Individuals who come up with a valuable intellectual property can reap great profits from licensing it out to another party like a manufacturer or a merchandising company. To help ensure the products the licensee creates are not substandard and harm the reputation of the licensor, a licensing agreement usually contains a quality control clause.
Many licensors examine the backgrounds and reputations of prospective licensees before signing an agreement. Background checks can do a lot to weed out companies that may not produce a quality product. Still, as Inc.com explains, a good quality control clause can further help a licensor by adding certain stipulations to the production process.
Asking for prototypes
One reason licensors use quality control clauses is to make sure they do not go into the production process blind. They want to see prototypes of the products first before they hit the market. This gives a licensor an opportunity to check the product for its functionality, safety, appearance, or anything the licensor deems important. The licensor may also ask the licensee for packaging mockups and perhaps an occasional sample of the finished product line.
Being reasonable with quality
Inc.com warns that licensors can burden their licensees with unreasonable requirements. Some licensors reject a product not because the product does not function, but simply because they do not like it. At times, licensors get involved in tiny details like the packaging of a product or its color. This can drag out the production, consume greater production costs, and frustrate the working relationship with the licensee. It might even lead to litigation between the licensor and licensee.
Some licensors try to support their rejections by having a neutral party examine the product. They might use a test or an experiment to see how the product works. The licensor can then take the results to the licensee as impartial proof that the product needs changes. These and other measures may help keep a licensor-licensee relationship from devolving into conflict.