A Helpful Guide to License Agreements

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License Agreements: Key Elements You Need To Know

Licensing agreements are contracts between a licensor and a licensee. Through the agreement, the licensor gives the licensee the right to do one or more of the following: produce goods, sell goods, use a brand name or trademark, or use patented technology. Because there are numerous bases to cover, licensing agreements are fairly lengthy, but most will hit on the following key elements.

The Financial Arrangement

This is at the heart of the agreement, and with a lot riding on this particular element, you will want to be as clear as possible. Clarify how much the licensor will be paid per item sold, use of the trademark, etc., if the licensee must pay just to gain rights of use, and so on. This is where conflict is most likely to arise, so ensure this is unambiguous.

The Length of the Agreement

It is rare for a licensing agreement to continue indefinitely. In fact, setting it up in such a manner is pretty much guaranteed to cause problems. Instead, set a specific start and end date, or a renewal date. Most contract lawyers would also suggest setting a date by which the licensee must have the product hit the market, preventing the licensor from being trapped in an agreement that results in little to no money for them.

Quality Standards

For the licensor, the products offered by the licensee will reflect upon them and their business, and poor products don’t support a good image. Here, the quality standards that must be met should be specified. As an added level of protection, this element could also state that the licensor must sign off on all quality and brand decisions before any product hits the market.

Territory Limits

When the licensee is given permission to use the intellectual property of the licensor, there is the option to limit the territory in which they can sell. For example, the licensor might want an agreement in one region of the US with a specific licensee based on their deep connection there and wish to switch to another in a different part of the country. Any territory limits must be clearly outlined in the agreement.

Ownership of Improvements

In theory, the licensee could improve upon the product of the licensor. Should this happen, whose intellectual property are those improvements? It is an interesting question, and most likely, both parties will agree it is them. Stop the disagreement in advance by making it clear within the contract who will have ownership over these improvements.

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