Why Most Companies Have Too Many Licensors

If you looked to a corporation’s internal licensing department for evidence of trademark usage and enforcement, as well as development of products well-adapted to the brand, you would usually be impressed.

But if you scratched even lightly beneath that surface, and looked beyond the internal licensing department for evidence of the same principles elsewhere in the company, you would usually be appalled.  Throughout most companies there are multiple divisions authorizing, developing, sourcing and selling branded products without any trademark protection and with none of the brand discipline that governs the development of the company’s own core products.

How does this happen?  Why does a company allow so many employees, in so many disparate divisions and with so little oversight, to act as unsupervised licensors of its most valuable asset – its brand?  Often for good reasons, but frequently  with bad results, and always at a cost to its true licensing opportunities and the long-term value of its brand.

How Does it Happen?

The company opens a visitors’ center or museum, and needs a gift shop.  The manager of the gift shop dreams of becoming a profit center and starts attending gift and premium trade shows.  This person – often someone with no experience with trademarks or brand management – thinks not of how her work can support the brand but of how she can increase her own sales.  And before you know it, an internal division of the company with no marketing or trademark oversight is sourcing branded products from dozens of suppliers, none of whom execute licensing agreements and some of whom invariably start pirating the brand via independent distribution of the same products.  Even worse, few of their products comply with the brand’s customary trademark requirements, and even fewer support brand equity or help build its long-term value.

It does not take long before this independent retailer thinks of selling outside her own boundaries.  In the past this usually meant printing a mail-order catalogue and buying a cheap direct-mail list.  Today it usually means tacking an e-commerce link to the company’s own website.  Separately, her search for wholesale customers (again, to increase sales) leads her to one who either sets himself up as an exclusive representative of branded products, or sets up a “store-within-a-store” at some other location.

But the gift shop manager is not the only employee with the same temptations.  Sometimes a salesman wishes he had new premiums to offer his best accounts, or the accounts he hopes to gain.  So he independently sources some products and then needs to print a sheet illustrating them.  Again, none of these products, and none of their manufacturers, comply with traditional trademark requirements, and because the salesman has limited design skills and understanding of the company’s larger brand objectives, the products have nothing to do with the company’s carefully maintained and advertised image.  Before long, this salesman, too, hopes to reduce the prices he pays, or increase his divisional profits, by turning his four-color sheet of premiums into a small mail-order catalogue itself.

Add to this mix the company’s own internal or external website developers who think they have discovered a way to get rich quick; the brand manager who oversees the development of POS and promotional material; the HR assistant who needs handouts for the corporate retreat; the distributor who asks for the right to sell a co-branded product independently; and the business development staffer who needs gifts at holiday time, and you stop being surprised when you discover that a company has four, or five, or even ten people separately developing and distributing branded products.

The Costs

I am a licensing agent, so the immediate risk of these results to me is that it limits the licensing opportunities for the brand, and weakens the opportunities that remain.

But the risks to my clients are far greater than that.

As a legal matter, such unregulated efforts inevitably weaken the trademark that the company is probably paying attorneys tens of thousands of dollars a month to protect – the trademark that probably constitutes the company’s single largest asset.

As a financial matter, such efforts invariably lead the company into the mistakes made by all inexperienced (and many experienced) retailers: excess inventory and the resulting choice between painful write-offs or close-out sales of branded merchandise.  Someone will ask at a meeting who had decided that the company was destined to be the next L.L. Bean, and no one will have a coherent answer.

As a matter of brand management, these uncoordinated efforts to exploit the company’s intellectual property will take a toll that can never be measured – but one that the company should never have to bear.  It is difficult enough to build and maintain a brand in the face of competition from other consumer products companies.  But it will be increasingly difficult to do so if the company also faces a challenge from within, and it threatens the careful positioning of a brand to which the company has devoted dozens of employees, millions of dollars, and its future.

The Answer

How can companies avoid this result?  How can they use consumer products to build brand equity without posing it any threats, and without distracting themselves from the core business at hand?

By building an internal Intellectual Property Department, one that – among other functions – will oversee the development of all products bearing the name or image of company’s core brands.  Next month I will explain how such an office can work, and how, of course, it can maximize its performance and potential by working with an outside licensing firm.

From the May 2001 issue of The Licensing Journal