Licensing agreements are ubiquitous; from computer software to Dora the Explorer party favors, many products and services are brought to market through licensing agreements. Put simply, the holder of a patent, trademark, process or other intellectual property (the licensor) allows another (the licensee) use of the IP for commercial gain.
Whether the agreement is arrived at over a few beers at the pub, or is complex enough to involve teams of lawyers and accountants, the basic form remains the same, spelling out the rights and responsibilities of each party to the deal.
Profit is the goal of licensing deal, how that profit is divided is an important part of the agreement. Generally the licensor will receive a minimum payment at a set time as well as royalties based on sales. Royalties typically are in the 6-10% range. Compensation clauses may also require a minimum revenue requirement, which if not met allows the grantor of the license to end the relationship.
The time frame of the agreement is also important. More than just the duration of the contract is involved. The time frame mandates when the licensee must have the product or service on the market. To aid the licensee during the initial phases of development this part of the contract usually allows for a delay in initial payment to the grantor of the license. This part of the agreement also covers renewal and termination conditions.
The operational element of the contract involves quality. It is not uncommon for the grantor to require the licensor to adhere to the parent company’s policies and procedures involving development and marketing of new products. This section also covers distribution territories, non-competing covenants and ownership and control of assets involved in the agreement at its conclusion.
Putting your valuable Intellectual property in the hands of another is a decision that should not be entered into lightly, proprietary information and your good name is on the line.