New technology may become available making the licensed opportunity obsolete. The agreement may force the licensee to accept restrictions on its marketing. The licensee may lose the capacity to develop its own technology internally.
Subject Matter of the Agreement—may be 1 patent, 2 copyright, 3 trademark, 4 industrial design, 5 trade secret know-how, technology, experience, etc. Granting of Rights—defines what licensor is transferring to licensee Licensor's Obligation—sets out how transfer is to take place in terms of assistance, support, training and co-operation Licensee's Obligation—sets out financial requirements, guarantees of licensee, secrecy, costs, etc. License Fee—fee paid to licensor on signing agreement Royalty—ongoing share of proceeds paid to licensor for the rights.
May be a lump sum, or percentage of proceeds or amount per unit sold, etc. Term—how long the agreement is to last Designated Area and Exclusivity—define manufacturing and marketing area of license Termination—describes rights of both licensor and licensee to terminate agreement Guarantees—licensor will normally not guarantee the results of using the rights granted.
The licensee may be required to provide warranties, public liabilities, etc. Licensor should provide licensee sufficient information to determine feasibility of the opportunity in the proposed area.
Licensor should provide: product brochure, bill of materials and specifications, labour and time, how long marketed and growth, other licensees where located and right to contact , benefits over competition, estimated total market, warranties, marketing, training provided, financial terms, etc.
Prospective licensee does a feasibility study based on his area and the market he will have. Licensor may require the potential licensee to sign a Confidential Disclosure Agreement before providing a full package of information. If negotiation is lengthy the licensor may request a letter of intent and some partial payment for keeping the opportunity available for a period of time until licensee determines feasibility. Usually a licensing agreement will be provided by the licensor once it has established the licensee is serious with regard to the opportunity.
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What Is a Licensing Agreement? What Is the Purpose of a Licensing Agreement? How Licensing Agreements Work In order to use another entity's property, you normally have to pay some kind of royalty. Specific Types of Licensing Agreements Lets's break down some common types of licensing agreements: Trade secret licenses: Outlines how, where, and when you can use an entity's trade secrets.
Trademark licenses: Outlines how you may use a trademark. Patent licenses: Outlines your right to sell, use, make, distribute, and export a product that's patented. Copyright licenses: Outlines your right to reproduce and sell a copyrighted asset. Examples of Licensing Agreements There are many uses for licensing agreements.
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Get Bids Now. How ContractsCounsel Works. Hiring a lawyer on ContractsCounsel is easy, transparent and affordable. These include the scope of the agreement, including exclusivity or territorial restrictions; financial aspects including required advances, royalty rates, and how royalties are calculated; guarantees of minimum sales; time schedules involving "to market" dates, length of contract, and renewal options; the lessor's rights of monitoring and quality control, including procedures to be followed; minimum inventories required to be maintained; finally, returns and allowances.
One of the most important elements of a licensing agreement covers the financial arrangement. Payments from the licensee to the licensor usually take the form of guaranteed minimum payments and royalties on sales. Royalties typically range from 6 to 10 percent, depending on the specific property involved and the licensee's level of experience and sophistication.
Not all licensors require guarantees, although some experts recommend that licensors get as much compensation up front as possible. In some cases, licensors use guarantees as the basis for renewing a licensing agreement. If the licensee meets the minimum sales figures, the contract is renewed; otherwise, the licensor has the option of discontinuing the relationship. Another important element of a licensing agreement establishes the time frame of the deal. Many licensors insist upon a strict market release date for products licensed to outside manufacturers.
After all, it is not in the licensor's best interest to grant a license to a company that never markets the product. If it doesn't, the agreement automatically ends.
With so many areas of negotiation for a licensing agreement, anything can cause problems. That's especially true if the attorney who writes the licensing agreement uses language that's too broad.
Still, four areas are the most likely causes of a licensing agreement dispute:. The main areas of concern are the same for licensor and licensee. With an agreement, both parties have an understanding of how to approach intellectual property.
Without one, the parties face the danger of lost time and money plus the frustration of a failed business negotiation. Think of the situation from the perspective of a clothing manufacturer. Brands like professional sports teams, music artists, and movies all add value to a shirt. A licensor would want to manufacture goods that use these brands. The licensor would want payment for the license. The license agreement is how the two parties work out a deal that benefits both parties.
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