Updated November 4, 2020:

A manufacture license agreement is a crucial document that you need for your business. After an inventor patents a product, the journey begins in getting that product to consumers. Certain inventors will accomplish this by creating products on their own. With that, not all patent owners desire or have the means to handle various aspects of marketing and manufacturing. This is where a license manufacturing agreement comes into play.

An MLA is a contract between the manufacturer and inventor. Such a contract creates an agreement between two individuals, the licensor and licensee, where a licensor bestows a copyrighted license to the licensee. Intellectual property rights including the following:

  • Industrial designs
  • Patents
  • Trademarks
  • Utility models

Under the license grant, the licensee can manufacture a product within defined territories, usually within a nation. The contract also allows third parties to create an inventor’s product in return for royalty payments or a lump sum amount. Also, there are no specific regulations for MLAs. Rather, both parties are free to negotiate the conditions and terms of the contract to get the best deal attainable.

A licensor will try to get the most money from the deal out of a certain design, while a licensee tries to maintain low costs. An inventor may opt to make the product by himself or via a third party to make the product for his business. When demand peaks and cash flow is not readily available to meet high production demand, an inventor can license the product. Licensing is also a great option for inventors who do not want to take on the burdens of marketing, manufacturing and reaching out to consumers.

Inventors should consider the pros and cons associated with manufacturing vs. the licensing of a product to determine the best route for his business goals.

You should use a manufacturing license agreement if:

  • You have the right to a product, which another party can manufacture.
  • You want to obtain the right to manufacture products owned by other parties.

Starting Licenses

Licenses can be established in three ways:

  • Sole license
  • Non-exclusive
  • Exclusive license

Exclusive licenses give a licensee full rights to a product, and the licensor cannot sell rights to other manufacturers. A non-exclusive license means that licensors can sell non-exclusive licenses to many other manufacturers as he pleases. Sole licenses allow licensors the chance to manufacture and sell by themselves, but they could not issue licenses to any other party.

Trademark Usage

Trademarks comprise a brand or visible device that makes it different from other businesses. You may register a trademark via the United States Patent and Trademark Office (USPTO). Trademarks include the following:

  • Logos
  • Words
  • Graphics

If trademarks are in use, you should include a quality control section in an agreement. This ensures that the trademark is not changed in a way that no longer resembles the licensor’s product. The provisions should be created for a licensor to approve marketing materials or packaging to make sure the trademark remains unaltered.

Royalty Section

If you employ a royalty system, this ensures royalties for a determined amount. A licensee makes up differences if a minimum is not reached. Moreover, auditing rights should be added as well. This gives a licensor the chance to look over a licensee’s records to ensure expenditures and royalties are in accordance with the agreement.

When including various provisions in an agreement, keep in mind the following verbiage:

  • Brand Name: Under this provision, you would insert the name associated with the intellectual property.
  • Designs: This means any design that was prepared and created by the licensor that the licensee can manufacture.
  • Exclusive: This entails the product name can be used by the licensee at the exclusion of other parties and within the designated territory of the contact.
  • Intellectual Property: This describes any trademarks, designs, or products within the agreement.

Territorial Provisions

When reading a contract, ensure that you know where you are allowed to use a product. Often, you may only be allowed to use a product within a certain designation, such as a city or nation. Failure to adhere to this provision could result in the violation of the agreement and potential legal action and/or revocation of the license.

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