Licensing Agreement

What Is a Licensing Agreement?

The term licensing agreement alludes to a legal, written contract between two parties wherein the property owner allows to one more party to utilize their brand, patent, or trademark. The agreement, which is set between the licensor (the property owner) and the licensee (the permitted party), contains subtleties on the type of licensing agreement, the terms of utilization, and how the licensor is to be compensated. Contract types shift in view of what is being licensed. Licensing agreements likewise mitigate any disputes connected with sales, issues of quality, and eminences.

Understanding Licensing Agreements

Licensing agreements outline the terms under which one party might utilize property that is owned by another party. While the properties being referred to can incorporate a horde of things, including real estate holdings and personal belongings, licensing agreements are most frequently utilized for intellectual property, like patents and trademarks, as well as copyrights for written materials and visual art.

Licensing agreements are widely utilized for the commercialization of new discoveries or advancements.

As well as enumerating all parties included, licensing agreements need to determine in granular detail how licensed parties might utilize properties, including the accompanying boundaries:

• The geographical districts inside which the property might be used.
• The time span parties are dispensed to utilize the property.
• The selectiveness or non-eliteness of a given arrangement.
• Scaling terms, with the end goal that new royalty fees will be incurred on the off chance that the property is reused a certain number of times. For instance, a book distributer might enter a licensing agreement with one more party to utilize a piece of artwork on the hardcover versions of a book, yet not on the covers of subsequent soft cover issuances. The distributer may likewise be restricted from involving the artistic picture in certain advertising efforts.

Licensing Revenues

Licensing revenues, known as eminences, are a critical source of revenue for several publicly traded companies. For instance, a major source of income for the publicly-traded company Dolby Laboratories is the licensing of its technology to consumer hardware manufacturers.

The terms of royalty payments are spread out in a license agreement. The license agreement characterizes the limits and limitations of the eminences, like its geographic limitations, the duration of the agreement, and the type of products with particular royalty cuts. License agreements are extraordinarily regulated in the event that the resource owner is the government or on the other hand assuming that the license agreement is a private contract.

In most license agreements, royalty rates are defined as a percentage of sales or a payment for each unit. The many factors that can influence royalty rates incorporate restrictiveness of rights, accessible alternatives, risks implied, market demand, and innovation levels of the products being referred to.

To precisely gauge royalty rates, the transactions between the buying and selling parties must be enthusiastically executed. As such: the agreements must not be forced. Moreover, all royalty transactions must be conducted at a careful distance, implying that the two players act freely, and have no prior relationship with another.

Instances of Licensing Agreements

Licensing agreements are found in a wide range of industries. An illustration of a licensing agreement is a contract between the copyright holders of software and another company, permitting the last option to involve the computer software for their daily business operations.

An illustration of a licensing agreement in the restaurant space would be the point at which a McDonald's franchisee has a licensing agreement with the McDonald's Corporation that allows them to utilize the company's branding and marketing materials. Toy manufacturers likewise regularly consent to licensing arrangements with film studios, giving them the legal authority to deliver action figures in view of well known similarities of film characters.

Going into a Licensing Agreement

The bargaining power of the two parties engaged with a licensing agreement frequently relies upon the idea of the product. For instance, a film studio that licenses the resemblance of a famous hero to an action figure manufacturer could have huge bargaining power in this negotiation, in light of the fact that the manufacturer is probably going to profit enormously from such an arrangement. The film studio in this manner has the leverage to take its business somewhere else in the event that the manufacturer suffers from sudden anxiety.

Those going into a licensing agreement ought to counsel an attorney since there are intricacies that might be difficult to get a handle on for those without a deep comprehension of intellectual property law.

Benefits and Disadvantages of Licensing Agreements

As referenced above, licensing agreements are legal contracts that are written between a licensor and a licensee. Ensuring there's one in place gives certain benefits to the two players yet there are likewise a few key downfalls, too. We've framed a portion of the key benefits and hindrances of these agreements below.

Benefits

Licensing agreements obviously spread out the rules, rules, and expectations that cover the utilization of the licensor's brand, patent, or trademark. Both the licensor and the licensee are completely aware of what is generally anticipated and required of them. This incorporates when payment is due and how much, any extra royalties that might be due because of the relationship, the type of agreement, the length to which the licensee can utilize the property, copyright issues, and the contract's expiration date.

Setting up an agreement saves a ton of time, money, and bothers. For example, in the event that somebody chooses to utilize a trademark without a licensing agreement, they might be sued by the property owner, which could bring about legal fights, court fees, and lost time.

Contracts give licensors can hold a great degree of control over their property and gives them access to different markets. For example, a licensor can direct the way in which their property is marketed. Also, it permits them to enter new markets — through the licensee — without actually settling in there.

Weaknesses

One of the drawbacks of having a license agreement is drawing up a contract with some unacceptable party. At times, licensors might need to get into a market so frantically that it doesn't do all necessary investigation. This means a licensor might be trapped in an extended contract with a company whose ideals don't line up with its own. A similar principle applies to the licensee, particularly when it figures another product or brand might function admirably in a certain market without doing all necessary investigation.

The two players are likewise at the risk of losing brand power as well as their reputation. For instance, on the off chance that one company commits a marketing violation of social norms or is entangled in a scandal, it can put the other party at risk too. This means that both the licensor and licensee must conduct their business actually.

Going into an agreement increments competition for the licensor. Albeit the licensee acts for the licensor, it is, in fact, in direct competition with their partner. The licensee likewise misses out, too. That is on the grounds that depending on another person's product means that the licensee might cut down its own research and development (R&D)

Diversion companies like Netflix go into licensing agreements constantly. The online web-based feature gets the right to communicate content either solely or with different companies from the title/content owners. For example, the company behind a major TV series might go into a licensing agreement, permitting Netflix to incorporate the show among its titles for a certain number of years. In exchange, Netflix would consent to give sovereignties to the substance owner from fees it gathers from its endorsers.

How Do Licensing Agreements Work?

Licensing agreements are legal contracts that are written between two parties — a licensor and licensee. The contract specifies the type of agreement, the length of the relationship, payments and sovereignties that are due and when, and the degree to which licensing is permitted. Licensing likewise permits the two players to hold control over certain features of the deal, including selectiveness and how a product or service is marketed. Fundamentally, the contract spreads out the expectations of what is required of the two players.

How Do I Create a Licensing Agreement?

The best method for making a licensing agreement is through a lawyer. By getting professional assistance, you spread out the legitimate foundation for a relationship with the other party. On the off chance that you don't do as such, you free yourself up to a ton of financial and legal obstacles.

The amount Is a Licensing Agreement?

The cost to draw up a licensing agreement can cost anyplace from two or three hundred to a couple thousand dollars. Going through a lawyer means you'll need to pay an hourly fee. A simple contract may just be a couple of hours, while a more strong deal between parties means more subtleties and modifications.

The Bottom Line

To utilize another person's property — particularly intellectual property — you'll need to ask that party to go into a licensing agreement with you. You'll most likely need to go through a lawyer to guarantee that your interests and those of the property holder are shielded. You might need to spend a money to get the agreement drawn up, however thusly, your financial assets and business will be in capable hands and you're ensuring that the relationship with the licensor will be smooth.

Features

• A licensing agreement permits one party (the licensee) to utilize or potentially earn revenue from the property of the owner (the licensor).
• Licensing agreements create revenues, called sovereignties, earned by a company for permitting its copyrighted or patented material to be utilized by another company.
• A few instances of things that might be licensed incorporate melodies, sports team logos, intellectual property, software, and technology.
• Licensing agreements permit parties to control property and enter new markets without spending the money to do as such.
• Drawbacks of these deals incorporate laying out a relationship with some unacceptable company and the possibility of losing a company's reputation.