What is Licensing Agreement Drafting?
A licensing agreement is a legal document signed by a licensor and licensee. The licensor gives the licensee permission to use intellectual property (IP) they own, such as trademarks or copyrights.
Since the contract features sensitive information pertaining to ownership, it needs to be drafted professionally to protect both parties and avoid disputes.
Licensing agreement drafting is the process of writing up this contract so that it’s clear, specific, and legally sound.
Read the rest of this article for information about what key terms should be included in a licensing agreement and how a qualified lawyer can assist with the process of licensing agreement drafting.
What Key Terms are in a Licensing Agreement?
A licensing agreement usually features common terms, such as the following:
- Parties. The parties involved in the agreement must be stated to prevent unauthorized usage by a third party.
- Scope. This part of the agreement explains what the licensee is allowed to do with the IP.
- Exclusivity. If the license is exclusive or non-exclusive, this should be stated for clarity.
- Territory. The territory in which the licensee is allowed to use the IP must be clarified, as this will prevent it from being used in other areas.
- Duration. How long the contract will last must be decided on, with start and end dates included.
- Payment. The licensee will pay fees and/or royalties for using the licensor’s IP. This section should include information about payment structures and payment dates.
- Termination. If either party wants to end the contract earlier than expected, the agreement should include information for how they should go about this, such as how much notice should be given to the other party.
- Infringement. If there is a violation of the IP, there should be steps explained for how the licensor can take legal action or seek remedies.
How Should You Draft a Licensing Agreement?
When writing a licensing agreement, details and specifics are important so that both parties know their duties and what’s expected of them under the arrangement. Here are some important things to consider.
Provide a Clear Scope
One of the most important parts of the licensing agreement is the scope as it defines how the IP can be used by the other party. The licensor will hold all ownership rights so they might have restrictions they wish to include to prevent unauthorized activities.
That said, it’s worth not being too restrictive because this can prevent the other party from being able to use the IP for their valid purposes.
Conduct Due Diligence
Before drafting and negotiating a licensing agreement, it’s crucial to conduct due diligence to find the right licensee. You want someone who is trustworthy and won’t harm your brand or violate your IP rights.
It’s good practice to request references from previous licensing partners. If anything feels like a red flag during discussions, rethink the working relationship before signing the contract.
Discuss Payments
You and the other party should discuss types of payment and payment schedules so that the contract is fair and caters to both of your needs. As a licensor, you might want to charge an upfront fee and a percentage of sales so that you can acquire long-term gains.
Avoid Vague Terms
The licensing agreement terms must be specific and clear so that there are no uncertainties. Ambiguous language in a contract can result in misinterpretations, causing disputes in future that can be costly.
Include Audit Rights
As a licensor, you’ll want to ensure a high standard of quality. This is why adding a clause about audit rights is worth considering. By checking your licensee’s activities and books on a yearly basis, you can ensure the working relationship is still working for you and your brand.
Clarify Exclusivity
As a licensee, you want to be sure that if the contract states you have exclusive rights to the IP that you’re the only one allowed to use it. This must be clearly stated in the contract, or you risk paying for exclusivity that your competitors might also be gaining.
Consider Changes to the IP
Think about how any changes to the technology you’re using would impact your work. The licensing agreement should inform you of what the process of modifications would entail and include how you’ll be notified as a licensee ahead of changes.
How Can a Lawyer Help You with Licensing Agreement Drafting?
It’s advisable to hire a lawyer to help you draft a licensing agreement because they will use their knowledge and skills to offer a comprehensive contract that protects both parties.
A lawyer will assist you during the drafting process by:
- Being specific about ownership and licensing rights. They’ll include statements about who owns the IP to prevent disputes.
- Defining the license scope. This prevents any missing information that can result in uncertainty.
- Clarifying pricing and payment. They’ll also consider issues such as nonpayment and what the consequences are, such as penalties.
- Including compliance. A lawyer will reduce your legal risk by ensuring all terms in the agreement are aligned with relevant laws and regulations.
- Negotiating terms with the other party. This helps you and the other party to have a fair, reasonable contract.
- Considering your needs and interests. Before drafting the licensing agreement, a lawyer will assess the contract purpose and check that it’s customized to your requirements.
- Handing dispute resolution. A lawyer will input dispute-resolution terms so that disagreements can be resolved efficiently. If disputes escalate, such as by landing in court, a lawyer will be able to represent you.
Where to Find a Lawyer for Licensing Agreement Drafting
If you need to hire a lawyer to draft a licensing agreement, you don’t have to cold-call traditional law firms. Online legal platforms make the process easier. On ContractsCounsel, one of the largest online legal marketplaces, you can request a lawyer to draft your licensing agreement online.
Here are the steps to follow:
1. Go to the ContractsCounsel marketplace, where you can post your project for free.
2. You’ll receive multiple bids from lawyers directly on the platform.
3. Review the lawyers' profiles based on data provided by the platform, such as their location, client ratings, years of experience, and field of expertise.
4. Connect with a lawyer you think is best suited to your requirements and hire them to draft your licensing agreement so it’s clear and fair.
