Brand or trademark owners suffer no greater damage than that caused by licensing poor-quality products, whether or not the quality is so poor that ti actually causes harm to consumers.  In my last column on quality control, I described ways that trademark owners and their agents can ensure the quality of their licensing products before they enter into license agreements.  Those methods include a thorough focus on quality in the due diligence process and drafting license agreements that include appropriate protection from the risk that a licensee may be negligent in the quality of its work.

In this column, I will describe methods that a brand owner can use to ensure the quality of its licensed products after a license agreement has been signed.

Active Quality Control Begins when the License Agreement is Signed

A licensee makes money only if it makes and sells licensed products, so it naturally will begin developing those products immediately after the license agreement has been signed.  This is when the licensor’s active oversight of quality issues must begin.

The first step is to establish a protocol for the quality control (QC) process (to the extent that it is not laid out in the license agreement itself).  The licensor can explain its expectations about how quality issues need to be addressed at each stage of the licensing partnership.  Another important elements of this protocol is to clarify who pays for what and when.

Licensors are increasingly expecting licensees to reimburse them for expenses incurred in QC oversight, but a responsible licensor should spell out those expectations, including estimates of costs at each stage, early on.  The licensor can also use the QC protocol to spell out its expectations in terms of sample submissions.  For licensed food products, licensors also need to clarify how the licensee will take and retain batch samples, how it will keep records, and when it will provide samples and data for review by the licensor or its appointed QC experts.

Concept, Prototype, and Product Review

The first stage of actual QC work comes with the licensee’s submission of product concepts.  Concepts must be reviewed with an eye to consistency with brand equity as well as to high quality in terms of safety, functionality, and reliability.

It is not too early at this point to engage QC experts – either from the licensor’s own QC staff or from an outside QC firm – for a full design review.  It is better to spend energy, time and resources at this stage than after the licensee has developed a prototype or mold.

The same procedures apply when the licensee submits products prototypes, both preproduction and actual production samples.  Products that present issues of functionality or safety deserve great attention throughout the development stage.

QC Audits and Compliance

The most important way to evaluate a licensee’s quality control is through an audit.  Audits reveal many factors, including cleanliness, consistency, safety, undisclosed facts, accuracy of representations, sourcing and use of subcontractors, and they take many different forms.

A maintenance or general audit of the licensee should be conducted whenever quality concerns arise, but for products that present special concerns regarding safety (e.g., toys), consistency (e.g., food), and functionality (e.g., appliances), the licensee should be audited on a regular rotation (say, every two years).

Licensors should also conduct annual samples and data reviews for man licensed products.  Outside QC firms can easily review samples and data according to the quality protocol by licensees.

Consistent application of these methods of quality oversight will results in a license agreement that can survive indefinitely and continue building value for both the licensor and licensee.

The Customer is the Ultimate QC Expert

The underlying reasons for all this quality oversight is the customer and his or her safety and satisfaction.  Tracking customer satisfaction is therefore an essential part of QC oversight.  The license agreement should require the licensee to provide the licensor with both general and, in the case of critical comments, specific information regarding customer comments and complains that the licensee receives.

Conclusion

This description of the quality practices of good licensors is not exhaustive; it does not, for example, cover practices to be followed when licensors must call for recalls.  If licensors and their agents carry out active oversight of QC issues the way described here, however, they will have gone a long way toward avoiding the greatest licensing risks and maximizing their gains.

From the Novemebr/December 2003 issue of the Licensing Journal

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