Understanding and Mitigating the Risks

AuthorMichael Sanford Stone
ProfessionB.A. from Hamilton College and a J.D. from Emory University School of Law
Understanding and
Mitigating the Risks
Licensing always carries a certa in degree of risk. at’s why this
chapter uses the words mitigating the risks and not eliminating
the risks. You cannot completely eliminate risk. But brand own-
ers can assess risk and reduce the likelihood of problems, which
wi ll he lp wit h ca tegor y iden tic atio n and licen see s elec tion, as di s-
cussed later in the chapter.
Be aware that potential risks are sometimes what cause a
brand owner to turn away from licensing entirely. Organizations
worry that the risk isn’t worth the benets that licensing provides.
Sometimes they may be right. Many times, however, most of the
risks can be mitigated through some simple and relatively inex-
pensive best practices.
Virtually all of the risks mentioned in this chapter perta in
to a loss of control. Despite a high degree of oversight, organiza-
tions still are, th rough licensing, allowing a third party to pro-
duce and market a product using what has already been described
as the brand owners most valuable assets—its trademarks and
other intellectual propert ies. In the product journey from product
The Power of Licensing
development to the consumer, many stops exist where there is risk.
ose risks as well as how to mitigate them will be discussed in
this chapter. Many of the examples provided are real-life examples,
but without the brand owner’s name being mentioned. Most brand
owners want to keep their missteps to t hemselves.
Identifying Risk Types
ere are three general types of risk . First are “internal risks”:
issues that arise and problems that occur between the brand
owner and its licensee. For example, internal risks include the
risk that a licensee doesn’t fulll its nancial commitments on
time or refuses to ful ll the commitments at all or doesn’t launch
the product as agreed. Internal risks are generally contractual
or simply relationship risks. Perhaps the partnership was wrong
from the beginning, a nd this becomes apparent before any prod-
uct reaches the market. ese risks a re kept “within the family”;
in other words, they generally occur behind the scenes and the
consumer is unaware of them, particularly if the product never
makes it to the retail “shelf.”
Second, there are “external hard risks.” For example, a licensee
sells a product that has not been approved by the licensor (a
contractual breach, but still a major headache for both parties).
e consumer may or may not be aware that something went
wron g; it wou ld like ly depe nd on the qualit y or des ign elem ents of
the una pproved product.
ird are “external so risks ,” and these can be signicant. For
example, the licensee may damage the brand owner’s reputation
due to a faulty product. More than likely, these risks wi ll reach the
consumer’s attention.
Beyond loss of control, bad publicity and reputational damage
are the risks that brand owners generally fear most. One mig ht say
that these result from a loss of control. is can be t he outcome
of poor product, bad marketing by the licensee, manufacturing
conditions, supply chain issues, even reputational challenges faced
by executives of a licensee. A myriad of activities by a licensee

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