When it comes to entering into a licensing agreement, there is a lot that must be considered. The Chicago legal landscape is complex, creating a need to understand the unique rules and regulations in the area in order to ensure compliance. Despite the complexity, it’s important for all parties to gain a comprehensive understanding of the main aspects of a licensing agreement in order to secure statutory protection and contractual freedom. This article will provide a preliminary overview of the top five points to consider when entering into a licensing agreement.

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So, what should you consider when entering into a licensing agreement?

#1: Identify the Right Licensor and Licensee

The first step in any licensing agreement is to correctly identify who the licensor and licensee are. The licensor holds legal ownership over a certain set of rights and is transferring the right to use these rights to the licensee. If the licensor is a business, they must also provide evidence of their legal authority to enter into the agreement.

In addition, the licensee should also ensure they have the capacity to use the rights that are being licensed, as well as have a legitimately stated purpose for the agreement. If the licensee is a business, they must also have legal authority to enter into the contract.

#2: Understand the Nature of the Rights Transferred

The licensor must have clear and full understanding of the extent of the rights that they are granting to the licensee. There must also be full clarity on the scope of the rights in order to make sure the licensor is not giving away more than necessary.

In addition, it is important for the licensee to fully understand the limits of rights they are obtaining and the expectations of their behavior towards the licensor. The clear understanding of responsibilities can avoid any conflicts between the licensor and licensee later on.

#3: Termination and Expiration

When entering into a licensing agreement, both the licensor and licensee should agree on the expiration and/or termination of the agreement. The agreement should clearly outline any restrictions on either party that may occur and explain both the grounds and consequences of termination.

This can prevent any misunderstanding between the parties, while also allowing them to properly plan for their liabilities in the event of termination or expiration.

#4: Compensation and Royalty Payments

The agreement should clearly spell out the level of compensation the licensor expects to receive from the licensee. It should also explain how royalty payments are calculated and when the licensee is expected to pay.

Furthermore, if there are any additional fees associated with the agreement, such as registration costs, those should be carefully outlined as well.

#5: Confidentiality

Last but not least, a licensing agreement should also include a clause that ensures the confidential nature of any information shared between the parties. It should stipulate that the licensee may not share any proprietary information, documents, data, or internal processes acquired or used during the agreement without the licensor’s permission.

This ensures that each party can protect their own business interests and also allows for honest and open communication. Additionally, the agreement should be constructed in such a way that any endeavor created by either party, during the term of the agreement, is not exclusive.


As with any legal agreement, there are several elements to consider when reviewing or creating a licensing agreement. It is important to note that carefully remembering these points can help not only the licensor and licensee but also provide protection from potential legal issues down the line.

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