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What issues are addressed by licensing agreements?

On Behalf of | Dec 11, 2019 | business law

In a licensing agreement, a licensor allows another company, known as a licensee, to use their intellectual property or technology to sell goods or services. A licensing agreement can be lucrative for a Texas company, but a licensor is unlikely to take such an agreement lightly and may require a number of stipulations for the licensee to agree to. If you are considering licensing a brand or product, you may have to address some or all of the following issues in your contract.

Inc.com explains that one issue many licensing agreements address is quality control. A licensor is likely going to want the licensee to create quality products or the reputation of the licensor could be harmed. A licensor that owns a trademark, for instance, could be damaged by bad products that utilize that trademark. So a licensor may insist on seeing product prototypes or mockups before the final product is released.

Licensing agreements also deal with how much time a licensee is going to have to use the licensed property. At some point, a licensor may want the agreement to expire and the licensing rights to revert back to the licensor. Licensors can also require a licensee to release products at a certain date to ensure the licensee is actively using the license to market products. Licensing agreements may also contain renewal provisions and grounds for termination.

A licensing agreement is also likely to define the rights of the licensor. An unclear agreement may result in a licensee taking more rights than the licensor intended, with litigation possibly resulting. Licensors may affirm that they have the rights to the intellectual property in the agreement, and they might also define the jurisdiction in which the licensee can make products. Some licensors may only sell licensing rights within the United States but not in another country.

A crucial part of any licensing agreement is the financial arrangement between the licensor and licensee. Generally, a licensee is going to compensate a licensor in some fashion. Licensors may insist on royalty payments and guaranteed minimum amounts. Some licensors prefer a large upfront payment at the beginning of the arrangement. Additionally, licensors may also use minimum sales as benchmarks to continue a licensing deal.

The complex nature of many licensing agreements makes it likely you will need legal assistance in negotiating one. Be aware that this article provides general information and is not legal advice for your situation.