Licensing Your Trademark in Canada: What the Licence Agreement Should Include

If your business owns a trademark — a name, logo, or slogan customers associate with you — and another company wants to use it, a handshake is not enough. A trademark licensing agreement is the document that spells out exactly how, where, and for how long someone else can use your brand, and what you, as the owner, must do to keep control over how it is used.

Licensing can be a genuinely useful way to grow revenue from a brand you have already built, through franchising, co-branding, merchandising, or a distribution partner using your name to sell your products. A poorly drafted licence — or worse, no written licence at all — can blur who actually controls the mark, which creates real risk for the trademark itself, not just for the business relationship.

This article walks through the terms a solid trademark licence agreement should cover, why the quality-control clause matters more than most business owners expect, and where these arrangements commonly go wrong.

What a Trademark Licence Actually Does

A trademark licence is permission — the trademark owner (the licensor) allows another party (the licensee) to use the mark on specified goods or services, under specified conditions, without transferring ownership. The licensor keeps the underlying trademark; the licensee gets a defined right to use it.

This is different from an assignment, where ownership of the mark itself changes hands. Confusing the two in a contract, or leaving the distinction vague, is a common and avoidable drafting mistake.

Core Terms Every Trademark Licence Should Address

A trademark licence agreement should clearly set out:

• Scope of use — exactly which goods, services, and marks (word mark, logo, or both) the licence covers.
• Territory — where the licensee may use the mark (all of Canada, Ontario only, a specific channel such as online sales, etc.).
• Exclusivity — whether the licence is exclusive, sole, or non-exclusive (see the comparison below).
• Term and renewal — how long the licence lasts and whether, and how, it renews.
• Royalties or fees, if any, and how they are calculated and paid.
• Quality control rights — the licensor's right to inspect, approve, and set standards for how the mark is used.
• Sublicensing — whether the licensee can permit others to use the mark, and on what conditions.
• Ownership acknowledgment — a clear statement that the licensor owns the mark and that any goodwill generated by the licensee's use benefits the licensor.
• Termination rights — the events that end the licence (breach, insolvency, end of term) and what happens to signage, inventory, and materials bearing the mark afterward.

The Clause You Cannot Skip: Quality Control

Under Canadian trademark law, a trademark is meant to signal a consistent source and standard of quality to the public. If a licensor hands out permission to use its mark without maintaining any real control over the character or quality of what the licensee sells under it, the mark can stop functioning as a reliable badge of origin.

That matters beyond the contract itself: a trademark that no longer distinguishes a consistent source is more vulnerable to challenge. A well-drafted licence agreement should give the licensor genuine, exercisable rights — not just words on paper — to review products or marketing materials, set quality standards, and require corrections when the licensee falls short.

Exclusive, Sole, and Non-Exclusive Licences Compared

The right choice depends on how much control you want to retain and how much certainty the licensee needs to justify its investment in the brand.

Common Pitfalls in Trademark Licensing

• [ ] Licensing a mark that is not yet registered without checking what common-law or registered rights already exist for a similar mark.
• [ ] Leaving quality control as a vague statement instead of a real, enforceable inspection and approval process.
• [ ] Failing to address what happens to the licensee's signage, packaging, and marketing materials once the licence ends.
• [ ] Allowing the licensee to sublicense without the licensor's approval.
• [ ] Not confirming who owns any new goodwill, packaging design, or marketing content the licensee creates while using the mark.

Frequently asked questions