Key Takeaways

  • International licensing agreements allow companies to grant rights to use intellectual property (IP) across borders while retaining ownership.
  • Key provisions include venue for dispute resolution, assignment rights, survival clauses, and clear identification of authorized users.
  • Common structures include exclusive, non-exclusive, and sole licenses, each balancing control and market reach differently.
  • Benefits of international licensing agreements include faster market entry, lower financial risk, and expanded global brand recognition.
  • Risks include loss of quality control, potential IP infringement, and compliance with foreign laws.
  • Agreements should address royalties, tax obligations, dispute resolution, and termination rights to protect both parties.

Choosing Your Venue

One of the most overlooked portions of a licensing agreement is identifying a venue that will handle dispute resolution. Most countries will allow the licensee to determine the venue and if none is chosen, the licensee's home court will be used. This is not the same in every country, so it is always important to err on the side of caution and choose a dispute resolution venue in the United States. No matter what you choose, it is always best to choose a venue that has the best laws to fit your needs.

Common Types of International Licensing Agreements

International licensing agreements can take several forms, depending on the business objectives and level of control the licensor wants to maintain:

  • Exclusive License: Grants rights to only one licensee in a particular territory, preventing even the licensor from using the IP there.
  • Non-Exclusive License: Allows the licensor to grant rights to multiple licensees within the same market.
  • Sole License: A hybrid model where the licensee has exclusive rights, but the licensor may also use the IP.

The chosen license type directly affects revenue potential, competition control, and strategic partnerships.

Clearly Identify Who Is Allowed to Use the Protected Item

There should be a section in your agreement that clearly states all parties that are authorized to utilize the protected items that are listed in the agreement. This can be a vital component if a dispute arises and parties begin to blame each other if a breach does occur. You need to make sure to include the authorized parties in both companies so you will be able to find where a breakdown occurs and who bears responsibility if it happens.

A good choice to make for an authorized person is the head of marketing. Marketing department heads will often be the ones who track the use of the protected items and will most likely oversee those who have access to it.

Benefits of International Licensing Agreements

International licensing offers several advantages for both licensors and licensees:

  • Market Expansion: Provides access to new territories without the need to establish local subsidiaries.
  • Cost Savings: Reduces the high costs of setting up foreign operations.
  • Brand Recognition: Builds global visibility through local partners familiar with the market.
  • Risk Sharing: Shifts some operational, regulatory, and financial risks to the licensee.
  • Speed to Market: Enables quicker entry into international markets compared to direct investment.

Set up Your Contract to Automatically Survive

Many contracts are set up with a future end date. To ensure your ongoing protection, you should create a survival clause in your contract. It is also important to make sure that you regularly meet, even if the contract seems to be working fine. You should treat the agreement as a continuing relationship that requires nurturing and working together to ensure goals are met.

Risks and Challenges in International Licensing

Despite its advantages, international licensing involves potential challenges:

  • Loss of Control: Licensees may mismanage or misuse the IP, harming brand reputation.
  • Enforcement Issues: Protecting IP rights in foreign jurisdictions can be costly and complex.
  • Regulatory Compliance: Each country has unique laws regarding competition, royalties, and taxation.
  • Cultural Differences: Business practices and consumer expectations may lead to misunderstandings.
  • Termination Complications: Ending agreements can be difficult if terms are not clearly defined.

Careful drafting of international licensing agreements helps mitigate these risks.

Assignment

License agreements are an important asset for businesses to own, and when a company is being acquired, it can be one of the things the acquiring party is seeking. You can add some amazing financial value to the contract by including a section that gives the party the right to assign the agreement to the other side. That way all parties can enjoy the benefits of the contract even if they are sold. What's even more important is that both parties will have the protection to veto the assignment of the contract if they are not comfortable with the new party.

Key Provisions to Include in an International Licensing Agreement

For strong legal protection, international licensing agreements should contain:

  • Royalty Structure: Define fixed fees, percentage-based royalties, or hybrid models.
  • Territorial Scope: Clearly state the countries or regions where the license applies.
  • Quality Control Standards: Outline expectations for product or service quality.
  • Audit Rights: Allow licensors to verify royalty reports and compliance.
  • Governing Law and Arbitration: Specify the applicable law and method of dispute resolution.
  • Tax Considerations: Address withholding taxes, transfer pricing, and double-taxation treaties.
  • Termination Clauses: Define conditions under which the agreement may be ended.

What is Licensing?

Licensing is an agreement that allows another company to use protected materials such as:

  • Patents
  • Trademarks
  • Design
  • Intellectual property

The licensee will not be involved in the manufacturing of the product but will be given a fee in exchange for its use.

Practical Tips for Negotiating International Licensing Agreements

When negotiating international licensing agreements, consider the following best practices:

  1. Conduct Due Diligence: Research the licensee’s reputation, financial health, and market experience.
  2. Tailor Agreements by Region: Adapt terms to align with local laws and cultural practices.
  3. Plan for IP Protection Abroad: Ensure trademarks, patents, and copyrights are registered in target countries.
  4. Define Performance Obligations: Require minimum sales targets or marketing commitments.
  5. Seek Professional Guidance: Engage legal experts experienced in international licensing to reduce risks.

Frequently Asked Questions

  1. What is the main purpose of an international licensing agreement?
    It allows a company to grant rights to use its intellectual property abroad while expanding into new markets without heavy investment.
  2. How does an international license differ from a domestic one?
    International licenses must account for foreign laws, tax treaties, cultural differences, and cross-border enforcement of IP rights.
  3. What are common royalty structures in licensing agreements?
    They include fixed payments, sales-based royalties, or a combination of both, often with minimum guarantees.
  4. What risks should licensors be aware of?
    Loss of control over brand quality, IP infringement, regulatory challenges, and difficulties in terminating agreements.
  5. Can international licensing agreements be terminated early?
    Yes, but only if the agreement includes termination clauses specifying conditions such as breach, insolvency, or failure to meet performance standards.

If you need help with an international licensing agreements, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.