Understanding and Mitigating the Risks

• Author: Michael Sanford Stone
• Profession: B.A. from Hamilton College and a J.D. from Emory University School of Law
• Pages: 121-146

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CHAPTER 6

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 pertain

to a loss of control. Despite a high degree of oversight, organiza-

tions still are, through licensing, allowing a third party to pro-

duce and market a product using what has already been described

as the brand owner’s most valuable assets—its trademarks and

other intellectual propert ies. In the product journey from product

The Power of Licensing

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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 are 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 the 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