How to Get a Licensing Agreement: Everything You Need to Know
Knowing how to get a licensing agreement can be very helpful when you are looking to allow other parties to use your intellectual property (IP) for merchandising or purely production-related purposes.3 min read
Licensing Agreement Overview
Knowing how to get a licensing agreement can be very helpful when you are looking to allow other parties to use your intellectual property (IP) for merchandising or purely production-related purposes. Such agreements are useful when a party wishes to advertise their brand through tie-in products made by another party, when they have a product idea but no means or desire to produce it, or they have a trade secret process that they can profit from by licensing it to other parties. A licensing agreement will clearly define how the IP may be used by the licensee and how the licensor will be compensated for it.
License Agreement Basics
A license agreement will vary in detail from agreement to agreement, but the basic details covered by such an agreement will remain essentially the same. The basic license agreement will include:
- The subject matter. This will entail a detailed description of the trade secret, service, or product to be licensed. Copyright, patent, or trademark number may be included here.
- Definitions. Any pertinent terms that need definitions will be defined in a definitions section.
- The purpose. The parties involved in the contract should be named in the contract, and what names they will be referred to throughout the contract (such as “licensor” and “licensee”) should be stated.
- The license. The contract should also describe the license being granted, including the duration of the license, its geographic extent, what is or isn’t allowed by it (products that can be made, sublicensing, distribution details), and whether it will be exclusive or not.
- Payments. How payment will be made, including royalties (if applicable), should be described. The payment schedule, sub-license payments (if applicable), and audit rights should also be described.
- Restrictions. What limitations there are on the license should be detailed. Examples could include if there are to be sub-license restrictions or restrictions on products that can be made.
- The agreement’s start and finish date. The effective date of the agreement and the end date of the agreement, or what action will trigger the end of the agreement, should be stated. How the agreement can be continued after the end of the agreement and who retains the ownership rights of any products in existence at the end of the agreement are important points to cover.
- A non-disclosure agreement. If trade secrets or other sensitive information is involved, a non-disclosure agreement pertaining to them should be included.
- Jurisdiction designation. If a breach of contract occurs or other legal issue arises leading to a court case, where this case is to be heard should be stipulated.
- Dispute settlement. In a similar vein, how disputes are to be settled should also be stated, including if arbitration or litigation is to be used.
License Agreement Tips
In addition to having the basics of a licensing agreement in place, there are a number of actions you can take to further strengthen your position. These include:
- Firmly establish ownership. A good contract should clearly state what rights are being granted pertaining to the intellectual property in question. If trademarked IP is being dealt with, it should be ascertained that no other parties are using the trademark and the logo trademark has been registered.
- Do not overlook definitions. All processes and products pertinent to the contract should be described thoroughly, so that there is no confusion related to the licensing.
- Define the royalty system. Questions like who gets paid, when do they get paid, what are minimum sales, what happens if these sales are not met, and is there a royalty advance should all be answered in the contract.
- Explain the quality assurance monitoring process. If the creation of a product is involved, its quality should be monitored both during the design and production processes. The extent of quality assurance checks should be defined.
- Be aware of government regulations. Some products, such as weapons, have restrictions on where they can be sold and to whom they can be sold. It is important to be up to date on this before an agreement is entered into.
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