Product License: What it Is and How it Works
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Quick Facts — Product License Lawyers
- Avg cost to draft a Licensing Agreement: $1110.00
- Avg cost to review a Licensing Agreement: $720.00
- Lawyers available: 160 intellectual property lawyers
- Clients helped: 186 recent product license projects
- Avg lawyer rating: 4.97 (23 reviews)
Product licenses can generate high profits when the brand and manufacturer align. Even if both parties see eye-to-eye on many issues, they still need to protect their relationship by understanding the law and having the proper contracts in place.
Below, we dive into product licenses, how they work, and how you can get one.
What is a Product License?
A product license, also known as a brand license, is a legally binding document between a licensor and its licensees on branded products. They protect the licensor’s intellectual property rights and establish royalty payment terms. A product licensor is the one who owns the brand, and the licensee is the one who manufactures branded products.
Here is an article also discusses brand and product licenses.
How Product Licensing Works
A business must constantly introduce new products to replace declining ones. Additionally, a company may wish to diversify its product offerings to balance seasonal highs and lows, fill excess manufacturing capacity, or boost profitability.
Since some businesses lack the resources necessary to develop new products on their own, they can acquire an evidence-based product quickly through licensing. Licensing balances risk and reward by allowing you to leverage an established company’s success to distribute your product.
Examples of Licensed Products
There are examples of licensed products all around us, and sometimes, without even noticing. One marketing objective of licensed products is to make the relationship look and function as seamlessly as possible. Otherwise, it can create confusion among customers.
Examples of licensed products include:
- Example 1 . IBM computers selling with Microsoft Windows
- Example 2 . Ralph Lauren allowing their brand to appear on other manufacturer’s products
- Example 3 . Authors receive a fee from published books
- Example 4 . Radio stations pay for licenses to use songs
- Example 5 . Cable and satellite television offer multiple licensing options
How Do You Get a Product License?
You get a product license by inventing an original product, protecting your intellectual property, and bringing it to market. You will also need to nurture relationships with other professionals in your industry.
Here are five critical steps to take when you want to get a product license:
Step 1. Invent a Product
Take the time to sketch out your invention, build prototypes, and document it. You can create an enhancement to an existing product. Create a business plan to ensure you make sound business decisions.
Step 2. Complete a Patent Search
Use the USPTO’s online patent database to ensure someone else does not hold legal rights to your patent already. Consider filing a provisional patent if necessary. Filing a provisional patent application is wise when time matters.
Step 3. File Your Patent Application
Again, return to the USPTO’s website and submit an online patent application. Collaboration with the patent examiner is required until they issue the patent.
Step 4. Connect with Licensees
Locate and prepare to pitch licensees in your market. You may need to network, run paid advertisements, or contact several licensees before finding one. Spend time developing relationships with potential licensees and familiarizing yourself with their processes.
Step 5. Sign Your Product License
Once you’ve identified the ideal business partner, you should execute a product licensing agreement . Do not hesitate to have it reviewed and edited by intellectual property lawyers for legal protection.
Image via Pexels by Eprism Studio
How to Negotiate a Product Licensing Deal
Entrepreneurs must consider the comparative value of their innovations. They must also include safeguards that allow them to reclaim their rights if licensees fail to uphold their end of the bargain. Further, inventors must consider their business plans and allow for flexibility if those plans change in the future.
Here are a few insightful tricks and tips to help you make the most of the process of preparing for a licensing negotiation:
Tip 1. Stay Organized and Patient
A product license agreement is a lengthy and complex document that requires considerable time to negotiate regardless of which side you’re on. The more calm and collected you appear, the more likely you will find a company interested in collaborating with you.
Tip 2. Research the Licensee’s Background
It is critical to understand the potential licensee’s business focus and their track record of operation in situations similar to yours. The more information you have about the business with which you wish to conduct business, the better.
Tip 3. Use a Non-disclosure Agreement
A non-disclosure agreement ensures that both parties agree not to disclose the other’s confidential information, critical for protecting your product.
Tip 4. Perform Intellectual Property Due Diligence
The most valuable company asset is typically intellectual property. As such, it is critical that you have proper procedures in place to establish and protect it without infringing upon another’s rights and freedoms. An IP assignment agreement can help you address these issues specifically.
Tip 5. Speak with Licensing Lawyers
The wrong product license can limit future profit opportunities. Before initiating your first written contract, it is imperative that you work with licensing lawyers .
How Much Does it Cost to License a Product?
Royalty rates vary by industry, but a good starting point is between two percent and ten percent. Royalty agreements governing payments must benefit both the licensor and the licensee. They are a win-win situation for both the licensor and manufacturer when executed properly.
The manufacturer will need to consider costs to produce a product. They can delineate the terms and conditions of this aspect through a manufacturing contract .
Other Things to Consider When Licensing a Product
Licensing a product requires licensors to think about several aspects of offering a brand for products. Legal mistakes in contracts can result in unwanted consequences while having no agreement leaves you exposed to risk. Knowledge is power in this situation to avoid common pitfalls.
Here are a few other things to consider when licensing a product:
Consideration 1. Performance Requirements
As is the case with franchise agreements , the majority of licensing agreements include performance or diligence clauses. These clauses provide for the termination or the imposition of penalties if the licensee fails to comply with specified requirements.
Consideration 2. Exclusivity Clauses
Exclusivity matters, but it can also be detrimental to small businesses. It guarantees that the licensee will only deal with a single licensor. This situation benefits the licensor because the licensee will devote all of its efforts to promoting a single product and avoid competing products.
Learn more about exclusivity clauses .
Consideration 3. Affiliates
Many licensing agreements provide for affiliates. This strategy expands the reach and total sales of the product. You should consider affiliate use since unrestricted access may result in profit shifting, detrimental to the licensor.
Learn more about affiliate agreements .
Consideration 4. Termination Clauses
Almost every licensing agreement contains a termination clause . Generally, licensors desire the option of terminating their relationship with a licensee. This strategy shields the parent company from liability while minimizing overall exposure.
Consideration 5. Product Liability
Licensing agreements typically include a statement about product liability. It is in both parties best interests to have this stated as plainly as possible. These clauses establish who is legally liable if the product degrades during use, consumption, storage, or transportation.
Get Legal Help with Product Licenses
Do you need legal advice for your next product license deal? If so, licensing lawyers will help you draft the document you need to protect your legal rights.
Post a project in ContractsCounsel’s marketplace to get free bids from lawyers for your project. All lawyers have been vetted by our team and peer-reviewed by our customers for you to explore before hiring.
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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Meet some of our Product License Lawyers
Michael C.
A seasoned senior executive with experience leading the legal and compliance functions of healthcare entities through high-growth periods. I have experience managing voluminous litigation caseloads, while also handling all pre-litigation investigations for employment, healthcare regulatory, and compliance matters. Similarly, I have led multiple M&A teams through purchase and sale processes, including diligence and contract negotiations. Finally, I have extensive contract review experience in all matters, including debt and equity financing, healthcare payor contracting, vendor and employment agreements, as well as service and procurement agreements.
"Michael was super knowledgeable and efficient. He was very attentive, helpful and made himself available pursuant to our needs as well. He completed the initial drafts well before the scheduled timeframe. We are very pleased with his work ethic and delivery of this project. He was also very easy to work with. We recommend his legal services without hesitation. Would definitely hire him again!"
Ted A.
Equity Investments, Agreements & Transactions | Securities & Lending | Corporate Governance | Complex Commercial Contracts | Outside General Counsel & Compliance
"Ted was extremely responsive, knowledgeable, easy to work with and was able help me the same day. I would confidently recommend him in the future."
Steven S.
Steven Stark has more than 35 years of experience in business and commercial law representing start-ups as well as large and small companies spanning a wide variety of industries. Steven has provided winning strategies, valuable advice, and highly effective counsel on legal issues in the areas of Business Entity Formation and Organization, Drafting Key Business Contracts, Trademark and Copyright Registration, Independent Contractor Relationships, and Website Compliance, including Terms and Privacy Policies. Steven has also served as General Counsel for companies providing software development, financial services, digital marketing, and eCommerce platforms. Steven’s tactical business and client focused approach to drafting contracts, polices and corporate documents results in favorable outcomes at a fraction of the typical legal cost to his clients. Steven received his Juris Doctor degree at New York Law School and his Bachelor of Business Administration degree at Hofstra University.
"Steven was so quick and thorough! I wasn't sure what to expect because this is my first time working with a contract attorney, but he made this process so easy. I was very transparent with his rate and included services. During the consultation call, I felt very comfortable with his skills and knew he was going to put 100% effort into my project. I will definitely hire him again if I have another project!!"
Terence B.
Terry Brennan is an experienced corporate, intellectual property and emerging company transactions attorney who has been a partner at two national Wall Street law firms and a trusted corporate counsel. He focuses on providing practical, cost-efficient and creative legal advice to entrepreneurs, established enterprises and investors for business, corporate finance, intellectual property and technology transactions. As a partner at prominent law firms, Terry's work centered around financing, mergers and acquisitions, joint ventures, securities transactions, outsourcing and structuring of business entities to protect, license, finance and commercialize technology, manufacturing, digital media, intellectual property, entertainment and financial assets. As the General Counsel of IBAX Healthcare Systems, Terry was responsible for all legal and related business matters including health information systems licensing agreements, merger and acquisitions, product development and regulatory issues, contract administr
"Great to work with, explained the process clearly, and quick turnaround."
Ryenne S.
My name is Ryenne Shaw and I help business owners build businesses that operate as assets instead of liabilities, increase in value over time and build wealth. My areas of expertise include corporate formation and business structure, contract law, employment/labor law, business risk and compliance and intellectual property. I also serve as outside general counsel to several businesses across various industries nationally. I spent most of my early legal career assisting C.E.O.s, General Counsel, and in-house legal counsel of both large and smaller corporations in minimizing liability, protecting business assets and maximizing profits. While working with many of these entities, I realized that smaller entities are often underserved. I saw that smaller business owners weren’t receiving the same level of legal support larger corporations relied upon to grow and sustain. I knew this was a major contributor to the ceiling that most small businesses hit before they’ve even scratched the surface of their potential. And I knew at that moment that all of this lack of knowledge and support was creating a huge wealth gap. After over ten years of legal experience, I started my law firm to provide the legal support small to mid-sized business owners and entrepreneurs need to grow and protect their brands, businesses, and assets. I have a passion for helping small to mid-sized businesses and startups grow into wealth-building assets by leveraging the same legal strategies large corporations have used for years to create real wealth. I enjoy connecting with my clients, learning about their visions and identifying ways to protect and maximize the reach, value and impact of their businesses. I am a strong legal writer with extensive litigation experience, including both federal and state (and administratively), which brings another element to every contract I prepare and the overall counsel and value I provide. Some of my recent projects include: - Negotiating & Drafting Commercial Lease Agreements - Drafting Trademark Licensing Agreements - Drafting Ambassador and Influencer Agreements - Drafting Collaboration Agreements - Drafting Service Agreements for service-providers, coaches and consultants - Drafting Master Service Agreements and SOWs - Drafting Terms of Service and Privacy Policies - Preparing policies and procedures for businesses in highly regulated industries - Drafting Employee Handbooks, Standard Operations and Procedures (SOPs) manuals, employment agreements - Creating Employer-employee infrastructure to ensure business compliance with employment and labor laws - Drafting Independent Contractor Agreements and Non-Disclosure/Non-Competition/Non-Solicitation Agreements - Conducting Federal Trademark Searches and filing trademark applications - Preparing Trademark Opinion Letters after conducting appropriate legal research - Drafting Letters of Opinion for Small Business Loans - Drafting and Responding to Cease and Desist Letters I service clients throughout the United States across a broad range of industries.
"Ryenne was so helpful and was able to review and advise on my issue within less than a day. I would definitely recommend their expertise!"
October 31, 2024
Patrick W.
Patrick is a seasoned attorney with over 11 years of experience in corporate law, commercial contracts, and regulatory compliance, with a specialization in emerging technologies such as AI and Web 3.0. Patrick works with commercial contract negotiations for technology startups, managing multi-million-dollar agreements, and offering comprehensive corporate governance services, including stock plan administration, cap table management, and day to day advising. One of Patrick’s career highlights includes his tenure at SharesPost Inc., a pioneering fintech startup, where he served as Senior Legal Counsel and later Interim General Counsel. In this role, Patrick led product legal risk management, negotiated SaaS and data processing agreements, and ensured compliance with SEC, FINRA, and DBO regulations. He played a pivotal role in the company's growth working closely with operations and sales, until such time teh company was acquired. In addition to his work at SharesPost, Patrick’s experience includes serving as Policy Counsel at Bird Global and General Counsel and Chief Compliance Officer for Planned Parenthood Northern California, where he oversaw a $60M revenue organization, directed legal strategy for EHR migration, and ensured compliance with state and federal privacy laws.
John B.
J. D. Bridges has worked both in-house and in firms and has seen countless commercial agreements and technology deals from every angle. J. D.’s worked as in-house counsel for high-growth, VC-backed startups, IT solutions providers and cybersecurity companies and also at an AmLaw Top 50 global firm, representing clients in a variety of industries and purchasers and creators of technology across the globe. He’s negotiated commercial contracts with some of the world’s largest financial services and pharmaceutical companies, as well as assisting startups from incorporation to exit. He’s also helped Fortune 100 companies protect themselves and their data when procuring technology from startups and legacy technology providers alike. J. D. brings a practical and growth-focused mindset to legal advice and excels in working with front-line sales organizations and sales leadership as well as internal counsel, business owners and procurement professionals. Whether a pre-seed AI startup, established manufacturer or a global IT procurement effort, J. D. can support you while concurrently growing and protecting your business.
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"Alex is very professional, responsive and easy to work with!"
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"Very thorough recommendations. Much appreciated."
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ContractsCounsel User
Review licence agreement & give IP advice for tech SaaS platform
Location: Florida
Turnaround: Less than a week
Service: Contract Review
Doc Type: Licensing Agreement
Page Count: 3
Number of Bids: 4
Bid Range: $300 - $975
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