Things to Consider When Discussing Licensing Agreements

Sun, Aug 27, 2017

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Your business may be in the fortunate position sometime in the near future to enter some sort of licensing agreement with another company. This can be an important moment for any business, and it can be a tricky one. The actual contract is really not something that can be done by just an ordinary individual. You definitely want to contact a law firm that has experience in this sort of matter. It is essential to find a lawyer with the knowledge and experience needed to protect your assets while entering into a license agreement.

For those that are not familiar with licensing agreements, it is a legal contract between two parties. The two parties are known as the licensor and the licensee. Basically what takes place is the licensor grants the licensee the permission to produce and sell different goods, apply a brand name or trademark on something, or use patented information or technology owned by the licensor. If you are a fan of the show Shark Tank, you will often hear Kevin O’Leary speak frequently about the possibility of licensing products to other companies.

A licensing agreement might be needed no matter what type of business you own. Trademarks and brand names are a first come, first serve basis. If a business or company owns the trademark or brand name first, then anyone else wanting it will have to enter a licensing agreement or maybe they could make an offer to buy it outright. In any case, it can be a profitable situation!

However, do not attempt to make these agreements on your own. Even if it is with a friend that you have known for a long time and trust completely. Let the attorneys that are qualified in this sort of transaction earn their money. The legal language used in these contracts can befuddle and confuse even the smartest business owners. Even if someone in your company has a bit of experience with standard licensing contracts, it is always best to bring in a professional.

How Can It Be Profitable?

We already looked into the matter where a brand name or trademark could be used for the good of a company. There are other ways that there could be serious money made with a licensing agreement. Just be sure that your idea or product is patented completely by you before trying to enter agreements with other people or companies. If the patent is even a little off, it could allow for someone else to swoop in and create a patent of their own on something very similar.

There are two main ways to make a good profit from your idea or product other than creating it and selling it yourself. Once a patent is in place, you may choose to assign your rights in the patent to another party. This would give over all the rights to the product for a lump sum payment. Some inventors like to do this exact thing. They would rather invent products and then sell the rights off to a company rather than be tied down to running a business.

Entering a licensing agreement can also give the inventor of the product a royalty fee in exchange for allowing another company to make, use, or sell the invention. The contract will state a specified percentage for net revenues or a percentage for each unit sold. Royalty payments can add up quickly, especially if you have licensing agreements with many companies. However, remember that you must have a trusted lawyer involved in these decisions and contracts that will guide you throughout the process. Unfortunately, handshake deals are not honored in today’s business world. Having a legal contract will save you many headaches later on down the line.

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