What terms do you need in your licensing agreement?

On Behalf of | Jan 17, 2022 | Business Law

Your intellectual property can be invaluable to your business, giving you a distinct advantage over your competition. But your intellectual property doesn’t have to just work for your business. For example, you can monetize your intellectual property by engaging in licensing agreements whereby you allow another business to use your intellectual property in a specified fashion in exchange for compensation. But before you go that route, you need to understand what should go into one of these agreements so that you can protect yourself as fully possible. With that in mind, let’s look at some of the most critical terms to your licensing agreement.

  • The extent of the rights granted: To start, you’ll want to make sure that your licensing agreement clearly specifies the rights that are granted to the other party and the scope of those rights. For example, are there geographical restrictions on the use of the intellectual property? Can your intellectual property be sublicensed by a third-party? Are there specific uses that should be restricted under the agreement? These are all important questions to ask, and they need to be thoroughly addressed in the licensing agreement to head off any potential litigation in the future.
  • The length of the agreement: This might sound obvious, but the key here is to specify terms through which the parties can end the agreement short of its specified term. This gives you some protection in the event that things don’t go as planned. You’ll also want to specify what the other party’s obligations are upon cessation of the agreement, such as immediate stoppage of the property’s use and removing any mention of it from the other company’s advertising.
  • Improvements: It’s not uncommon to see licensees make changes and improvements to the intellectual property that they have licensed. If you don’t specify through your licensing agreement that you own these improvements, then you could end up losing out on their benefit. Therefore, your agreement should specify that the other party acknowledges that you will own any improvements made to the intellectual property during the course of the licensing agreement.
  • Royalties: Of course, in order to properly monetize your intellectual property through a licensing agreement, you’ll need to address royalties. The rate and frequency of pay should certainly be addressed, but don’t overlook the importance of conducting audits to ensure that you’re being paid properly. This right will need to be spelled out in your licensing agreement.
  • Indemnity: When you license intellectual property, you relinquish a certain amount of control over it. This means that the party that licensed it from you may use it in a way that leads to third-party legal action. If you don’t address indemnification in your agreement, then you may be left on the hook for any liability and subsequent judgments entered against the owner of the intellectual property.

Know how to protect your interests when dealing with licensing agreements

Licensing agreements can be quite lucrative, but you have to be careful with how you structure your arrangement and how you police it. After all, a badly negotiated agreement or one that isn’t properly enforced can lead to significant damage being caused to your business’s bottom line and its reputation. If you’re like most businesses, then you can’t afford to let that happen. That’s why it might be in your best interests to discuss these matters with a law firm that is well-versed in handling intellectual property matters. Hopefully then you can position yourself for success while protecting your interests as fully as possible.