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A Breakdown Of Licensing Agreements

Licensing AgreementsReading Time: 3 minutes

Licensing agreements are legal contracts between a licensee and licensor. The licensor is the owner of a brand, trademark, or patent. The licensee is the party that wants the rights to sell and produce goods, apply the licensor’s trademark or brand name, or use their patented products or technology.

In return, the licensee agrees to set stipulations and terms for the use of the licensor’s brand or property. The licensee also usually makes a financial agreement to make royalty payments for using the trademark, brands, or goods. One of the common uses for licensing agreements is commercializing technologies.

The Essential Parts of a Licensing Agreement

These agreements are quite complex and therefore lengthy. They consist of several complicated elements. These parameters apply to licensing agreements:

  • The non-exclusivity or exclusivity of the agreement
  • The geographical location where the property or goods can be used
  • A specific period that the licensee can use the licensor’s property
  • Terms for scaling in the future, often this includes additional royalty fees if the property is re-used a set number of times. A good example would be a book publisher entering into an agreement with someone for a piece of artwork to use on a hardcover book but not on the paperback editions. The artist may also restrict the publisher from using the image in specified ad campaigns.

Starting a Licensing Agreement

First, you should always consult a qualified attorney who understands the aspects of these agreements and business law when creating a licensing agreement because of their complexity. It is vital that you know the legal terminology and terms of the contract.

The nature of the product sets the bargaining power between the two parties. An example could be a television studio that may license a popular tv-show character to a toy company that makes action figures such as the action figures that McFarlane Toys makes of The Walking Dead characters. The tv studio probably has the majority of the bargaining power because the toy manufacturer will make a substantial profit. The tv studio can take their business elsewhere if the toy makers become nervous about the deal.

Typical Elements of Licensing Agreements

Licensing agreements have explicit terms and details. They include common clauses that attempt to cover any possible issue that could arise during these negotiations. These elements include contract length, territorial agreements, dispute resolution, sub-licensing, exclusivity, calculations for royalties, royalty rates, and problems with inventory. Other elements included are allowances and returns, requirements for minimum sales, renewal rules, oversight, payment schedule, quality control, payment amount, and patent applications.

As you can see, these contracts are very complicated, and we reiterate that you should seek expert advice from an attorney to navigate licensing agreements. Intellectual property rules and laws, as well as the U.S. Copyright Office, are managed and created by the United States Patent and Trademark Office (USPTO).

Some of these rights and laws provide automatic coverage for the licensor. However, in certain situations, such as patents, the licensor must perform specific actions for protections and the process is complex. You must know your intellectual property rights before entering into a licensing agreement or you’ll have a mess.

Different Kinds of Licensing Agreements

There are three primary kinds of licensing agreements. They are:

  1. Non-Exclusive Agreement

    The licensee has the rights to the property, but the licensor can sell it to other people as well. As a result, these types of agreements have the largest number of licensees.

  2. Exclusive Agreement

    One licensee has the only right to use the property. This situation also means that the licensor gives up his rights during the time frame of the agreement. As expected, this type of contract is more expensive for the licensee since they have exclusive rights.

  3. Sole License

    In this agreement, the licensee has the exclusive right to the property, and the licensor keeps the right to use it as well. This type of license is more beneficial to the licensor but it’s similar to the exclusive license. It typically costs less than the exclusive license but more than the non-exclusive agreement.

This information has just been a brief dip into the complexities of the licensing agreement. For more information on how to create one, contact a professional at Gary I. Handin P.A. who understands these agreements so that you can be sure your rights are guaranteed.

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