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The Importance of a Strong License Agreement

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Developing intellectual property is an important step towards building a successful business. And while you might be concerned primarily about protecting your property, you should also benefit from it financially. That’s where licensing agreements come in. 

What Is a Licensing Agreement?

A licensing agreement is a written contract that permits a third party to use your intellectual property, subject to certain conditions. The owner of the intellectual property is the licensor, and the third party is the licensee. Licensing agreements are commonly used for:

  • Patents
  • Copyrights
  • Trademarks
  • Trade secrets

In order to craft an effective license agreement, several factors must be taken into account. First, you should make sure that you and any licensees are clear on what intellectual property you own. It’s important to specify the type of intellectual property you are licensing (i.e., slogans, photographs, brand names, trademarks, etc.). A strong licensing agreement also states the trademark range and geographical range of the intellectual property.

Your license agreement should incorporate clauses regarding:

  • The type of intellectual property rights covered by the agreement
  • Sublicensing rights
  • Royalties or lump sum payments
  • Geographical location
  • Due diligence reporting
  • Transparency reporting

Steps to Creating a Strong License Agreement

Creating a strong license agreement is critical if you want to protect your intellectual property and reap the financial benefits of your trademarks, patents, copyrights, or trade secrets. Following these steps can help you create a strong license agreement that stands up against legal scrutiny.

  • Consult with a contract lawyer. – Devising a legally binding license agreement in your favor can be challenging. Consult an experienced contract lawyer to ensure that your license agreement is legally sound and will hold up under scrutiny.
  • Establish ownership. –  In order to create a license agreement, you must own the intellectual property. For example, if you’re licensing a trademark, you should make sure that you have registered the trademark before you license it to a third party.
  • Be prepared for disputes. – It’s a good idea to include a provision in your license agreement that dictates what happens in case of a dispute, such as plagiarism or an ownership dispute.
  • Discuss royalties. – Different circumstances require different royalties. It’s best to discuss royalties upfront with third parties and make them aware of the consequences of not paying royalties.
  • Familiarize yourself with legislation. – It’s imperative to be up-to-date on all applicable licensing laws before you create a license agreement. Remember, you can’t dictate the terms of your license agreement. You must abide by applicable laws, which vary based on what type of intellectual property you are licensing. A knowledgeable attorney will know the applicable licensing laws and can advise you on your agreement.
  • Get to know the third party. – It’s a good idea to familiarize yourself with the third party you license. Before you associate your business with them, confirm that they are reputable. This could help protect your intellectual property.
  • Consider all scenarios. –Prepare for the scenarios that could arise when you license your intellectual property. For instance, what happens if the licensee goes bankrupt? What if they refuse to pay? Considering all possible scenarios is in your best interest as a business owner.

Having a strong license agreement is important if you want to protect your company’s intellectual property and benefit financially from licensing your property to third parties. If you have questions or need assistance as you create your license agreement, the contract law attorneys at Mullen Holland & Cooper can help. Our lawyers have the expertise and skill to make sure that your license agreement offers you the protection you deserve. Contact us today for a consultation.


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