensee shall pay Licensor an initial licensingfee of _______________U.S. Dollars (US $____________) uponexecution of this Agreement, which fee shall be non-refundableand shall be credited against the Guaranteed Minimum Royaltiespayable for License Year 1 under this Agreement. In addition, ineach License Year during the Term, Licensee shall pay to Licen-

490

sor as a continuing royalty an amount equal to _________percent(__%) of the Net Price of Licensed Products sold or otherwisedisposed of (excluding sales or other dispositions to Licensorunder this Agreement) during such Contract Year. Such royaltiesshall accrue when the Licensed Products are sold, shipped, dis-tributed, billed or paid for, whichever occurs earliest. Licenseeshall provide Licensor on a quarterly basis for each License Year,a detailed written accounting of Licensed Products sold or other-wise disposed of during such quarter in each country included inthe Territory, together with the amount of royalties due for suchquarter to Licensor hereunder. For the second and each subse-quent quarter (or partial quarter) included in the Term, suchAccounting shall contain not only the required information forthe most recently concluded quarter (or partial quarter), but also a"recap" covering the entire year to date. The Accounting shall bedue not later than thirty (30) days after the end of each such quar-ter and shall be accompanied by payment to Licensor of theamount due for such quarter. Licensee shall pay LicensorGuaranteed Minimum Royalties on Licensed Products as setforth above, but in no event shall the amount of such royaltiesactually paid to Licensor during any License Year be less thanthe Guaranteed Minimum Royalty amount agreed to by theparties under this Agreement for such license Year. TheGuaranteed Minimum Royalties for each License Yearincluded in the Term is set forth in Schedule __ hereto. SuchGuaranteed Minimum Royalties payments shall be creditedagainst actual royalty payments due for such License Year as setforth above. Actual royalties paid in excess of Guaranteed Mini-mum Royalties which pertain to any given License Year shall notaccrue toward Guaranteed Minimum Royalties which pertain toany subsequent License Year. Annual Guaranteed MinimumRoyalties under this section shall be payable in full for eachLicense Year included in the Term and shall not be prorated orrefunded with respect to any partial License Year remaining at thetime of expiration or termination of this Agreement.

2. LICENSEE agrees to pay to LICENSOR a mini-mum annual royalty as designated on Attachment to be paidon the signing hereof. For subsequent license years the minimum

491

as designated on Attachment shall be paid on the 1st day ofthe license year. In no event shall any part of any minimum roy-alty payment be refundable to LICENSEE.

3. All Licensed Products sold by Licensee requirethe payment of royalties by Licensee to Licensor Bear as set forthin Section __. For each year during the Term of this Agreement,Licensee shall pay to Licensor the Guaranteed Minimum Royaltyset forth in Schedule __ hereto, as follows: Licensee will payone-half (½) of the Guaranteed Minimum Royalty for the firstlicense year upon execution of this Agreement; the remainingone-half (½) of the Guaranteed Minimum Royalty for the firstlicense year shall be due and paid by ____________. Thereafter,Guaranteed Minimum Royalty payments for subsequent years,shall be paid as follows: one-half (½) of the annual GuaranteedMinimum Royalty by __________; and the remaining (½) of theannual Guaranteed Minimum Royalty by of the last day of thesixth month of each license year. In addition to the GuaranteedMinimum Royalty payment set forth in Schedule __, for anylicense year Licensee’s wholesale gross sales are greater than___________ , Licensee shall pay Licensor percentage royaltiesin the amount of __% of the Gross Sales greater than$25,000,000.00 for that license year.

Sample Quality Control Clauses

1. LICENSOR has reviewed the GOODS hereto-fore sold by LICENSEE and agrees that they meet LICENSOR’Squality control standards. Such approval shall continue so long asthe GOODS sold by LICENSEE continue to be of substantiallythe same quality as those GOODS heretofore sold by LICENSEE,or are of at least substantially the same quality as the GOODSnow or heretofore sold by LICENSOR. LICENSOR may, notmore frequently than once each year during the TERM, requestspecimens or facsimiles of the GOODS sold by LICENSEEunder the LICENSED TRADEMARK for the purpose of review-ing the quality thereof. In the event that there is a substantialchange in the quality of the GOODS sold by LICENSEE under

492

the licensed trademark, LICENSOR and LICENSEE will conferin an effort to resolve such dispute, and until such time as the dis-pute is resolved, LICENSEE agrees to stop manufacturing, dis-tributing and/or selling GOODS under the LICENSEDTRADEMARK.

2. Licensee agrees that the quality of the LicensedProducts will remain consistent with the high quality productscurrently offered by Licensee and will not adversely reflect uponor damage the goodwill or reputation of the Licensed Mark orLicensor. All Licensed Products shall be rendered and sold incomplete compliance with all applicable standards of Federal,State and local laws and regulations. Licensor shall have a rightof sufficient access at reasonable times to Licensee's facilities topermit Licensor or its representative to ensure that the quality ofthe Licensed Products are in accordance with these standards.Licensee further agrees that upon request, it will make availableto Licensor or its designee, for legal review, comment andapproval, representative samples of Licensed Products as well asadvertising and promotional material, packaging material, andother materials for public dissemination, which display theLicensed Mark. Licensee agrees that, if required by Licensor, itwill make appropriate changes to such materials in order to insureproper protection of the Licensed Mark.

3. LICENSEE acknowledges that the maintenanceof the high quality of the LICENSED PRODUCTS, and the con-trol by LICENSOR over the nature, quality and manner of distri-bution of all the LICENSED PRODUCTS, are materialconditions of this AGREEMENT. Prior to the distribution or saleof any LICENSED PRODUCT, LICENSEE shall, at its own costand expense, submit to LICENSOR for approval all final designs,specifications and fabrications and color details for theLICENSED PRODUCTS, and all tags, labels and packaging to beused in association therewith (the “PACKAGING”). Prior to anysale or distribution to the public, LICENSEE shall, at its own costand expense, submit to LICENSOR for approval a production

493

sample of each LICENSED PRODUCT and all final PACKAG-ING. At least once per year during the TERM of this AGREE-MENT, LICENSEE shall, at its own cost and expense, submit toLICENSOR for approval, a sample of each LICENSED PROD-UCT and all PACKAGING. LICENSEE shall, at its own cost andexpense, submit to LICENSOR for approval copies of all adver-tisements or promotional materials containing the LICENSEDMARKS prior to any use thereof. All matters requiring theapproval of LICENSOR or the exercise of its discretion shall bethe sole subjective discretion of LICENSOR. A submission forapproval shall be deemed disapproved unless LICENSOR specif-ically provides written approval.

4. Licensee shall maintain the distinctiveness ofthe Licensed Mark, the image of the brand, and the image andhigh quality of the goods and merchandise bearing the LicensedMark presently manufactured and sold by Licensor and its otherlicensees. Licensee agrees that all products bearing the LicensedMark manufactured or sold by it will be of high quality as toworkmanship, fit, design and materials, and shall be at least equalin quality, workmanship, fit, design and material to the samplessubmitted by the Licensee and approved by Licensor as set forthherein. Before Licensee shall sell or distribute any product bear-ing the Licensed Mark, Licensee shall submit samples of eachproposed product to Licensor for its prior written approval. Suchsamples shall be submitted sufficiently far in advance to permitLicensee time to make such changes as Licensor deems neces-sary. Licensor shall make available to Licensee the creative con-cepts and fashion direction as to the Licensed Products includingrecommendations as to color, material, design and styling of suchproducts and such additional design assistance as it determines inits sole discretion. Licensee will utilize substantially all of thedesigns, fabrics, trim submitted or approved by Licensor and willtimely produce pre-production prototypes for Licensor’s reviewand approval. Once samples have been approved, Licensee willmanufacture only in accordance with such approved samples andwill not make any changes without Licensor’s prior writtenapproval. No products bearing the Licensed Mark (including

494

samples) shall be distributed and/or sold by Licensee unless suchproducts are in substantial conformity with, and at least equal inquality to, the samples previously approved by Licensor in accor-dance with the provisions of this paragraph. Upon Licensor’srequest, Licensee shall supply Licensor with a reasonable quan-tity of production samples in order for Licensor to assess the con-formity of production with the approval samples. All samplessubmitted to licensor pursuant to this paragraph shall be providedat Licensee’s sole cost and expense.

Sample Ownership Clauses

1. Licensee acknowledges that Licensor is the soleand exclusive owner of all right, title and interest in and to theLicensed Mark in the Territory, as well as to all combinations,forms and derivatives thereof which may hereafter be approvedby Licensor for use by Licensee hereunder in the Territory. Lic-ensee acknowledges the substantial value and eminent goodwillassociated with the Licensed Mark, and the exclusive ownershipthereof by Licensor, and agrees not to, at any time (either duringthe term of this License or thereafter), directly or indirectly, do orsuffer to be done any act or thing that might in any way adverselyaffect any rights of Licensor in and to any of such marks, any reg-istrations thereof or any applications for registration thereof, orwhich might reduce the value thereof or detract from their reputa-tion, image or prestige or that of Licensor or the Licensed Mark.Sales by Licensee (and if applicable, any distributors and sub-lic-ensees) will be deemed to have been made by Licensor for pur-poses of trademark registration and all uses of the Licensed Markby Licensee (and if applicable, any distributors and sub-licensees)and any and all goodwill generated by use of the Licensed Markwill inure to the benefit of Licensor.

2. Licensee acknowledges that Licensor owns allright, title and interest in and to the Licensed Trademarks(including, without limitation, all registrations and applica-tions therefor). Licensee further acknowledges, representsand warrants that it has not acquired, and shall not acquire

495

(whether by operation of law, by this Agreement or other-wise), any right, title, interest or ownership (collectively,"Ownership Rights") in or to the Licensed Trademarks orany part thereof. Should any such Ownership Rights becomevested in Licensee, Licensee agrees to assign, and herebyassigns, all such Ownership Rights to Licensor free of addi-tional consideration. Licensee shall provide and execute alldocuments reasonably requested by Licensor to effectuateand record each such assignment to Licensor. Licensee recog-nizes the value of the goodwill associated with the LicensedTrademarks and acknowledges that all rights therein belongexclusively to Licensor or its Affiliates and further acknowl-edges that the Licensed Trademarks have acquired secondarymeaning in the mind of the public. All use of the LicensedTrademarks and all goodwill and benefit arising from suchuse shall inure to the sole and exclusive benefit of Licensor.Licensee shall not, during the Term or at any time thereafter,do anything which, in Licensor's sole judgment, could in anyway damage, injure or impair the validity and subsistence ofthe Licensed Trademarks. Licensee shall not attack, disputeor challenge Licensor's Ownership Rights in or to theLicensed Trademarks or the validity of this Agreement, norshall Licensee assist others in so doing.

3. Licensee agrees to cooperate fully and in goodfaith with Licensor for the purpose of securing and preservingLicensor’s rights in and to the Licensed Marks. Nothing con-tained in this Agreement shall be construed as an assignment orgrant to Licensee of any right, title or interest in or to theLicensed Marks, or any registration or application therefore, itbeing understood that all rights relating thereto are reserved byLicensor except for Licensee’s right to use the Licensed Marks asexpressly provided in this Agreement. Licensee shall complywith reasonable requests to execute instruments presented to it byLicensor to accomplish or confirm the foregoing. Any suchassignment, transfer or conveyance shall be without other consid-eration, other than the mutual covenants set forth in this Agree-

496

ment. Licensee hereby agrees that it shall not at any time acquireany rights in the Licensed Marks by virtue of any use it may makeof the Licensed Marks.

Sample Infringement Clauses

1. Licensee shall promptly notify Licensor in writ-ing of any infringement or imitation of the Licensed Mark or theuse by any person of any trademarks, logos or trade names thatmay be confusingly similar to the Licensed Mark which come tothe attention of Licensee. Licensor will thereupon take suchaction as it deems advisable for the protection of the LicensedMark and its rights therein, and Licensee shall assist Licensor inthe prosecution of any such suit, as Licensor may reasonablyrequest. Except to the extent required by law, but only to suchextent, Licensor shall not be required to take any action if itdeems it inadvisable to do so, and Licensee will have no right totake any action with respect to the Licensed Mark without theprior written consent of Licensor. Sub-licensees will have noright to take any action with respect to the Licensed Mark. In theevent a third party infringes the use of the Licensed Mark in theTerritory on items the same as or similar to the products manufac-tured under the License, Licensor shall take all advisable and nec-essary measures to protect the Licensed Mark and Licenseeagrees that, at Licensor’s request, it will pay the costs incurredtherefore, including judicial expenses and legal fees.

2. Licensee shall inform Licensor forthwith ifLicensee learns of any goods or activities which infringe (ormay infringe) the Licensed Products, or learns of any otherinfringement of the Licensed Trademarks or of any otherIntellectual Property rights now or hereafter owned by orLicensor. Licensee shall provide, at Licensee's expense, com-plete information, cooperation, and assistance to Licensorconcerning each such infringement (including, without limita-tion, cooperation and assistance in any further investigationor legal action); provided, however, that Licensor shall reim-

497

burse Licensee for Licensee's reasonable out-of-pocketexpenses incurred in connection with providing any suchcooperation to Licensor so long as Licensor shall haverequested that Licensee provide such cooperation. Uponlearning of such infringement, Licensor shall have the right,but not the obligation, at its sole discretion and expense, totake such action as Licensor considers necessary or appropri-ate to enforce Licensor’s rights, including, without limitation,legal action to suppress or eliminate such infringement or tosettle any such dispute or action. Licensor shall also be enti-tled to seek and recover all costs, expenses, and damagesresulting from such infringement, including, without limita-tion, sums which might otherwise be due to Licensee by oper-ation of law or otherwise, and Licensee shall have no right toshare in any amounts recovered by Licensor. Licensee shallhave no authority to enforce the rights of Licensor, nor shallLicensee have any right to demand or control action by Licen-sor to enforce such rights. In the event Licensor sues or coun-terclaims for infringement of any of the Licensed Trademarksfor use on products that, if made or sold by Licensee would beLicensed Products, Licensee shall have the right, but not theobligation to join with Licensor as a party to such litigation.Should Licensee exercise this option to participate, it shall beresponsible for its own attorney’s fees unless Licensor’s attor-neys agree to represent both parties. In any event, Licensorshall have the right to control any such litigation.

3. Licensee agrees to assist Licensor to the extentreasonably necessary to protect the Licensed Trademarks licensedhereunder. Licensor agrees to reimburse Licensee for its reason-able costs in providing such assistance. For these purposesLicensor may, if it so desires, but at Licensor’s cost, commenceand prosecute any infringement suits or other litigation in its ownname or in the name of the Licensee or join the Licensee as aparty thereto. The Licensee shall promptly notify Licensor of anyinfringements of the Licensed Trademarks which may come tothe Licensee’s attention, and Licensor shall have the right todetermine whether or not any litigation shall be instituted in con-nection therewith. The Licensee shall not institute any suit or

498

take action relative to any such infringements or imitations with-out first obtaining the written consent of Licensor to do so. In theevent Licensor elects not to pursue litigation or other resolution ofan accused infringement brought to its attention by Licensee, Lic-ensee may pursue an action against such accused infringer 30days after notice to Licensor, at Licensee’s own expense. In thatevent Licensee shall be entitled to retain any damages awarded insuch an action. In addition, should Licensee pursue an accusedinfringement pursuant to this paragraph, Licensor agrees to assistLicensee to the extent reasonably necessary and Licensee agreesto reimburse Licensor for its reasonable costs in providing suchassistance.

Sample Termination Clauses

1. Either party may terminate this Agreement pro-vided the other party to the Agreement is given at least six (6)months notice of such intention to terminate, which notice shallbe in writing. However, Licensor agrees not to seek to terminatethe Agreement unless one or more of the following occurs: (a)Licensee files a petition for bankruptcy; (b) Licensee is adjudi-cated as bankrupt or insolvent under applicable law; (c) a petitionin bankruptcy is filed against Licensee and such proceeding is notterminated within seventy-five (75) days after being instituted; (d)Licensee makes a general assignment for the benefit of its credi-tors; (e) Licensee applies for or consents to the appointment of areceiver, trustee, custodian or similar official for itself or substan-tially all of its assets or properties; (f) Licensee begins negotia-tions with or enters into a business arrangement with an entity ororganization whose principal business is in direct competitionwith Licensor, which negotiations or arrangement Licensor, in itssole discretion, believes to be detrimental to Licensor’s business;(g) Licensee is acquired in whole or in part by a competitor ofLicensor; or (h) Licensee or a representative thereof commits anyact or becomes involved in any situation which, in the opinion ofLicensor, brings Licensee, and thus by virtue of this License,

499

Licensor, into public disrepute, scandal, or ridicule, or reflectsunfavorably upon Licensor or any of its products or services.

2. Licensor shall have the immediate right to termi-nate this Agreement and any other rights granted to Licenseehereunder, by written notice, upon the occurrence of any of thefollowing: (i) underpayment of royalties of __% or more by Lic-ensee with respect to any annual period; (ii) Licensee institutesfor its protection, or is made a defendant, in any proceeding underbankruptcy, insolvency, reorganization or receivership law, orLicensee is placed in receivership or makes an assignment forbenefit of creditors or is, or states that it is, unable to meet itsdebts in the regular course of business; (iii) failure by Licensee toperform or observe any term or covenant or agreement containedin this Agreement relating to quality control, or use of theLicensed Mark; (iv) Licensee uses the Licensed Mark in an unau-thorized or improper manner; (v) Licensee ceases, or takes stepsto cease, its business; (vi) Licensee sells, transfers, leases,pledges, encumbers, subleases or assigns, by operation of law orotherwise all or substantially all of its assets or 50% or more, inthe aggregate, of the ownership interests in Licensee directly orindirectly to a direct competitor of Licensor; or (vii) the entry of afinal judgment against Licensee, or the occurrence of any otherevent, which individually or in the aggregate, would have a mate-rially adverse effect on the business condition (financial or other-wise), operations, performance, properties or prospects ofLicensee or its ability to perform its obligations under this Agree-ment.

3. In the event of the failure by Licensee to per-form or observe any term or covenant or agreement contained inthis Agreement, other than those for which Licensor has animmediate right to terminate this Agreement pursuant to Section___, Licensor may terminate the License and the other rightsgranted to Licensee under this Agreement by giving notice of ter-mination to Licensee, which termination shall become effectiveautomatically unless Licensee completely cures the breach within___ days of the giving of the said notice. If the Licensor’s noticeof termination relates to royalties or to product quality, pending

500

cure, Licensee agrees that it will ship no Licensed Products; ifLicensee does ship, it shall automatically forfeit its right to cureand the License shall be terminated.

Sample Rights on Termination Clauses

1. Upon non-renewal or termination of this Agree-ment, Licensee shall cease and desist, within a reasonable time tobe agreed upon by Licensee and Licensor, from all further use ofthe Licensed Mark; any other trademark owned by Licensor andwhich may during the course of this Agreement be authorized byLicensor to be used by Licensee in connection with the LicensedServices; or any trademark or service mark that is confusinglysimilar to the Licensed Mark or any other mark owned byLicensor. Licensee further agrees that upon non-renewal or ter-mination of this Agreement, Licensee will not thereafter use anymark that incorporates the Licensed Mark, or any mark that isconfusingly similar to the Licensed Mark, nor will Licensee chal-lenge the ownership or validity of, or seek to cancel, the LicensedMark or any other trademark of Licensor.

2. Upon the expiration of the License Term, orupon termination of the License for any reason whatsoever, Lic-ensee shall immediately deliver to Licensor a complete and accu-rate inventory of Licensed Products as of the close of business onthe date of such expiration or termination. Licensee may disposeof the Licensed Products during any Disposal Period agreed uponby the parties under this agreement, provided however, that suchdisposition shall continue to be subject to Licensee’s obligationshereunder, including, without limitation, with respect to the pay-ment of royalties and the approval of advertising. At the end ofthe Disposal Period, or if none, upon termination, any LicensedProducts remaining in Licensee’s possession or control shall, atthe request of Licensor, and at Licensee’s expense, be destroyed.Licensor shall have the right at any time to conduct a physical

501

inventory of the Licensed Products then in Licensee’s possessionor control.

3. Licensee hereby agrees that upon the termina-tion or expiration of this Agreement, Licensee will be deemed tohave assigned, transferred and conveyed to Licensor any traderights, equities, goodwill, titles or other rights in and to theLicensed Trademarks, the domain name and any assumed busi-ness name incorporating the Licensed Trademarks which mayhave been obtained by Licensee or which may have vested in Lic-ensee in pursuance of any endeavors covered hereby, and thatLicensee shall execute any instrument requested by Licensor toaccomplish or confirm the foregoing. Any such assignment,transfer or conveyance shall be without consideration other thanthe mutual covenants and considerations of this Agreement.

Sample Bankruptcy Clause

1. Notwithstanding the other provisions of thisAgreement, in the event that, pursuant to the applicable bank-ruptcy law, a third party is permitted to assume this Agreement,such third party must notify Licensor in writing of its interest inassuming this Agreement and of its proposed terms for doingso. Upon receipt of such notice, Licensor shall have fifteen (15)days to approve the assumption and the terms therefore. If Licen-sor fails to approve the assumption within said 15 days, the thirdparty may complete the assignment referred to in its notice uponthe terms specified therein. Nothing contained herein shall bedeemed to preclude or impair any rights which Licensor mayhave as a creditor in any bankruptcy proceeding.

Sample Indemnification and Insurance Clauses

1. LICENSEE hereby indemnifies LICENSOR, itsofficers, employees and agents, for any claims (including but notlimited to, product liability, wrongful death, and negligenceclaims), suits, losses, expenses, damages, or other liability includ-

502

ing attorneys’ fees and related costs arising from, caused by, relat-ing to, or incident to the manufacture, packaging, advertising,sale and use of the LICENSED PRODUCTS including (i) anyunauthorized use of or infringement of any trademark or otherproprietary right by LICENSEE, and (ii) libel or slander against,or invasion of the right of privacy, publicity or property of, or vio-lation or misappropriation of any other rights of any third party.This indemnification shall survive the expiration or terminationof this Agreement. LICENSEE agrees to carry insurance with acompany acceptable to the LICENSOR for the benefit of LICEN-SOR including products and completed operations liability, for-eign liability, personal and bodily injury, property damage andadvertising coverage to protect against any such claims, damages,attorneys’ fees and costs. Said insurance shall provide such cov-erage in the amounts of not less than _____________ dollars($__________) Combined Single Limit for bodily injury, per-sonal injuries and property damage arising out of each occurrenceor such larger amount if required by LICENSOR. LICENSORmust be named as an additional insured. LICENSEE shall fur-nish said LICENSOR with a certificate of such insurance, andshall notify said LICENSOR at least thirty (30) days prior tomodification, expiration or cancellation of any applicable poli-cies.

2. LICENSEE shall defend, indemnify, and holdharmless LICENSOR, its officers, employees, and agents fromand against any losses and expenses (including attorneys’ fees),claims, suits, or other liability, including product liability, result-ing from injury to or death of any person or damage to propertyarising out of or in any way connected with the exercise of thelicense granted by this LICENSE AGREEMENT, provided suchinjuries to persons or damage to property are due to the acts ofcommission or omission of LICENSEE, its officers, employees oragents, or the products manufactured or sold by them. LIC-ENSEE shall, throughout the TERM of the AGREEMENT,obtain and maintain at its own cost and expense from insurancecompany acceptable to LICENSOR, insurance coverage for bothbodily injury and property damage liability, including productsand complete operations liability, foreign liability (where applica-

503

ble), personal injury and advertising coverage. This policy shallname LICENSOR as an additional insured insofar as thisAGREEMENT is concerned. To the extent permitted by federaland local law, such policy shall provide protection against anyand all claims, demands and causes of action arising out of anydefects or failure to perform, alleged or otherwise, of theLICENSED PRODUCTS or any material used in connectiontherewith or any use of advertising thereof. The amount of cover-age and other insurance requirements shall be . Thepolicy shall provide for thirty (30) days notice to LICENSORfrom the insurer by registered or certified mail, return receiptrequested, in the event of any modification, cancellation or termi-nation thereof. LICENSEE agrees to furnish LICENSOR anoriginal certificate of insurance with the original authorizing sig-nature of the LICENSEE’s insurance agent evidencing samewithin thirty (30) days after execution of this AGREEMENT, and,in no event, shall LICENSEE manufacture, distribute or sell theLICENSED PRODUCTS prior to receipt by LICENSOR of suchevidence of insurance.

Sample Amendment Clauses

1. No variation or amendment of this LicenseAgreement shall be effective unless it is in writing and signedby an authorized representative of the parties.

2. This Agreement constitutes the entire under-standing of the parties relating to the subject matter hereof, andsupersedes all other agreements and understanding whether writ-ten or oral. This Agreement may be amended or modified only in

504

writing by the duly authorized representatives of the respectiveparties.

Sample Waiver Clauses

1. No waiver of any term, provision or conditionof this License Agreement shall be effective unless it is in writ-ing and signed by an authorized representative of the waivingparty. No failure to exercise nor any delay in exercising anyright or remedy hereunder shall operate as a waiver thereforeof any other right or remedy hereunder, nor shall any singleor partial exercise of any right or remedy prevent any furtheror other exercise thereof or the exercise of any other right orremedy.

2. Waiver or non-enforcement by either PARTY ofa term or condition of this AGREEMENT shall not be constituted(a) a waiver or non-enforcement of said term or condition, (b) awaiver or non-enforcement of any other term or condition, or (c) awaiver of any subsequent breach of the same or similar term orcondition.

Sample Severability Clauses

1. Should any provision of this AGREEMENT beheld unenforceable, then the validity of the remaining provisionsshall not be affected by such a holding, and the parties shall nego-tiate in good faith and agree to a reasonable provision which isintended to replace the provision held to be unenforceable.

2. This Agreement is intended to be valid andeffective throughout the Territory and, to the extent permissibleunder applicable law, shall be construed in a manner to avoid vio-lation of or invalidity under any applicable law. Should any pro-vision hereof nevertheless be or become invalid, illegal orunenforceable under any applicable law, the other provisionshereof shall not be affected, and to the extent permissible under

505

applicable law, the parties shall agree upon a new provision whichwill accomplish as nearly as possible the primary purpose or pur-poses of the provision held invalid, illegal or unenforceable.

Sample Governing Law Clauses

1. This AGREEMENT and all disputes hereundershall be governed by the laws of the State of , except tothe extent that ________’s conflict of laws provisions may resultin another state’s laws being applicable. LICENSEE hereby con-sents to the jurisdiction of any court of competent jurisdiction,federal or state, situated in the State of for any and allactions arising out of this AGREEMENT, waives any defensewhich it might otherwise have based on jurisdiction and/or venue,and agrees to accept service of process by mail.

2. This Agreement shall be governed by andconstrued in accordance with the internal substantive laws of____________ applicable to agreements made and to be per-formed entirely therein. Licensee hereby consents to theexclusive jurisdiction of the courts of _____________ and ofthe United States District Court for the District of______________ for resolution of all claims, differences anddisputes which the parties may have regarding this Agree-ment.

Sample Assignment Clauses

1. This AGREEMENT shall inure to the benefit ofLICENSOR, its successors and assigns, but will be personal toLICENSEE and shall be assignable by LICENSEE only with theprior written consent of LICENSOR, which may be withheld for

506

any reason. LICENSOR shall have the absolute, unfettered rightto transfer this AGREEMENT and its rights and obligationsthereunder to any third party upon notice to LICENSEE.

2. This Agreement shall not be assigned or trans-ferred by either party without the prior written consent of theother party, except to a successor in ownership of all or substan-tially all the assets of the assigning or transferring party, whichsuccessor shall expressly assure in writing the performance of allthe terms and conditions of this Agreement to be performed bythe assigning or transferring party as if it were named herein inthe place of the assigning party.

Sample Agency Clauses

1. Neither party shall represent or hold itself out asan agent, legal representative, partner, subsidiary, joint ventureror employee of the other. Neither party shall have the right orpower to bind or obligate the other, in any way, manner or thingwhatsoever, nor represent that it has any right to do so.

2. Neither either party hereto shall be construed tobe the agent of the other in any respect. The parties have enteredinto this Agreement as independent contractors only, and nothingherein shall be construed to place the parties in the relationship ofpartners, joint venturers, agency or other legal representation.Neither party shall have the authority to obligate or bind the otherin any manner as to any third party.

507