Pete Canalichio is an expert in brand licensing with over 25 years of experience. He discusses the basics of brand licensing, including defining it as the leasing of intangible assets like brands, characters, or names. He explains the benefits for both licensors, who can unlock a brand's value, and licensees, who gain marketing power. Canalichio also outlines the expectations of licensors, such as licensees investing in the category and meeting sales targets, and the expectations of licensees, such as the brand opening doors to sales growth. He discusses how licensing can help companies enter new product categories and provides an example flow of royalty payments from retailers to licensors.

1. JANUARY 2016 T h e L i c e n s i n g J o u r n a l 1
Pete Canalichio is a brand-licensing strategist
with more than 25 years of business experience.
Having worked in brand licensing for close to
20 years for companies such as The Coca-Cola
Company and Newell Rubbermaid, he is consid-
ered an expert on the subject and is repeatedly
asked to speak at branding and licensing confer-
ences and leading business schools globally. In
2009, Mr. Canalichio founded Licensing Brands,
Inc., a company dedicated to helping brand
owners and manufacturers harness the power
of brand extensions through licensing. He is co-
author with Mark Di Somma of Lasso the World,
Reframing How Brands Expand in Today’s
Competitive Environment, forthcoming in 2016.
One way to begin to define brand licensing is
to break the subject into its two component parts:
(1) brand and (2) licensing. Let’s begin with licens-
ing? Licensing means nothing more than the rent-
ing or leasing of an intangible asset. An example of
intangible assets includes a song (“Somewhere Over
the Rainbow”), a character (Donald Duck), a name
(Michael Jordan) or a brand (The Ritz-Carlton). An
arrangement to license a brand requires a licensing
agreement. A licensing agreement authorizes a com-
pany that markets a product or service (a licensee) to
lease or rent a brand from a brand owner who oper-
ates a licensing program (a licensor).
Now what is meant by a brand? According to Philip
Kotler and Gary Armstrong a brand is defined as “a
name, term, sign symbol, or combination of these, that
identifies the maker or seller of the product” or service.
The brand or its legal term, trademark, affixed to the
product helps the consumer understand where it was
manufactured or produced. In essence, a trademark
simply states “I made this.” From the brand owner’s
perspective, it distinguishes the products or services
from those of its competitors. Consumers, in turn, can
be assured the product they are purchasing is exactly
what they want. Based on its reputation, a brand will
convey a level of quality, reliability, and durability.
Why Do Companies Brand
Their Products?
The primary reason companies choose to brand
their products is to differentiate them from their
competitors’ products. For example, most consumers
have no problem differentiating a Coke from a Pepsi.
By giving their products a brand, a company or brand
owner can begin to communicate with their consum-
ers regarding the attributes of their products. Over
time, a consumer can rely on the brand to connote
not only a product’s value but also its reputation. If
a consumer likes what a brand represents and they
have purchased it before, there is a higher likelihood
they will choose the brand of their preference over a
competitor. In fact, consumers often will purchase a
brand for the first time if it has a strong reputation
or if it is used by friends or celebrities. Brands also
lead consumers to develop certain expectations of
products. The longer they experience predictable,
consistent quality and performance, the more they
will expect any new products sold under the same
brand to have the same. The brand, therefore, adds
value to these products.
For example, customers expect new products sold
under the BMW brand to be of the same quality as an
existing BMW. Consumers will associate a brand with
a certain price level and standard of performance.
If we look at two distinct watch brands: Rolex and
Timex, one is associated with a high price and high
performance and the other with value through a low
price and durability. These same attributes also can
be of benefit to businesses. Many companies as well
as consumers look to UPS for their shipping needs
because “Brown” has developed the reputation of
actually adding value to an organization through its
understanding of its customers’ needs and its consis-
tent reliability.
When consumers and businesses get into the habit
of buying certain brands, they automatically buy them
again. This reduces the amount of time and promotion
needed to make future sales, and it results in brand
loyalty. According to Philip Kotler, brand loyalty, in
marketing, consists of a “consumer’s commitment to
repurchase or otherwise continue using the brand”
and can be demonstrated by repeated buying of a
product or service or other positive behaviors such as
word of mouth advocacy. Brands usually pass through
successive stages of brand loyalty, which is the cus-
tomers’ allegiance to a particular brand. The stronger
the brand loyalty, the higher the value of the brand and
the greater revenue it will drive for its owner.
AU: Is
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correct?
The Basics of Brand Licensing
Pete Canalichio

2. 2 T h e L i c e n s i n g J o u r n a l JANUARY 2016
Why Do Companies License
Their Brands?
As was said above, a licensing agreement autho-
rizes a company that markets a product or service
(a licensee) to lease or rent a brand from a brand
owner who operates a licensing program (a licensor).
Companies who know their brands well will have
a good understanding of the equity of the brand. A
brand’s equity is derived from the awareness and
image a brand holds with its consumers.
Licensing enables companies whose brands have
high preference to unlock a brand’s latent value
and satisfy pent up demand that exists. After Apple
launched the iPod a number of years ago it created
an immediate need for accessories; Apple could have
chosen to manufacture and distribute these accesso-
ries, but decided it was not core to the business and
therefore, chose to satisfy the need through licensing.
Licensing the iPod brand enabled many companies
to produce all kinds of terrific products to make the
iPod more user-friendly and enhance the listening
experience. Examples include the Bose Sound System
with iPod docking station, other products that enable
an iPod to be heard through a vehicle’s built-in stereo
and iPod holding devices that allow users “to take
their music with them” when they go running. All
these accessories are sold by licensees.
Apart from benefits to licensors, there are ben-
efits to licensees as well. Licensees lease the rights
to a certain property for incorporation into their
merchandise, but traditionally they do not share
ownership in it. Having access to major national
and global brands, and the logos and trademarks
associated with those brands, gives the licensee sig-
nificant benefits it previously did not possess. The
most important of these is the marketing power the
brand brings to the licensee’s products. Building a
brand from scratch can take years, millions of dol-
lars, and a lot of luck. The company that licenses
a brand gains immediate access to all the positive
brand and image building that went before it. The
licensee also takes with them the reputation of the
licensor. Often this “halo” effect can translate into
many intangible and immeasurable benefits such as
returned calls, an agreement to meet, or simply the
benefit of the doubt.
Using Licensing to Enter
New Categories
Often brand managers will enter or extend their
brands into new product categories to drive strategic
growth for the company. For example, Crest several
years ago extended its brand from toothpaste into
whitening (Crest Whitestrips). Before, Procter &
Gamble (P&G), the owner of the Crest brand
launched Crest Whitestrips, they conducted research
to understand if the brand had permission to enter
into the retail whitening category, long held by estab-
lished brands such as Rembrandt and Aquafresh.
Exhibit 1
Licensor picks the
product
categories to be
licensed
Licensor or its
agent finds and
negotiates a
license with the
best licensees
Licensees develop
concepts,
prototypes and
final production
samples and
submit for
approval
Licensor approves
licensed products
for sale
Licensees sell
licensed product
in authorized
channels to
retailers

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P&G wanted to find out if consumers would expect
Crest to offer a whitening product and if so, based
on the preference for the Crest brand, purchase this
new product. As we know Crest Whitestrips have
performed well since their launch in the market and
have achieved high rankings and advocacy ratings.
While P&G decided to source the product overseas
and distribute globally, they could have chosen to
manufacturer it themselves and distribute or enter
the market through licensing. In the case of P&G’s
Mr. Clean brand, P&G discovered that consumers
expected them to sell cleaning accessories under the
Mr. Clean brand. In this case, P&G decided to enter
the market by licensing the category to Magla, a com-
pany that already had expertise and presence in this
category. Exhibit 1 illustrates the different stages that
are a part of the Licensed Product Process Flow.
What Are the Expectations
of Licensors and Licensees?
Licensors expect that the licensee will be com-
mitted to investing in the category it licenses. This
means the licensee will work hard to understand
the essence of the brand and develop its licensed
product in a way that captures that essence. In other
words, the licensed products should connect with
the consumer both functionally and emotionally.
If the licensee does this, the products it develops
normally will be approved without delay or dif-
ficulty. To achieve this takes time and money. So
while both parties want to commercialize the cat-
egory as soon as possible, the licensor will expect
the licensee to start with building the brand into
the product first. The licensor also will expect the
licensee to be familiar with the contract and to
meet the obligations of the contract. That is why it
is important for the licensee to ensure all employees
in the licensee’s organization working on the license
are familiar with its contractual obligations. For
example, when a product becomes approved, the
licensor will expect the licensee to commercialize
the licensed product expeditiously in each of the
authorized channels. Finally, the licensor will expect
the licensee to meet or exceed the projected sales
targets for the category as outlined in the contract.
When all of these things happen, the result can truly
be award winning products that meet or exceed
annual sales and royalty projections.
Licensees, in turn, expect that the licenses they
have acquired will provide them with sales growth.
This sales growth may be in the form of growth within
existing channels or the opportunity to enter a new
channel or new market. To accomplish this objective,
licensees expect that the brands they are licensing are
as strong or stronger than they believe or have been
told, that the brands will open doors and ultimately
help them meet or exceed their business objectives.
Moreover, licensees expect that the licensors or their
agents will run a simple, straight forward licensing
program that will not administratively tax their orga-
nization. Finally, they expect that the licensors will
approach the licensing relationship with a win-win
Exhibit 2
Retailers such as Sears
and Target sell $10
million of licensed
product e.g., tee-shirts
and caps in a calendar
year
The tee-shirt and cap
licensee sells $5 million
of licensed product to
Sears and Target (based
on 100% markup)
The tee-shirt and cap
licensee pays Disney,
the licensor, $500,000 in
royalties ($5 million ×
10% rate)

4. 4 T h e L i c e n s i n g J o u r n a l JANUARY 2016
attitude that will allow them to move quickly to take
advantage of opportunities that present themselves.
Because licensing contracts obligate the licensee to
sales targets and royalties, the licensee’s goal will be
to quickly achieve sales of licensed product to meet
these requirements.
Royalty and Payment Flow
Royalty is the monies that are paid to a licensor by
the licensee for the right to use the licensed property.
It is calculated by multiplying the Royalty Rate by the
Net Sales. Exhibit 2 is an example of how the royalty
payments would flow from the retailer to the licensee
and ultimately to the licensor. The example assumes
a 10 percent royalty rate.
Brand licensing is probably one of the least
explored methods to enter a new product category
by most brands. However, hopefully this article has
explained what brand licensing is and the numerous
benefits that it has to offer both to licensors and
licensees.
Needless to say, the entire process is lengthy and
time consuming. One must keep in mind that the
goal is not to achieve the license but to make a suc-
cess of it and the activities that follow the signing of
the contract. These processes, if executed well, on
the one hand, can ensure huge success of the pro-
gram. While on the other hand, if either the licensee
or the licensor does not live up to its commitments,
it can affect sales, and more importantly the reputa-
tion of the brand.

5. JANUARY 2016 T h e L i c e n s i n g J o u r n a l 5
Commingled Intellectual Property—
Like Peanut Butter and Jelly?
Jennifer A. Kearns, John M. Neclerio, and Vicki G. Norton
Who doesn’t like the favorite childhood sandwich
peanut butter and jelly? The two substances blend
and meld together, creating a delectable gooey, messy,
sticky, and sweet treat.
In the life sciences, commingled intellectual prop-
erty also can create “gooey,” messy and sticky prob-
lems for companies. Unfortunately, there’s nothing
sweet about commingled IP and the complications
that can arise from it, and you can be sure that an
experience arising from claims of commingled IP
will leave a sour taste in your mouth. This article dis-
cusses proactive or preventative steps that companies
can take to reduce the risk of commingling IP.
Jennifer A. Kearns, a partner at Duane Morris
in Philadelphia, PA, practices in the area of
employment law, both in the transactional and
counseling arena, and in the litigation context.
Ms. Kearns has over two decades of experience in
counseling and advising employers on all aspects
of employment law. Ms. Kearns also has substan-
tial experience as a product liability litigator and
has tried to jury verdict cases involving claims
of wrongful death and injury allegedly caused by
exposure to various products.
John M. Neclerio is chair of the Technology
Transactions and Licensing Practice Group at
Duane Morris in Philadelphis, PA. He practices in
the areas of general business and corporate law,
commercial finance, mergers and acquisitions,
distribution and franchising law, patent licensing,
software licensing, copyright and trade secret law,
computer, e-commerce and technology law, and
privacy and data security.
Vicki G. Norton, PhD practices in the area of
intellectual property law with a focus on bio-
technology and chemical patent counseling and
litigation. She also advises clients on worldwide
patent strategy, including identifying patent cover-
age issues, auditing technology portfolios to assist
clients in transactions and venture opportunities
and formulating strategic objectives
for prosecution.
Defining Commingled IP
In layperson’s terms, commingled IP arises when
intellectual property belonging to one party becomes
incorporated into a proprietary creation belonging
to another party, or is used by the second party in
developing the second party’s proprietary intellectual
property. How might this happen?
An R&D company might in-license the use of cer-
tain materials or processes for use in its own Research
and Development program. Typically, in a licensing
agreement, the licensor will allow the licensee to use
the licensor’s proprietary materials or IP in connec-
tion with the licensee’s pursuit of a specific research
project. However, scientists in research companies
and universities commonly confer with one another;
collaboration and exchange of ideas is a hallmark
of scientific innovation. This sharing of information
about materials and processes used by one research
group may influence a group of colleagues to use the
same materials or processes in an unlicensed project.
A clear hypothetical example of commingled IP
involving materials could be a situation in which
Company A licenses the rights to use stem cells pro-
duced by Company B in developing a biologic drug or
vaccine relating to prevention of shingles. Scientists
at Company B confer with colleagues and due to
absence of appropriate safeguards in the license and/
or deficiencies in Company B’s IP management, the
colleagues use the licensed stem cell strains on a proj-
ect, which leads to development of a biologic drug for
a condition other than shingles.
Another hypothetical example would be one in
which there is a proprietary process (“know how”)
which is licensed by Company B to use in connec-
tion with its shingles biologic drug development.
In regular scientific roundtables, scientists on the
shingles biologic drug team discuss their methodolo-
gies, including the steps that constituted the licensed
“know how.” The scientists who are not working on
the shingles vaccine do not know that the “know how”
methodology was licensed from Company A. They go
on to use the same methodological steps in their own,
unrelated experiments, which result in fruitful, com-
mercially viable results.