How to draft a solid licensing agreement

| Apr 17, 2020 | Intellectual Property |

Today’s technology makes it simple for artists, designers and entertainers to reach their audience. Unfortunately, it is also easier than ever for them to lose control of their intellectual property. These creative people are often brilliant, but when it comes to contracts and other legal documents, most need guidance. 

Whether your clients are authors, entrepreneurs or inventors, you need to know how to protect their rights and their intellectual property. Licensing agreements can be daunting and complex. The agreements often favor the licensees, but licensors must be able to profit from their own ideas. Getting certain things right from the start is crucial for all parties involved. 

Payment terms 

Typically, licensees pay licensors a set minimum. Licensors should also make royalties, a percentage based on product sales. Some licensors prefer more up front, in part because investing more can incentivize a licensee to make greater marketing efforts. Better marketing often results in higher sales, which can benefit all parties. 

Naturally, licensees generally prefer lower minimum guaranteed payments, and newcomers may have to take a smaller payment initially in the hopes that sales will soar and royalties will add up quickly. Parties can renegotiate payment terms when the license is up for renewal. 

Contingencies 

The first draft of a licensing agreement is rarely perfect. It often takes an experienced legal professional to identify problematic areas. Agreements should include measures to address specific possibilities and solve the problems that may occur. For example, licensors may question how licensees calculate sales for royalty purposes. Alternatively, one party may want to end the agreement early or sell rights to another entity. 

Quality control 

Licensors benefit from maintaining power over their intellectual property. They may take a hard line about retaining copyrights and patents, or require authority over quality and artistic aspects. Licensees often invest substantial time and money to develop products. It is reasonable to allow them some protection. Licensees may need exclusive distribution rights in certain territories or time periods. 

Ideally, licensing agreements result in both parties getting what they want. By developing a mutually profitable relationship, both parties can win. 

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