Licensing Agreement

Description

A licensing agreement is a formal contract in which two parties, the licensor (the owner of a product, technology, or intellectual property) and the licensee (a person or business), agree on the terms and conditions under which the licensee may use the licensor’s product, technology, or intellectual property.

OVERVIEW

A legal, written contract between two parties wherein the property owner permits another party to use their brand, patent, or trademark is referred to as a licensing agreement. The terms of usage, the type of licensing agreement, and the manner in which the licensor will be paid are all outlined in the agreement, which is made between the licensee (the party authorized) and the licensor (the property owner). The types of contracts vary according to what is being licensed. Additionally, licensing agreements resolve any disagreements regarding royalties, quality problems, and sales.

Parties can gain control over property and expand into new markets through licensing agreements without having to invest capital. These transactions have the potential to damage a company’s reputation in addition to creating a relationship with the incorrect organization, that is why is very important to draft a proper Licensing Agreement and include all the relevant factors for it to be capable of being used in a court.

ADVANTAGES

Awareness: The conditions, regulations, and guidelines pertaining to the use of the licensor’s name, trademark, or patent are spelled out in detail in licensing agreements. Both the licensee and the licensor are fully aware of their responsibilities and expectations.
Clarity Regarding Extent of Roles: This covers the terms of the agreement, the length of time the licensee can use the property, copyright concerns, the contract’s expiration date, the amount and date of payment that are due, and any additional royalties that might be owed as a result of the relationship.
Costs: Establishing an agreement reduces costs, time, and hassles significantly. For example, if someone chooses to use a trademark without obtaining a license, they run the risk of being sued by the owner of the intellectual property, which could lead to court cases, expenses, and wasted time.
Revenue: A license to access and use a product or technology that the licensee might not have been able to develop or create on their own is one of the many advantages that can come with licensing agreements. Another benefit is that the licensor can profit from their technology or product without having to manufacture or distribute it themselves.
Access to expertise: The knowledge, experience, and technical support of the licensor are frequently made available to the licensee through licensing agreements. This allows the licensee to take advantage of the licensor’s specialized knowledge and expertise by providing training, continuing support, or updates pertaining to the intellectual property that has been licensed.

ESSENTIALS

Details of the Parties: The Licensing Agreement shall include the details of both the parties, licensor and licensee. Further details like the name of the company, name of the proprietor, professional and personal address etc shall be included.
Details of IP concerned: the details of the original creation that is being licensed along with its registration details shall be mentioned in the agreement. This may also include the responsibility to protect the intellectual property and who bears the cost if not protected.
Consideration: How the licensee will compensate the licensor for using their property is described in this section. As previously mentioned, royalties can be negotiated in a variety of ways. The best approach will depend on your consideration of inflation and exchange rates.
Exclusivity: This section restricts when and where the licensor can sell their property. It makes it so the licensee can be the only entity selling this product or service in a set territory.
Subsidiary Licensing: With subsidiary licensing, the licensee could be granted permission to allow another entity to use the licensed work. For instance, if you’re a film producer and license a song, you could still need permission to allow another entity to use the section of your film where the song is playing.
Legalities: This section shall include the laws being applied during the term of license, as well as, the legal consequences that can be taken against the party that violates the terms of the Agreement.

FAQs

Why does the license include a territory?

Although they are rarely granted on a regional basis, intellectual property rights are normally granted on a national basis. It is customary to specify the nation or nations that are covered by the licensed rights when awarding a license. Certain licenses are granted for the entire world, including all nations, while others are only granted for a specific region of a nation.

What is an exclusive license?

Non-exclusive licenses allow the owner to use the intellectual property rights for personal use as well as to grant licenses to others for the same intellectual property. Under an exclusive license, the owner (referred to as the “licensor”) and anyone else who receives the license (referred to as the “licensee”) are the only parties permitted to use the intellectual property.

How is a reasonable royalty determined?

It is common practice to determine a royalty as a percentage of the net selling price of the products or services that the licensee sells. In other instances, the payment is set per sale. According to surveys, royalties related to license agreements can vary from 0.1% to 50% of net selling price. It is frequently appropriate to draft a business plan in order to estimate the potential profit a licensee could make from operating the license, as this will help to determine a fair royalty.

Can it be terminated?

Yes, licensing agreements can be terminated early if certain conditions are met, such as breaches of the agreement or changes in market conditions.

patent

Trademark

Copyright

Design

Startup