Understanding Licensing Agreements: 5 Things to Consider
Licensing is an incredibly important part of business, regardless of industry3 min read
Licensing is an incredibly important part of business, regardless of industry. It opens up opportunities to collaborate with other companies, create innovative products and bring digital products to market very quickly. However, in order to properly maximize these benefits, it is essential to understand the laws associated with licensing agreements, and to secure legal counsel that understands the local laws and regulations. Today, we’ll discuss five of the most important things to consider when signing a licensing agreement.
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1. Research the Parties Involved
The first thing to consider is who is involved in the agreement. The company that grants the license, known as the licensor, is typically the owner of the intellectual property rights associated with the product. The company that will use the license to develop, manufacture and sell the product is known as the licensee. It is essential to do your due diligence when it comes to researching both parties to ensure that you understand the nature of the product or technology, and that both parties have the capacity to fulfill the obligations of the agreement.
2. Understand the Rights and Limitations
Once you’ve established the basic facts behind the agreement, the next step is to look at the actual terms of the agreement. Pay close attention to which rights will be granted to the licensee, and what restrictions could be placed upon them. Some of the most common restrictions include geographic area, target audience, quality, branding or marketing messages, duration and payment structure.
3. Be Aware of Exclusivity
An important factor to consider is the type of exclusivity that is being granted to the licensee. Exclusive or “sole source” agreements give the licensee exclusive rights to the product or technology within a specific market or territory, and typically require higher royalty payments. Non-exclusive agreements are much more common, and allow the licensor to grant a license to multiple parties at once.
4. Make Sure to Address All IP Concerns
Intellectual property rights are an essential part of any licensing agreement. It is always important to research both parties to make sure that the licensor has the legal right to license the product or technology in the first place, and that the licensee’s usage of the product or technology will not infringe on the rights of a third-party. If you’re unsure of either party’s IP rights, it may be a good idea to obtain a legal opinion from a qualified attorney.
5. Understand Your Obligations
Before signing any agreement, it is important to make sure that you understand your own obligations as the licensee. This includes, but is not limited to, paying the appropriate royalties to the licensor, submitting reports to the licensor about your product’s performance, and refraining from any activities that would be deemed to be a violation of the licensing agreement.
Understanding licensing agreements is an essential part of doing business in today’s digital world. The five issues discussed above are essential considerations when entering into any agreement, and it is always important to seek the advice of qualified legal counsel if you have any questions or concerns. For businesses in Los Angeles, UpCounsel can provide full-service legal support regardless of the size of your company or the size of the transaction.