Structuring a Cross-Border IP License Between a US and Canadian Company

A US company wants a Canadian business to sell its product under its trademark north of the border. A Canadian software company wants to let a US partner use its brand and code to sell into the American market. A Canadian franchise-style brand wants to expand into the United States through a licensed operator rather than opening its own US entity. All of these are versions of the same underlying transaction: one company, in one country, granting another company, in the other country, the right to use its intellectual property.

As we cover in Trademark Canada vs USA: What Businesses Need to Know, trademark rights are territorial — a Canadian registration does not protect a mark in the United States, and a US registration does not protect it in Canada. Licensing is often how businesses bridge that gap commercially before, or instead of, registering and operating directly in the other country. Done well, a cross-border IP licence lets both sides move faster than a full market entry would allow. Done with a thin or copy-pasted agreement, it can quietly put the underlying IP at risk. This article walks through what the agreement needs to address.

The starting point is defining exactly what is being licensed and how broadly. An exclusive licence means the licensor agrees not to license — and often not to use — the IP itself within the licensed territory during the term. A non-exclusive licence leaves the licensor free to license the same IP to others, or use it directly, alongside the licensee. Exclusivity is usually the single biggest lever on price and commitment: a licensee taking on exclusive Canadian or US rights is typically expected to invest more in building the market, and will want assurances — minimum performance or sales targets, for example — that justify locking out competitors.

Beyond exclusivity, the agreement needs to define precisely what IP is covered: a specific trademark (and which classes of goods or services), copyrighted material such as software or marketing content, or both. Vague scope language — "use of the brand" without specifying the registered marks, classes, and permitted applications — is a common source of later disputes about what the licensee was actually allowed to do.

Because IP rights are territorial to begin with, the licence needs to be explicit about where the licensee is permitted to operate. "Canada" and "the United States" sound like clean boundaries, but cross-border commerce rarely respects them cleanly — a Canadian licensee selling online will inevitably receive orders from US customers, and vice versa. The agreement should address how incidental cross-border sales are handled, whether the licensee can fulfill them, and what happens if the licensee's marketing or e-commerce presence is visible from outside its assigned territory.

Where both a US and a Canadian licensee exist for the same brand, or where the licensor plans to license further countries later, the territorial clause is also what prevents overlapping or conflicting grants — a problem that is much cheaper to prevent in drafting than to resolve after two licensees are already operating in the same market.

Most cross-border IP licences involve some form of royalty — a percentage of revenue, a flat periodic fee, a per-unit charge, or a combination. The agreement should specify the calculation basis (gross revenue, net revenue, units sold), the currency of payment, the payment frequency, and the licensee's reporting and audit obligations so the licensor can verify what is owed.

Cross-border payments raise a question that belongs with your accountant, not in the licence terms themselves: withholding tax. Royalty payments crossing the Canada-US border can be subject to withholding tax, and relief may be available under the Canada-United States Tax Convention depending on the circumstances and the paperwork filed. The specific treatment turns on facts particular to each business and can change, so this is a question to take to your accountant or a cross-border tax specialist before finalizing the payment structure — not something to assume or estimate in the agreement itself.

This is the provision that is easy to treat as boilerplate and dangerous to skip, particularly for trademark licences. Trademark law in both countries ties the validity of a licensed mark to the licensor actually controlling how it is used. In Canada, section 50 of the Trademarks Act treats a licensee's use as use by the trademark owner only where the owner has, under the licence, direct or indirect control of the character or quality of the goods or services, and the owner should be prepared to show that control was exercised in practice, not just written into the agreement. In the United States, a licensee's use benefits the owner as use by a "related company" where the owner controls the nature and quality of the goods or services (15 U.S.C. §§1055 and 1127), and licensing a trademark without exercising that kind of control can expose the licensor to a naked licensing claim — a doctrine under which a court can find the mark has stopped functioning as a reliable indicator of source, putting the licensor's rights in the mark itself at risk, not just the licence.

In practice, this means the licence agreement needs real mechanics, not just a sentence asserting control: approval rights over how the mark is used before the licensee goes to market, defined quality or brand standards the licensee must meet, a right to request samples or inspect the licensee's operations, and a documented process for enforcing those standards if the licensee falls short. A licensor who grants rights and then never checks in on how the mark is being used is building exactly the fact pattern that puts the mark's validity at risk on both sides of the border.

The agreement should set a clear initial term, the conditions under which it renews (automatic renewal, mutual agreement, or performance-based renewal tied to sales minimums), and the grounds on which either party can terminate early — material breach, insolvency, failure to meet minimum performance, or a change of control of either party. For a licensee that is investing in building a market under someone else's brand, the term and renewal terms directly affect how much it is willing to invest; for a licensor, they determine how much runway a licensee has before its rights can be pulled back.

Termination mechanics deserve equal attention: what happens to existing inventory bearing the mark, how quickly the licensee must stop using the IP, whether any transition period applies, and what becomes of copyrighted material such as marketing content or software the licensee has been using. A licence that is clear about grant terms but silent on wind-down terms tends to produce the most contentious disputes.

Once the licence exists, both sides should confirm what needs to happen with each country's trademark office. As covered in Trademark Canada vs USA, CIPO and the USPTO are separate registries with separate rules, and licensing practice differs between them — including how licensed use is documented and, in the US, how licensed use fits into the use-based filings and maintenance filings a registration depends on. Both offices can record a licence: CIPO will record a licence agreement on the Canadian register at the registered owner's request, and the USPTO can record one to give third parties notice. In neither country, though, is recording the licence what makes the licensee's use count as the owner's use. In Canada, section 50 turns on control, and public notice that the mark is used under licence, identifying the owner, creates a presumption of that control unless the contrary is proven. In the United States, recording is not a determination of the document's validity, and licensed use benefits the owner through control under section 5 of the Trademark Act. A written licence, and a record of how control has actually been exercised, are what support the licensor's position in each country.

Copyright works the same way in principle: a licence granting rights to use software, marketing content, or other copyrighted material should be clear on whether the grant is an assignment (transferring ownership) or a licence (granting permission while the licensor retains ownership) — a distinction our Canadian copyright guide for business owners covers in more detail, and one that matters just as much when the two parties are on opposite sides of the border.

A cross-border IP licence sits at the intersection of two countries' IP law, tax treatment, and commercial expectations, which is exactly why a licence template built for one country rarely transfers cleanly to a cross-border deal. If your business is already navigating a US partner or a US-Canada ownership structure more broadly, our guide on best practices for a Canadian with an American business partner covers the wider set of cross-border structuring questions that often come up alongside a licensing arrangement.

At Lamba Law, we draft and negotiate business agreements and contracts including cross-border IP licences, working with US counsel and registered trademark agents where filings or prosecution on the US side are required. This article is general information, not legal advice for your situation — the right structure depends on your specific brand, business, and tax position, so get tailored advice before you sign.