Trademark Licensing: 3 Things Every Owner Must Know

Before Licensing a Trademark, Owners Should Understand This

Trademark protection is the first step. But the real value of a trademark comes from how you use it to make money. This process is called commercialisation.

Many entrepreneurs think a trademark is “just a registration.”

In reality, a trademark is an Intellectual Property asset, similar to owning a piece of real estate, a trademark can generate income in several ways.

How Can a Trademark Make Money?

A trademark can generate revenue in three common ways:

1. Licensing – You let another party use your trademark for a fee.

2. Franchising – You give the whole business system + trademark + trade secret + know-how for expansion.

3. Outright Sale – You sell the trademark to another owner.

   
   

This article focuses on trademark licensing and the key things every owner must know before letting someone use their brand.

But before you embark on a trademark licensing journey, the first thing you need is a trademark licensing agreement.

Why Do You Need a Licensing Agreement?

A licensing agreement is mandatory because the Malaysian Trademarks Act 2019 (TMA 2019) says so.

Section 69(3), TMA 2019:

“A licence shall not be effective unless it is in writing and is signed by or on behalf of the grantor.”

In simple terms, If it’s not in writing, it’s not a valid licence.

A verbal “can use lah” is not good enough. It gives you almost zero protection.

Common Mistake #1: Letting Someone Use Your Trademark Without a Contract

Many business owners still allow distributors, agents, or partners to use their trademark without a proper trademark licensing agreement. Some even rely on verbal permission.

This is risky because:

• You cannot control how they use your trademark.

• You may lose your brand reputation if they misuse it.

• You may face difficulty proving your rights in disputes.

• You weaken your Intellectual Property asset’s commercial value.

  
  

Common Mistake #2: Assuming “Trademark Registration Covers Everything”

Many people think that once they file a trademark application or obtain trademark registration, the law automatically protects all their business arrangements.

That’s simply not true.

In summary, the TMA 2019 only sets out basic legal rights such as:

• What licensing means

• Rights of a licensee in case of infringement

• Remedies if someone infringes the trademark

  
  

The Trademark Laws do not cover real-world business issues like:

• Quality control of branding and products

• Royalty structure

• Actual scope of licensing

• Reporting requirements

• Termination and renewal

• What happens if the licensee damages your brand

  
  

That is why a well-drafted trademark licensing agreement that fits your business model is critical.

Top 3 Things to Look for in a Trademark Licensing Agreement

A Trademark Licensing Agreement is the pillar of your entire licensing business. It controls how your trademark is used, how you get paid, and how you protect your brand. There is no standard template because every business has different goals, risks, and revenue models.

Before you sign anything, make sure the agreement clearly protects your rights, obligations, and commercial interests. A weak contract can destroy your licensing business before it even starts.

Below are the top 3 things every trademark owner must look out for when drafting or reviewing a trademark licensing arrangement.

Tip #1: Define the Scope of the Licence Clearly

The scope of licence tells the licensee exactly what they can and cannot do with your trademark. It usually covers three things: exclusivity, product types, and territory.

Getting the scope wrong is one of the biggest causes of disputes in trademark licensing. So keep this part very clear and very specific.

1. Exclusivity: Don’t Use “Exclusive Licence” Unless You Mean It

An exclusive licence is powerful. It gives the licensee the sole right to use your trademark—sometimes even stopping you, the trademark owner, from using your own brand.

Under the Section 68(a) of the Malaysian Trademarks Act 2019:

“Exclusive licence” means a licence, whether general or limited, authorising the licensee to the exclusion of all other persons including the person granting the licence, to use a registered trademark in the manner authorised by the licence, and the expression “exclusive licensee” shall be construed accordingly.”

In simple terms, if you grant an exclusive licence, you may lose the ability to use your own trademark.

This is why you must be careful with the word “exclusive”. Many business owners use the term casually without realising its legal effect.

It is also important for you, as a trademark owner, to also consider:

• Can the licensee appoint sub-licensees?

• Do you want to restrict or completely prohibit sub-licensing?

  
  

All these must be spelled out in the agreement.

2. Types of Products: Limit What They Are Allowed to Sell

Even if your trademark is registered for many products, you can choose to license only some of them.

For example, your trademark registration in Class 30 covers coffee, pastries, and candy.

But you may decide to grant a licence only for coffee products.

This is especially important if you want to grow different product lines separately in the future.

3. Territory: Define Where the Licensee Can Operate

Territory determines the geographic area the licensee can use your trademark. For example, limited to certain state, district or even radius.

If you define territories well, you can prevent market conflicts between licensees and create different revenue streams for different regions.

Territory planning is one of the strongest tools to grow a sustainable trademark licensing model.

So, before you you decide on the scope of licence, ask yourself this question:-

“Do I want this person to control this product, in this place, with this level of exclusivity?”

Tip #2: Set a Clear Licensing Fee Structure and Payment Method

Your licensing fee structure is the heart of your trademark licensing business. It decides how you earn and how attractive your offer is to potential licensees. A good fee structure must balance two goals:

• You should earn fair revenue, and

• Your licensee should stay profitable and attractive to them (or they will not renew).

  
  

Here are the common elements you should define clearly.

1. Upfront Fees

Many licensing models charge an upfront fee to cover:

• onboarding

• training

• initial brand use rights

• administrative work

  
  

The fee should match the value of your brand and the support you provide.

2. Running Licensing Fees (Royalties)

Most licensors charge ongoing fees based on:

• percentage of revenue, or

• percentage of profit

  
  

Revenue-based fees are easier to audit. Profit-based fees require deeper financial transparency.

3. Minimum Annual Licensing Fee

If the licensee’s performance is uncertain, you may impose a minimum annual fee to protect your revenue.

This pushes the licensee to hit targets and prevents your trademark from being underutilised.

In any event, it is important to choose a fee structure that rewards performance but doesn’t suffocate the licensee. A happy licensee sells more—and you earn more.

Tip #3: Protect Quality Control and Brand Integrity

Quality control is crucial in trademark licensing. Whatever your licensee produces under your trademark will reflect directly on your brand. Poor quality can damage your Intellectual Property asset and hurt every other licensee.

Your licensing agreement should clearly require the licensee to:

1. Follow your brand guidelines

2. Maintain consistent product or service quality

3. Use your trademark exactly as approved (logo files, colours, formats)

4. Meet your minimum service or product standards

   
   

You may also consider asking your licensee to get your approval before publishing any marketing material designed by them.

But Watch Out: Don’t Control Them Too Much

In Malaysia, if you exercise too much control, your “licence” may be seen as a franchise—even if you never intended it.

You should be mindful that under Section 4 of the Franchise Act, in the definition of “franchise”, subsection (c), one of the conditions for a franchise is:-

“franchise” means a contract or an agreement, either expressed or implied, whether oral or written, between two or more persons by which – the franchisor possess the right to administer continuous control during the franchise term over the franchisee’s business operations in accordance with the franchise system.

In simple words, if you control your licensee’s business operations on a day-to-day basis, you may accidentally create a franchise.

And running a franchise without registering it with the Ministry is illegal. This can even make your entire licensing agreement null and void, causing you to refund all payment received from your licensee.

So, you must control the brand, not the business. Set your quality standards clearly, but avoid controlling how your licensee runs their daily operations.

What This Means for Entrepreneurs

Before you license your trademark, always remember this: your licensing agreement must reflect your unique business model, not someone else’s template. Every brand has different goals, different risks, and different ways of making money from its IP. Take time to read your licensing agreement carefully, customise it to your commercial strategy, and make sure it protects both your trademark and your long-term revenue. A strong agreement today will shape the future value of your brand tomorrow.

Need Help Drafting or Reviewing a Licensing Agreement?

A good licensing agreement can grow your brand. A bad one can weaken your entire Intellectual Property asset. If you want a licensing agreement that truly protects your trademark and supports your business model, our team at LAWENCO | Advocates & Solicitors can help. We assist brand owners in structuring, drafting, and reviewing trademark licensing arrangements that are legally sound, commercially practical, and aligned with Malaysian law.

Speak to us if you want peace of mind before you sign!

Written by,

Lawrence Tan 

Registered Trademark, Patent and Design Agent

LL.B (HONS), CLP

Advocate & Solicitor

Disclaimer: The above information is merely for general sharing and does not constitute any legal advice. Readers are advised to seek individual advice from the professionals.