Key Takeaways:

  • Business Formation: Establishing a legal business entity is crucial before obtaining a merchandise license.
  • License Agreement Essentials: Understanding what a merchandise license entails, including contract terms, royalties, and brand compliance.
  • Types of Merchandise Licenses: Covers character licensing, brand licensing, and event-based licensing.
  • Legal & Financial Considerations: Ensuring compliance with intellectual property laws, payment of royalties, and licensing fees.
  • Steps to Obtain a License: From identifying trademark holders to negotiating contract terms.
  • Marketing & Distribution: Strategies for selling licensed merchandise legally and profitably.
  • Common Pitfalls & How to Avoid Them: Including unauthorized use, contract disputes, and licensing renewal issues.

How to get a merchandise license entails several important steps that will allow you to sell the image or products associated with a brand or trademarked design.

Form Your Business

In order to form a business through which you will sell licensed merchandise, you must register your business first with the state and local government where you will be conducting business. You must decide on how you will structure your business. There are four alternatives: sole proprietorship, partnership, limited liability company, or a corporation.

Each has advantages and disadvantages that you should take into consideration:

  • Sole Proprietorship: The easiest and least expensive small business entity you can set up is a sole proprietorship, and it is by far the most popular form of business that exists in the U.S. Your local Small Business Bureau can provide guidance and walk you through the steps.
  • Partnership: Setting up a partnership is a little more involved than a sole proprietorship, but not that much more so. A partnership agreement should be in place, and while this can be an oral agreement, it is best, in the long run, to commit the agreement to paper.
  • Limited Liability Company: A limited liability company is a business entity that provides its owners (called members) protection from liability for business debts and other business liabilities. To form an LLC, it is necessary to file articles of incorporation with the state in which you intend to do business, and there may be additional fees for notices of LLC formation in local newspapers.
  • Corporation: There are several reasons to form a corporation, chief among them is the ability to limit the liability of the business owners and the ability to raise capital by issuing stock in the company. Setting up a corporation is a very involved undertaking, and it is highly recommended that, if this is your plan, you consult an attorney experienced in corporate law.

Other considerations in starting a business, regardless of type, are creating a unique name for your business, obtaining a domain name for your website, and getting adequate insurance. You may also need to obtain special business licenses, such as a wholesale reselling license. Check with your Secretary of State regarding business permits, as each state may differ in the licenses they require.

Understanding Merchandise Licensing

Merchandise licensing is a legal agreement where a brand owner (licensor) grants permission to another party (licensee) to use their trademarks, logos, or intellectual property on products. This enables businesses to sell branded merchandise legally while paying royalties or licensing fees.

The benefits of obtaining an official merchandise license include:

  • Brand Credibility: Association with a well-known brand enhances consumer trust.
  • Increased Sales Potential: Leveraging existing brand recognition can lead to higher demand.
  • Legal Protection: Avoids trademark infringement lawsuits.
  • Expanded Market Reach: Access new customer segments through licensed branding.

Licensing agreements typically outline:

  • Royalty Fees: A percentage of sales paid to the brand owner.
  • Duration & Territory: Specifies where and for how long the license is valid.
  • Product Specifications: Ensures brand consistency in design, quality, and distribution.

Obtaining the Merchandising License

Before you lay out any money for registering your business, renting retail space, paying for a domain name, or obtaining licenses from your state, perform the following:

  • Identify the owner of the trademarked merchandise you want to sell. This is usually just a matter of conducting an online search of trademark records at the USPTO website.
  • Identify the demographics that will pay you money for the licensed merchandise. It makes little sense to go through all the expense to obtain a merchandise license only to discover there is no market for the goods you want to sell.
  • Obtain permission from the owner of the trademark to sell the goods. Again, if selling this specific merchandise is all you intend to do, determine as early as possible that the owner will grant you permission.
  • Determine if you need a resale license, which allows you to purchase the trademarked goods from a distributor without paying sales tax.
  • Check with your local revenue department regarding procedures for collecting sales taxes.

The website of the International Licensing Industry Merchandisers’ Association can provide information to help you through this phase of obtaining a license agreement.

Types of Merchandise Licenses

Understanding the different types of merchandise licenses will help you determine which fits your business model:

  1. Character Licensing:
    • Used for movies, TV shows, and cartoon characters.
    • Examples: Disney, Marvel, and Pokémon merchandise.
  2. Brand Licensing:
    • Allows businesses to use an established brand's logo or trademark.
    • Examples: Sports team apparel, Coca-Cola-themed merchandise.
  3. Event-Based Licensing:
    • Temporary licenses granted for special events, festivals, or collaborations.
    • Examples: Olympics-branded gear, FIFA World Cup merchandise.
  4. Corporate Licensing:
    • Businesses license their brand to third-party manufacturers.
    • Example: Automotive brands licensing their logos for toy cars and collectibles.
  5. Celebrity & Influencer Licensing:
    • Public figures allow companies to sell products featuring their name or likeness.
    • Example: Endorsement-based merchandise from athletes or musicians.

Before applying for a license, determine which type aligns with your business model and target audience.

Creating the Merchandising License

If you want to save money on legal costs, it is possible to find samples of merchandising licenses for practically every industry on the Internet. However, it may actually be more efficient and cost-effective to employ an experienced attorney to help you through the licensing process. They can help you with everything from creating the licensing document, performing background research on the owner of the trademarked products, negotiating terms of the license, understanding intellectual property rights, and even work with you on product development, packaging, real estate leases, and other legal matters that may arise during the course of business.

The business of selling licensed merchandise can be very lucrative. According to the Licensing Industry Merchandiser’s Association, global retail sales of licensed merchandise totaled almost US $262 Billion in 2016. Take the time from the very outset to create your business and do the necessary research to increase your chances of success.

Common Pitfalls and How to Avoid Them

Many businesses fail to maintain compliance with their merchandise licenses, leading to legal issues or financial losses. Common mistakes include:

  1. Unauthorized Product Alterations:
    • Making unapproved design changes can void a license agreement.
    • Always seek licensor approval for new designs.
  2. Failure to Report Sales Accurately:
    • Underreporting sales can result in penalties or license revocation.
    • Maintain transparent financial records and submit regular reports.
  3. Ignoring Licensing Renewal Deadlines:
    • Missing renewal deadlines could lose your rights to sell licensed products.
    • Track key contract dates and set reminders.
  4. Disregarding Market Demand:
    • Licensing a product without assessing demand can lead to unsold inventory.
    • Conduct market research before signing agreements.

By understanding these pitfalls, you can ensure a successful and legally compliant licensing business.

Key Legal Considerations in Merchandise Licensing

Merchandise licensing involves strict legal guidelines to protect intellectual property rights and ensure fair compensation. Key legal factors to consider include:

  • Trademark & Copyright Compliance:
    • Ensure that the intellectual property you wish to license is legally registered.
    • Conduct trademark searches via the United States Patent and Trademark Office (USPTO).
  • Royalty & Payment Structures:
    • Typically, licensees pay licensors a percentage of gross sales.
    • Some agreements include upfront fees in addition to royalties.
  • Quality Control Requirements:
    • Licensors may require specific design, packaging, and branding standards.
    • Failure to meet these requirements could lead to contract termination.
  • Renewal & Termination Clauses:
    • Licensing agreements often include expiration dates and renewal conditions.
    • Ensure the contract specifies how and when licenses can be renewed or terminated.

Hiring an attorney experienced in licensing law can help navigate these legal complexities and ensure compliance.

Marketing & Selling Licensed Merchandise

Once you’ve secured a merchandise license, it’s essential to create a marketing strategy to maximize sales. Consider these tactics:

  1. Online Sales Platforms:
    • Sell through e-commerce sites like Shopify, Amazon, and eBay.
    • Utilize social media shops (Instagram, Facebook Marketplace).
  2. Retail Distribution:
    • Partner with brick-and-mortar stores to expand reach.
    • Attend trade shows to connect with wholesalers and buyers.
  3. Brand Compliance & Promotion:
    • Maintain consistent branding to align with the licensor’s image.
    • Leverage co-branded marketing campaigns to boost visibility.
  4. Limited Edition & Seasonal Releases:
    • Create exclusive or limited-time merchandise to drive demand.
    • Align product launches with trending events or pop culture moments.

Frequently Asked Questions

  1. How much does it cost to get an official merchandise license?
    The cost varies depending on the brand and type of merchandise. It may include upfront fees, royalty percentages (typically 5-15%), and renewal costs.
  2. Can I sell licensed merchandise without a license?
    No. Selling products featuring copyrighted or trademarked material without permission can result in legal action, fines, and product seizure.
  3. What industries commonly use merchandise licensing?
    Industries that frequently use licensing include fashion, entertainment, sports, toys, gaming, and consumer electronics.
  4. How long does a merchandise license last?
    License duration varies by contract but typically lasts one to five years, with renewal options.
  5. Do I need an attorney to obtain a merchandise license?
    While it’s not legally required, hiring an attorney ensures compliance with contract terms, royalty structures, and intellectual property laws.

To learn more about how to get a merchandise license, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.